Introduction

Every year, I update and re-release a guide on how to save on personal income tax. This started some years ago, when I tried to figure out how I could reduce my tax liabilities and found, to my frustration, that the information was scattered all over the place.

I set out in this guide 6 specific steps that you can take, including calculations as to the amount of tax you can potentially save. Each of these steps stack with one another, for more tax savings.

All calculations in this guide are on the assumptions that:

(a) you are Singaporean / PR - if you are not, your contributions limits for some of these schemes may differ, and some of these schemes may not be open to you; and

(b) you earn $160,000 per year¹ - if you earn more, following this guide will save you even more tax.

The steps

I. Open a Supplementary Retirement Scheme (SRS) account and transfer in $15,300.²

Tax saved: $2,295 (15% of $15,300).³

Downside: the money is stuck in your SRS account.

But don't just let it sit there. Invest it in something long-term. Why? Because you can start to withdraw it penalty-free from the age of 63 (the present retirement age). You pay taxes on 50% of the amount you withdraw, but if you are retired with no chargeable income, you pay less or no taxes on the withdrawn amount.⁴

I cannot emphasis enough the importance of actually investing the funds in your SRS account. The interest rates for SRS accounts are negligible (0.05% per annum). But the idea is to channel the money your SRS account into long-term investments⁵ that you do not intend to cash out until retirement. Even if the investment returns are only middling, remember that you are saving 15% in taxes.

That being said, SRS contributions may not be for everyone, especially for those who do not pay significant amounts of personal income tax. Jun Yuan Yong of The Business Times explains in an article from February 2024 [https://www.businesstimes.com.sg/opinion-features/srs-contributions-are-great-tax-savings-may-not-be-everyone]. His article also includes suggestions on what SRS funds can be invested in.

Finally, some of you may not be convinced of the benefits of SRS contributions. That's perfectly fine. But even if you fall into this category, can I implore you to open an SRS account anyway, then transfer $1 in. That's because the earliest date from which you can start to make penalty-free withdrawals is pegged to the retirement age at the time when you make your first SRS contribution (and not when you first open an SRS account). What this means is if you had made / make your first SRS contribution:

(a) before 1 July 2022, then you would be able to start making penalty-free withdrawals from the age of 62 (the retirement age at that time, before it was increased to 63 on 1 July 2022);⁶

(b) between 1 July 2022 and 30 June 2026, then you would be able to start making penalty-free withdrawals from the age of 63 (the current retirement age);

(c) between 1 July 2026 and around 2030, then you would be able to start making penalty-free withdrawals from the age of 64 (the retirement age from 1 July 2026 onwards); or

(d) around 2030,⁷ then you would be able to start making penalty-free withdrawals from the age of 65 (the retirement age from 2030 onwards).

Now, I don't know about you, but I change my mind all the time.⁸ You may not see the point of SRS contributions now. You may never see the point. But on the off-chance that one day, you do decide to start making SRS contributions, wouldn't you appreciate having the option to starting penalty-free withdrawals at the age of 63 - as opposed to 64, 65, or even older - and potentially bring forward the start of your (semi-)retirement? And you unlock this option for the low, low, price of $1.⁹ If you ask me, making a $1 SRS contribution now is a no-brainer.

II. Transfer $8,000 to your CPF Special Account (SA).¹⁰

Tax saved: $1,200 (15% of $8,000).¹¹

Downside: the money is stuck in your SA.

But you'll get 4.14% interest per annum.¹² And the money in your SA will be transferred to your Retirement Account when you hit 55, and will go towards funding your CPF payouts from the age of 65. The more you have in your SA, the more you'll have in your Retirement Account, and the more your monthly CPF payouts.

Now, the common response I get is, "but won't my money be stuck with CPF forever?"

I get it. I know that many folks are adverse to voluntary CPF top-ups. I myself used to think that there was no point in making voluntary CPF top-ups. I saw it as a black hole that I would never be able to recover funds from.

However, my perspective shifted after I had kids. And that's because you can nominate your children, or anyone else for that matter, to receive your CPF savings when you pass on. This means, for example, that you can plan to leave less cash to your descendants, in the knowledge that they will be able to receive cash from your CPF nomination. More on how it works here: https://medium.com/@khelvinxu/if-i-voluntarily-top-up-my-cpf-wont-my-money-be-stuck-in-there-forever-bb6e790d2d74. More on CPF nomination here: https://khelvinxu.medium.com/cpf-nomination-a-quick-primer-512d05009b5a.

So, in real terms, suppose I religiously top up my CPF throughout the course of my working life. When I pass on, let's say I have $100,000 left in my CPF accounts (after deducting the amounts I had collected via the monthly CPF payouts). My nominee(s) will get $100,000 in cash - it doesn't go to their CPF account(s). In other words, the unused CPF top-ups don't go to waste, or even into the Government's coffers - someone of my choice benefits from them.

And even if you don't plan to have kids, you may well have younger sibling(s), niece(s), nephew(s), friend(s), or even a favoured charity. If you would like to leave something to any of them when you pass on, consider this seriously.

Note that in some previous versions of this guide, I suggested that:

(a) if your Ordinary Account (OA) + SA exceeds the "Full Retirement Sum", you can withdraw the difference;

(b) if you are confident that you will eventually be able to exceed the Full Retirement Sum, then you will eventually be able to collect the excess, in the form of cold, hard, tax-free cash; and

(c) this is therefore a further incentive to top up your SA via this scheme.

However, CPF has clarified that top-ups under this scheme cannot be withdrawn.¹³ As such, that logic does not apply.

Also, a final caveat: this option will not be open to you if your SA already contains a sum that is equivalent to the current Full Retirement Sum (which is $205,800 as of 2024). If you have been making regular CPF contributions, or have been transferring CPF funds from your OA to your SA,¹⁴ it is very possible to hit the Full Retirement Sum in your 40s or even earlier.¹⁵

III. Transfer $8,000 to your parent's / spouse's SA / Retirement Account.¹⁶

Tax saved: $1,200 (15% of $8,000).¹⁷

Downside: you're giving the money away to someone else, and it goes to their CPF account (as opposed to being cash that they can spend). This isn't for everyone. Please have a serious discussion with the recipient beforehand.

If you intend to make a transfer to your spouse, you only get tax relief if your spouse is earning $8,000 or less for the year.¹⁸ So if you're in a dual-income household, you probably can't save on taxes by making a transfer to your spouse.

IV. Make a voluntary CPF top-up.¹⁹

This is tricky and will depend on whether you are an employee or self-employed.

If you're an employee, the maximum of $37,740 is already going into your CPF account every year, since your income of $160,000 exceeds the CPF annual salary ceiling.²⁰ So don't bother with the rest of this section.

If you're self-employed (e.g. business owners, sole proprietors, law firm partners / consultants, real estate agents, financial advisors), you have compulsory MediSave contributions of $6,588 (if your age is between 35 and 44, inclusive). So you can theoretically top up a further $31,152 ($37,740 less $6,588). But don't get too excited yet. You would not save $4,689 in taxes, because with the deductions of $15,300 + $8,000 + $8,000 = $31,300 at Sections I - III above, if you top up so much, you're going to get bumped down into the preceding tax bracket of 11.5%.

Further, if you think you are going to need liquid funds in the near future, you may want to limit your voluntary CPF top-up amount. Once the funds are transferred to your CPF account, they're locked up (but see Section II above for a discussion on what this really means).

However, voluntary CPF top-ups are still worth considering as a tax saving tool if:

(a) you agree with the point I made at Section II above - that CPF contributions are not wasted;

(b) you are fortunate enough to be earning, say, $231,300 or more per year. If you think that you should be saving at least 20% of your income, then the maximum of $37,740 which you can voluntarily contribute to your CPF accounts comes up to 16.31% - well under 20% - and making this maximum voluntary CPF contribution will save you $6,793.20 or more in taxes (18% of $37,740);²¹ and/or

(c) you are able and intend to use part of your CPF contributions towards a property purchase. The portion of your CPF contribution that goes into your Ordinary Account can be used towards your down payment, monthly mortgage, or both. For folks aged 36 - 45 who contribute the maximum of $37,740 to their CPF accounts, CPF will automatically allocate $21,425 into your OA,²² some or all which can then be (immediately) withdrawn to pay for property. Assuming you are able to withdraw the entirety of your OA towards your property purchase,²³ only $16,315 (out of the CPF contribution of $37,740) ends up being locked up in your OA and MediSave Account.

Finally, as to timing, doing voluntary CPF top-ups at the beginning of the year allows you to maximise your interest returns (calculated based on the CPF interest rate). If you have yet to make any CPF contributions this year, consider making a contribution by December 2024 (for tax deductions for YA 2024) and in January 2025 (for tax deductions for YA 2025). Some people spend their year-end bonuses on timepieces or art. I personally try to keep a chunk to do a big top-up in January. To paraphrase one of my friends, financial prudence is very sexy.

V. Claim Parent Relief as one of your tax reliefs.²⁴

This section is new to the 2024 edition of this guide.

Tax saved: $825 to $4,200 (15% of $5,500 to $28,000).²⁵

Downside: none, assuming that you would have supported your parent(s) anyway regardless of whether it entitles you to any tax relief.

Unlike the other steps in this guide, this step requires you to actively add a tax relief item when you file your Income Tax Return. It also requires you to coordinate with your sibling(s) (if you have any) on how this tax relief should be shared.

Please don't sleep on this. It was only when preparing this year's guide that I realised that I might have overlooked this for my last tax filing. This was especially galling considering that Ernest See had already highlighted this scheme in a comment, long before the tax filing season.²⁶ If you're concerned about missing out on this, set a calendar reminder for every May, since the personal income tax filing deadline every year is 15 April (for paper filing) or 18 April (for e-filing).

VI. Donate to Institution(s) of A Public Character (IPCs).²⁷

Donating to an IPC allows you to claim 250% tax deductions. For example, if you donate $5,000 to Methodist Welfare Services or Pro Bono SG, you can claim $12,500 in tax relief.

Further, donations to some charities can be matched dollar-to-dollar under the Tote Board's Enhanced Fund Raising Programme.²⁸ So if you make a $5,000 donation (for example), the charity ends up receiving $10,000. Talk about bang for buck.

Note however that it is not possible to donate X and save Y in taxes, where Y is more than or equal to X. Suppose your chargeable income is $1,112,500, which means that you pay the maximum of 24% tax on your chargeable income exceeding $1 million. Consider 2 scenarios:

(a) you donate $5,000. You pay taxes of $24,000 on your chargeable income exceeding $1 million [($112,500 - 12,500) x 24%], so your actual outlay is $29,000 ($5000 plus $24,000);

(b) you do not donate $5,000. You pay taxes of $27,000 on your chargeable income exceeding $1 million ($112,500 x 24%), which is less than the outlay of $29,000 if you had made a donation.

So don't do this if your only goal is to maximise the dollars left in your pocket after you have finished paying your taxes. But consider this if:

(a) you intend to make a charitable donation anyway, but have not yet decided where to channel your donation towards - if so, and you are able to identify an IPC that supports what you consider to be a worthy cause, you might as well enjoy some tax savings; or

(b) you would like a bit more control over the causes which your funds go towards, as opposed to leaving it entirely to the Government to decide where to spend your tax dollars.

Tax deductions under this section are not subject to, and do not add to, the personal income tax relief cap of $80,000.²⁹

Conclusion

Thank you for your contribution to nation building.

Edit: P.S. this is not legal advice, for general information only, all views my own, etc etc, you know the drill.