As the saying goes, there are 2 things in the whole that’s inevitable. Death and taxes.
Around this time of the year, Aunty Scroogey gets very busy with tax planning. Sometime in March 2011, we would all be doing our tax filing for YA2011. Note that YA2011 is for income earned in 2010. At times, you will hear news about people getting heavy penalties for tax evasion. Aunty Scroogey wonders why they need to evade tax when there are 101 ways to minimise your tax payments LEGALLY.
So what are the tax planning tools that AS uses? For today, I will discuss about 2 of them.
1) CPF cash top-up
(A) If within 2010, you or your employer make a cash top-up to your CPF account, this top up amount qualifies for tax deduction when you are filling returns for YA2011. For example, if you top-up $3,000 in cash, this will shave off $3,000 from your taxable income. The top-up money will go to your Special Account, which earns interest at a rate of 4% p.a. – not bad as a risk free investment and if you were to ask yourself which bank in Singapore will pay you that kind of rate for term deposit. However, the top-up amount is capped at $7,000, which means that even if you make a top-up of $10,000, your tax deduction still stands at $7,000.
(B) Separately, you also qualify for tax deductions if you were to make a cash top-up to the CPF accounts of your family members such as siblings, spouse, parents or grandparents. To qualify for tax relief for cash top-ups for siblings/spouse, the sibling/spouse must have either (i) earned $4,000 or less or (ii) is handicapped.
So, a combination of (A) and (B) above would have helped to shave a total of $14,000 off taxable income, if conditions are met. For details, please refer to the CPF website (www.cpf.gov.sg). In order to effect the top-up, download the relevant form from the CPF website, fill it up and send it in together with your cheque. It’s that simple!
2) Tax deductible donations
The second method is more straightforward and there is no cap. It was announced in Budget 2009 that for all donations which presently qualify for double tax deductions, made in the calendar year 2009, would temporarily qualify for 2.5 times tax deduction. For eg, if you donate $100, then $250 is shaved off from your taxable income that year.
To encourage greater charitable giving in Singapore as the economy recovers, the MInister for Finance has announced in Budget 2010, to extend the tax deduction of 2.5 times for another year for donations made during the period from 1 Jan 2010 to 31 Dec 2010. As to whether it will be further extended, we will need to keep a lookout during Budget 2011, or check the IRAS website from time to time (www.iras.gov.sg). Also, to check specifically what type of cash donations qualify for the tax deduction, check the taxman’s website as well!