The 15th of April is a date marked on most Singaporeans’ calendars as the deadline for filing personal income tax returns. But while most of us can understand the basic principle that the more we earn the more we pay in taxes, there is more to personal tax planning than that. The key is to plan ahead, because our taxation system calculates the preceding year’s income as the basis of taxation for the year of assessment.

Helping hands
A Singaporean or Permanent Resident (PR) who tops up with cash either their parents’ or grandparents’ retirement account under the CPF Minimum Sum Scheme is entitled to the equivalent tax relief, up to a maximum of S$6,000 a year currently. That maximum amount will be raised to S$7,000 with effect from the year of assessment 2005.

Recipients must be aged 55 years or above and they must have less than the minimum sum at age 55 in their ‘Re-gross Balance’ (the balance in both their Ordinary and Special Accounts, including the amounts used for housing and investment, though not including Medisave).

Those with parents who are either self-employed or have been a homemaker all their lives will most likely qualify for this CPF cash top-up scheme, but note that topping up can only be done once per calendar year and is irrevocable. This sort of tax relief also extends to a person who places cash top-ups into the CPF Retirement Account of their non-working spouse.

The Supplementary Retirement Scheme (SRS)

The SRS is a voluntary scheme meant to complement the Central Provident Fund by encouraging working individuals to save for retirement, as their CPF savings are often insufficient.

Singaporeans, Permanent Residents and foreigners can all voluntarily contribute a varying amount, subject to a yearly contribution cap. Contributions made by residents to the scheme are tax deductible in the following year, so any contributions made in 2004 will be tax deductible in the year of assessment 2005. Each dollar of SRS contributions will reduce income chargeable to tax by a dollar, and SRS savings, which include investment returns, will be taxed only upon withdrawal. Accumulated investment returns (with the exception of Singapore dividends) will be tax-free until then.

The amount you can contribute is calculated based on your earned income in the preceding year, with SRS contributions capped at 15% for Singaporeans and PRs, and 35% for foreigners. It is at your discretion how many times you contribute to the SRS, provided you don’t exceed the cap, but penalty-free withdrawals can only be made from the statutory retirement age prevailing when you made your first contribution (currently at age 62).

So, think carefully. To keep your tax liabilities to a minimum it is a good idea to draft a tax computation on your own, examining different scenarios before you file your final tax returns.

THIS ARTICLE IS REPRODUCED COURTESY OF SMART INVESTOR MAGAZINE