Tax planning helps reduce your personal tax bill
Last updated on 5 April 2023
Personal tax season is upon us. For most taxpayers, the deadline for filing their individual income tax returns is 18 April 2023. For some, it will be straightforward as their employers are enrolled in the Auto-Inclusion Scheme (AIS). For others, some tax planning will be beneficial to reduce their tax bill.
Tax planning involves maximising the various deductions, reliefs and exemptions allowable under the law. Some considerations for tax planning include the timing of realising one’s income, deductions for allowable expenses such as education, and tax reliefs.
Dividends vs personal income
Business owners and directors of private limited companies can declare their income through their business or as personal income. For example, owners of newly-incorporated private limited companies enjoy 75% tax exemption for the first S$100,000 of the company’s profit in the first 3 consecutive years from incorporation. Thus, being paid dividends on the first S$75,000 of profits will realise tax savings equal to the tax rate for personal income of the same quantum. Furthermore, under Singapore’s one-tier corporate tax system, dividends income paid to company shareholders are not taxable.
Director fees vs employment income
Company directors can be paid either as an employee or in directors’ fees, depending on their terms of employment. Both have tax and CPF contributions implications. Typically, employees are allowed to deduct CPF contributions from their assessable income. On the other hand, full or partial payment of directors’ fees (which generally do not incur CPF contributions) can be deferred to a later date to maximise the allowable deductions or avoid moving into a higher tax bracket.
Maximising tax deductions
For salaried employees, you can maximise your deductions via the following schemes.
- Employment expenses such as entertainment incurred in entertaining clients, subscriptions paid to professional bodies and travelling expenses on public transport, such as buses and trains.
- Course fees leading to approved academic, professional or vocational qualifications or for courses completed which are relevant to your new employment, trade, business, profession or vocation.
- CPF Cash Top-up Relief is available to Singaporeans and permanent residents for up to S$16,000 (S$8,000 for self and S$8,000 for family members) to own or family members’ Special/Retirement Account.
- Supplementary Retirement Scheme (SRS) Relief is available to all Singapore tax residents for the actual amount of SRS contribution you and/or your employer made in the preceding year (up to a maximum of S$15,300).
It may seem that tax planning is complicated, especially with ever-changing tax rules. However, you can reduce your tax burden with some education and knowledge. You may also engage companies for personal income tax services to help you navigate your way through tax planning. In addition, companies that provide HR and payroll services also tend to be able to advise you in this area.