6 Changes Announced in Budget 2011 that Will Save You Tax

March 24, 2011

in Saving money,Taxes

As the tax filing deadline is coming around (April 18 2011), we have recapped the main changes for individual taxpayers announced by the Government during the Budget Statement for the Financial Year 2011. The announced changes will benefit most taxpayers, putting more money into your pocket over the next two years.

1. One-off Personal Income Tax Rebate for Resident Individual Taxpayers

All resident individual taxpayers will be given a one-off personal income tax rebate of 20%, capped at $2,000 per taxpayer, for the tax  payable for Year of Assessment (YA) 2011.  Those with chargeable income of less than $120,000 will receive the greatest benefit from this cap (on a proportional basis). You do not have to apply for this tax rebate as the Inland Revenue Authority of Singapore (IRAS) will automatically include it when computing your tax bill for YA 2011, and will show the amount of rebate on your tax bill. This rebate is expected to cost the Government $580 million.

2. Changes to Personal Income Tax Rate Structure for Resident Individual Taxpayers

The personal income tax rate schedule has been changed to make it more progressive, meaning that lower income earners will pay lower rates and higher income earners pay higher rates. Marginal tax rates will be reduced for the first $120,000 of chargeable income. These new tax rates will take effect from YA2012.

Under this new tax structure, all taxpayers will pay less personal income tax, but the middle class will enjoy the largest percentage reduction in their taxes. For example, an individual with chargeable income of $40,000 per year will pay $550 in taxes under the new schedule, a tax savings of $350 or 39% versus the old one. An upper-middle income earner having a chargeable income of $120,000 per year will pay $7,950 of taxes under the new schedule, saving $1,950 or 20% versus the old one. Whereas a high income earner making more than $330,000 per year will save less than $350 or 0.8% in taxes.

3. Tax Deduction of 2.5 times the Amount of Donation

The tax deduction of 2.5 times the amount of donation will be extended for another five years for donations made from 1 Jan 2011 to 31 Dec 2015. All existing criteria to qualify for tax deduction remain unchanged. This is to encourage Singaporeans to donate more to charity, and help them do well by doing good!

4. Supplementary Retirement Scheme (SRS) – Increase in contribution cap

With effect from 1 Jan 2011, the annual SRS contribution cap will be increased to $12,750 for Singaporeans and Singapore Permanent Residents and to $29,750 for foreigners. The SRS is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings. To incentivize this, the SRS offers attractive tax benefits – contributions to the SRS are eligible for tax relief and investment returns will also be tax-free before withdrawal. Furthermore, upon withdrawal at retirement, only 50% of the withdrawn amount is taxable.

5. Higher Central Provident Fund (CPF) Employer’s Contribution Rate and Salary Ceiling

With effect from 1 Sep 2011, the employer’s compulsory CPF contribution rate will be increased by 0.5% to 16%, bringing the total CPF contribution rate to 36%. The additional 0.5% will go into the Special Account. Also, the current CPF monthly salary ceiling of $4,500 will be increased to $5,000. The net effect of these changes is that you will have more tax free savings stashed in your retirement account.

6. Tax benefits for third party contributors of the Voluntary Cash Contributions to Medisave Account

The voluntary cash contributions by companies (e.g. taxi companies) to the Medisave accounts of self-employed persons (e.g. taxi drivers) on or after 1 Jan 2011 will be exempt from tax in the hands of the self-employed persons. This is good news for those who are self-employed and do not have the protection of a corporate insurance scheme.

Finally, don’t forget to file your taxes!

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{ 1 comment… read it below or add one }

kkson April 3, 2012 at 11:26 pm

Interesting

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