7 tax deductions I use to reduce my personal income tax

It’s that time of the year again when you receive a letter or SMS from the Inland Revenue Authority of Singapore (IRAS) to file an Income Tax Return for income earned in 2014. If you only have auto-included income and their relief claims are the same as the previous year, IRAS may waive the requirement for you to file an Income Tax Return. In my case, I receive my letter from IRAS every year without fail.

But this year, I don’t expect to pay any personal income tax as I left my job and have been on a sabbatical for 6 months. That said, I would still like to share with you the tax deductions (reliefs, rebates and donations) that I would make every year.

CPF relief for employees

As a working employee, I contribute 20% of my salary to CPF every month. This CPF contribution is entitled to CPF relief for employees to encourage individuals to save for their retirement. This relief is automatically calculated and granted by IRAS so there isn’t any need to do anything except to tally the figure with my CPF account.

Earned Income relief

To encourage Singaporeans to work, individuals who are gainfully employed or carrying on a (trade, business, profession or vocation) is entitled to an Earned Income relief. As I am below 55, I’m entitled to a mere $1,000 Earned Income relief. But if you refer to the table below, you will see that the Earned Income relief for employees age 55 and above is quite high as the government wants to encourage Singaporeans to stay employed in their silver years.

Your age as at 31 Dec of the previous year	Year of Assessment 2012 and before	Year of Assessment 2013 onwards
Below 55	$1,000	$1,000
Above 55 to 59	$3,000	$6,000
60 and above	$4,000	$8,000

NSman relief

Like all Singaporeans, I serve my National Service and continue my 10-year Operationally Ready National Service cycle. Each year, I would receive a NSman relief of $1,500-$3,000 depending on whether I was called up for reservist that year. Again, this relief is automatically calculated by IRAS based on Mindef records so I don’t need to do anything about it.

Parent relief

To promote filial piety and provide recognition to individuals supporting their parents/handicapped parents in Singapore, individuals can claim for Parent relief for taking care of their parents. As my mother stays with me and I support her, I would claim $9,000 in Parent relief each year.

Contribute to my Supplementary Retirement Scheme (SRS) account

I did some calculations last year and found that my total taxable income would still exceed the $20,000 tax-free income bracket so I decided to make the maximum contribution of $12,750 to my SRS account this year to balance everything up. There are pros and cons to this. In exchange for paying personal income tax, I am locking up $12,750 until I reach the penalty-free SRS withdrawal age of 62.

On the flip side, I am treating it as forced-savings and using the Blue Chip Investment Plan offered by OCBC to make dollar cost averaging investment into the Nikko AM STI ETF each month until the every dollar is used up.

I don’t make contributions to my SRS account every year. Instead, I would make calculations and strategically contribute to my SRS account when necessary.

Making Cash Top-ups under the CPF Minimum Sum Topping-Up Scheme

I have not made use of this scheme for tax deductions in the past but I have plans to do so this year. This year onwards, I intend to top up my mother’s Retirement Account each month in small amounts each month as she has already passed the statutory retirement age and would have direct access to her Retirement Account. The top up will not exceed $7,000 as that’s the maximum limit to claim for relief.

Donations made to Charity

In Singapore, you can enjoy tax deductions for donations made to any approved Institution of a Public Character (IPC) or the Singapore Government that benefit the local community. In fact, all of the tax deductions mentioned above are dollar-for-dollar but when you donate to charity, you qualify for 2.5 times the amount in tax deductions. In 2015, tax deductions for donations will be increased to 3 times the amount donated in conjunction with SG50.

The charity organization that I support is the Make-A-Wish Foundation Singapore, an organization that grants wishes to children between 3 to 18 years old with life-threatening illnesses. A very meaningful organization that I am proud to be supporting financially.

These 7 tax deductions listed above are just some of the tax deductions available to Singaporeans and PRs. I strongly encourage that you visit the IRAS website to find out more about the tax deductions that applies to you.