Tuesday, December 20, 2011

It's not too late to reduce your taxes

ECONOMIC uncertainty and market turmoil may be making a lot of people nervous, but there's one thing that's still within our control: income taxes.

Don't take an approach to your taxes akin to a rudderless ship sailing uncontrollably into troubled waters.

As 2011 draws to a close, consider the following tax tips that are still available to you by Dec 31, 2011 to reduce your tax bill for the Year of Assessment 2012, which covers income earned in 2011.

These tax tips are general in nature.

You should review your own situation with a qualified tax adviser to see if it applies to you.

Claim applicable reliefs

Some types of tax relief are automatically granted and will appear in your tax return. Examples include earned income relief, NSman relief, topping up of your Central Provident Fund (CPF) account and contributions made to the Supplementary Retirement Scheme (SRS). You need not put in a claim for these when you file your tax return.

However, there are other tax reliefs which the Inland Revenue Authority of Singapore (IRAS) will grant only if claimed for each year. You should consider if you qualify and make a claim if you do.

For instance, if you are a Singapore resident these would include spouse relief, child relief, parent relief and foreign maid levy relief for working women.

Both male and female taxpayers can claim for spouse relief if they are married, and if their wife or husband does not have annual income exceeding $4,000 in a year.

In addition, if you undertook educational courses, you can also claim a tax relief for fees incurred of up to $5,500 per year. Other reliefs to claim include the CPF top-up, CPF contributions for the self-employed, and contributions to the SRS.

Consider participating in the SRS if you have not done so. SRS is a voluntary retirement savings scheme and all you need to do is open an account with any one of the three SRS operators (DBS, OCBC and UOB) and make a contribution by Dec 31, 2011.

A cash contribution to your SRS account can help you enjoy a tax relief for the year in which you or your employer makes. However, take note that this is currently capped at $12,750 for Singaporeans and permanent residents, and $29,750 for foreigners.

Donation to approved charities

You can also claim tax deduction for cash donations made to an approved Institution of Public Character (IPC) or a Qualifying Grant-making Philanthropic Organisation. Besides cash, donations to IPCs can be in the form of Singapore-listed shares, unit trusts that are ready to trade in Singapore, as well as land and buildings.

The tax deduction for the Year of Assessment 2012 will be equal to 2.5 times the amount of donations made by Dec 31, 2011. If the tax deduction for the donation is more than the donor's income for the year, the donor is allowed to carry forward the un-utilised deductions for a maximum of five years.

From Jan 1, 2011, all IPCs are required to use the e-Submission of Donation to transmit tax-deductible donation information to IRAS. Individual donors therefore no longer need to claim for a tax deduction when they file their income tax returns as it will be granted automatically.

Donors are required to provide their Tax Reference Numbers (NRIC No/FIN) to IPCs for their transmission of this information to the tax authority. The IRAS no longer accepts claims for this tax deduction based on donation receipts.

Rental income from property

Owners of rental property should note that while the rental income is taxable, rental expenses to offset the rental income can be claimed.

There are different types of allowable deductible rental expenses. Some common examples include mortgage interest on the loan borrowed to purchase the property. Others include property tax, maintenance fees paid to the Management Corporation, fire insurance and general repairs or maintenance such as painting and pest control services.

For your first property you are renting out for the first time, certain expenses incurred to secure the first tenant are not allowable. Examples include any commission paid to the property agent as well as advertising and legal costs. Expenses incurred for securing subsequent tenants are deductible.

For any subsequent properties that you rent out, your property agent's commission, advertising and legal expenses are deductible against the rental income from these properties. This is even if incurred for securing the first tenant of the subsequent property. The cost incurred to renew a lease or secure the subsequent tenant is also deductible.

If you own several rental properties, rental losses from one property can be used to offset the income from another property.

Where the final amount from all the rental properties is a loss, you cannot offset the loss against income from other sources. You may, however transfer the loss to your spouse if he or she has positive rental income to absorb the loss.

Not Ordinarily Resident Scheme

If you are a non-resident of Singapore for three consecutive years before the year you become a Singapore resident, you can apply for the Not Ordinarily Resident (NOR) status for a five-year period commencing with the first year of residency.

What an NOR status means is that if you spend at least 90 days outside Singapore for business and your employment income is at least $160,000, you can apply for the concession of time-apportionment of employment income.

This means that you would not be taxed on the portion of employment income corresponding to the number of business days spent outside Singapore, subject to a minimum floor tax rate of 10 per cent. This tax rate is therefore the minimum you should expect.

If you qualify as an NOR taxpayer and meet this criteria, you should review your travel schedule to determine if you can apply for this time-apportionment concession.

Tax deduction for angel investors

You may also wish to consider the Angel Investors Tax Deduction Scheme, introduced in 2010, if applicable. This incentive applies to approved angel investors committing at least $100,000 in qualifying investment to a qualifying start-up in a given year.

The scheme was introduced to encourage eligible individuals to invest in start-up companies by providing them a tax relief for their efforts at providing management expertise, building business networks and so on. Investments have to be made during the period from March 1, 2010 to March 31, 2015 (both dates inclusive).

Approved investors can enjoy a tax deduction at the end of a two-year holding period equal to 50 per cent of their investment. The tax deduction will be subject to a cap of $500,000 of investments in each Year of Assessment.

To become an approved investor, you have to apply to Spring Singapore, which can also provide interested investors with more details about the scheme and its qualifying conditions.

Effective at tax planning requires that you stay abreast of any changes to the tax laws and regulations which may affect you. Alternatively, speak to a tax adviser to determine whether there are any changes or tax deductions besides those discussed which you can capitalise upon.

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