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Why you should consider donating to charity to for tax deductions in 2015

The Singapore government has always been encouraging the spirit of philanthropy and giving and one of the best policies that was implemented was giving tax deductions for donations made to a tax-deductible charity. Since 2009, qualifying donations have been entitled to a 250 per cent tax deduction.

There are a few ways to reduce taxable income in Singapore:

  • Making cash top-ups to CPF Special or Retirement acccounts
  • Contributing to Supplementary Retirement Scheme (SRS) account

But there are reasons why it might be more enticing to consider making donations to registered charity organisations instead.

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The bang-for-buck tax deduction option

As the tax deductions for making cash top-ups to CPF and contributions to SRS accounts are dollar-for dollar, one has to use $10,000 to receive a tax deduction of the equivalent amount. By donating $4,000 to a registered charity organisation, one can achieve the same tax deduction.

Retain liquidity and avoid locking up cash

The disadvantage of making cash top-ups to CPF and contributions to SRS accounts is that one would have to lock up cold hard cash in accounts that they can retrieve at the age of 65 and 62 respectively. Young investors may not like that. By using the same reference above, young investors can keep the spare cash of $6,000 by donating only $4,000 to a registered charity organisation. That spare cash could be put into investment vehicles that are not restricted to CPF and SRS regulations.

In this year’s Budget speech, Finance Minister Tharman Shanmugaratnam announced that the current 250 percent tax deduction will be increased to 300 percent for donations this year. The tax incentive is also being extended until the end of 2018.

This means that for every S$1 donated to a registered charity organisation, S$3 will be deducted from the donor’s taxable income for this year. Gifts-in-kind, such as shares, computers, land, buildings and works of art, will also qualify for tax deductions.

While I did not make a lot of donations last year, I definitely will consider making some donations this year for tax deductions.

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