Time flies! We are already nearing the end of the year, whew! This is the final reminder to plan for next year’s tax reliefs. Some reliefs require you to take action before the end of the year. In this article, we will review some popular tax reliefs that require your action before the end of the year. Take a look and see if you want to claim them.
CPF Voluntary Contribution
You are eligible for this tax relief if you are a Singaporean or PR.
You can enjoy dollar-to-dollar tax relief if you make a CPF cash top-up to yourself up to $8,000. In addition to the above, you may be eligible for an additional tax relief of up to $8,000 if you make a cash top-up to your loved one’s CPF.
You may do this voluntary cash top-up to your Medisave (MA) and/or Special Account (SA). Please remember that you can only do cash top-ups if you have yet to reach the Basic Healthcare Sum and/or the Full Retirement Sum.
Top-Up MA or SA First?
This is the classic question everyone asks whenever they want to top-up their CPF for the first time. There is no right or wrong answer here. Both MA and SA enjoy the same interest rates. The difference is just in their purpose. SA can only be used during your retirement. You can’t use it before retirement. In contrast, MA can be used for approved medical-related costs anytime.
We prefer topping up MA first because it allows us to use the funds before retirement. You can use MA to pay for insurance, dental procedures, surgeries, etc. Additionally, MA has a much lower cap, called Basic Healthcare Sum, of $75,500 starting in 2025. Once you hit this cap, any CPF contribution to your MA will automatically flow into your CPF SA account.
SRS Contribution
The Supplementary Retirement Scheme (SRS) is a voluntary savings scheme that complements the CPF and is designed to help with your retirement while also providing tax relief.
You can enjoy an equivalent amount of tax relief if you contribute to your SRS account (up to a maximum contribution limit).
- For Singaporeans and PRs, the maximum SRS contribution amount per year is $15,300.
- For Foreigners, the maximum yearly SRS contribution is $35,700.
The savings provided by contributing to SRS can significantly reduce your taxable income. Sounds good, right? But before you contribute to SRS, please be aware of how SRS works:
- SRS is a tax deferment scheme, where you only need to pay tax when you withdraw from your SRS fund during your retirement. The great thing is that you only need to pay tax on the 50% of your withdrawal amount. For example, if you withdraw $40,000, you will only need to pay tax on the 50% x $40,000 = $20,000. Assuming you don’t have any other source of income, your $20,000 will fall into the lowest tax bracket of 0%, and you don’t need to pay any income tax.
- Withdrawing from your SRS fund before retirement age (currently set to 63 years old) will incur a 5% penalty. You will also be taxed 100% of the withdrawal amount.
- By default, the money in your SRS account only earns 0.05% interest, a very low interest rate. Therefore, you must invest your SRS fund to beat inflation over the long term. Your SRS has various investment options, including bonds, fixed deposits, REITs, stocks, ETFs, insurance, and unit trusts.
So what do you think? Will you be contributing to your SRS account this year? You can try our SRS tax savings calculator to estimate how much in taxes you can save by contributing to your SRS account.
Donations
You may enjoy tax deductions of 250% of the qualifying donation amount when you donate to Community Chest or any approved Institution of a Public Character (IPC). Please refer to the IRAS website to ensure your donation qualifies for tax relief.
Example
Let’s say your annual income is $120,000. Here is a comparison of the taxes you must pay when using tax reliefs and when not:
| Without Tax Reliefs | With Tax Reliefs | |
|---|---|---|
| Annual Income | $120,000 | $120,000 |
| CPF Voluntary Contribution | $0 | ($8,000) |
| SRS Contribution | $0 | ($15,300) |
| Donation | $0 | ($2,500) |
| Other Reliefs | ($15,400) | ($15,400) |
| Taxable Income | $104,600 | $78.800 |
| Tax Payable | $6,179 | $3,266 |
The comparison table above shows you can save $2,913 in taxes using tax reliefs. That is 47% of taxes saved! Pretty good, right?
Remember that you can only claim up to $80,000 of annual personal income tax relief. So, make sure to stay within that limit.
What do you think? Will you be claiming some of these tax reliefs?
