How to Reduce Income Tax (2017 Edition)

Published on October 7, 2017

Here are some great ways to earn tax relief, in order of effectiveness, for 2017, or Year of Assessment 2018 (aka YA 2018).

1. Supplementary Retirement Scheme (SRS)

Contribute up to $15,300 to your SRS account.

I transfer as much cash to SRS, because whatever amount I put into SRS, I will use it for long term investment.

I invest in mutual funds and ETFs using POEMS. Previously, I use Fundsupermart, but they have a killer quarterly fee, though their website and research is much better.

2. Parent’s Retirement Account

Contribute up to $7,000 to parent’s CPF Retirement Account, if the account has a shortfall to FRS.

This requires some explanation.

Full Retirement Sum (FRS) is the amount that our government wants us to set aside in our Special/Retirement Account when we retire. Different age has different FRS.

For example, my father FRS is $94,600, because his 55th birthday is after 1 July 2006. Refer to this retirement sum table.

If his Retirement Account (including any amount withdrew) is less than $94,600, then the tax relief is applicable.

Also, you may contribute to multiple members in your family (including both parents, in-laws, spouse, siblings), but still cap to $7,000 in total.

The pros of contributing to parent is:

  • They will be able to withdraw cash from their retirement account at 65 years old
  • The current interest rate is 5% for the accounts is around 4% (to be accurate)

3. Your Special Account

Similarly, you may contribute up to ANOTHER $7,000 to your OWN CPF Special Account, if the account has a shortfall to FRS.

I am 34, so my FRS is currently assumed to be $166,000, the highest they have in the retirement sum table. FRS will be updated year after year, adjusting for inflation etc.

So if my Special account (including any amount withdrew eg investments) is less than $166,000, then I can enjoy the tax relief.

4. Donation

Donate to good cause, and enjoy 2.5 times the amount as tax relief!

There are many charities you can help. Personally I donate to these:

  1. Children’s Society
  2. Community Chest

There is no cap to the amount of relief from donation, so you could easily drop a tax bracket, and help others along the way!

Other Reliefs

There are many other reliefs and rebates, such as:

  • Attend courses $3,500 relief
  • Voluntary contribution to Medisave Account is applicable if your Medisave account is below $49,800 (Basic Healthcare Sum, aka Medisave Contribution Ceiling)
  • Make babies $5,000-$20,000 rebate per child :)

Just be clear on rebate vs relief: Rebate is absolute deduction from the tax amount you need to pay, so is equivalent to one-time cash. Relief is deduction from the chargeable income.

Beware: Tax Relief Cap

From YA 2018 onwards, a tax Relief cap of $80,000 is introduced.

So make sure these tips and tricks don’t contribute beyond $80,000.

Lastly, consider your cash flow

All of the reliefs involve spending cash, and turning these cash non-liquidable.

Cash itself can generate returns too, if put into investment, yet still liquidable. My benchmark is 3% annual return, investing in low risk fixed income funds.

This is an update to 2016 edition.