How married couples with kids can lower their tax bills in Singapore

It's that time of the year again for about 55% of Singaporeans.  No, I don't mean rushing down to the IT Show this weekend to buy the 5th LED TV for their homes (to put in the toilet perhaps?) or a camera with lots of useless freebies (coincidentally, read this post if you're buying one).  Believe it or not, I was reminded of my duty obligation through SMS today.  I am talking of course, about filing my personal income tax return.

Tax.  Some things in life are certain.

For the single Singaporean, there is not much to think about other than whether they have set aside enough money to 'contribute to nation building'.  Tax reliefs and rebates are pretty much computed automatically by the system when you e-file.  But for married couples with kids, there are careful decisions to be made, which will directly affect how much they pay jointly as a couple.  I will explain in just two simple steps and illustrate how a dual income young family can pay less tax, legally!

Aiden at 4 months.

Step One - Determine your taxable income, net of deductions/reliefs you can't share:

The first step is to calculate how much taxable income (generally from employment) you both have, net of deductions and reliefs that you can't share with your spouse.  Other than the reliefs available to everybody, women would be entitled to reliefs such as the Foreign Maid Levy relief, Working Mother's Child Relief (15% of earned income for first child) and the NSman wife relief ($750).  Men would be entitled to reliefs such as the NSman relief (generally $3,000).  When you're done, let's call this the 'Net Income'.  Because mothers get a lot more reliefs compared to fathers, you might find the Net Incomes looking very different from your original employment incomes.  You will need to know what the net positions are before allocating the shared reliefs and rebates in Step Two.

Step Two - Give the QCR to the one with higher Net Income, generally:

Keep in mind how much Qualifying Child Relief (QCR) you can share between the two of you (at $4,000 per child).  Apportion the QCR to obtain the maximum actual tax value between the two of you.  You will need to refer to the tax rate chart below.

Source: www.iras.gov.sg

With our progressive tax rates, this is done by generally giving all the relief to the one with higher Net Income (see Illustration A).  However, you might need to share the QCR if the both of you are in the same tax bracket and the Net Incomes are just above a hurdle (see Illustration B).  Illustration C is there simply to show that if you're filthy rich, this post is useless to you, but I do thank you for the amount of tax that you pay.

Illustration A:
		Actual tax payable
	Net Income	A gets QCR	B gets QCR	QCR is shared equally
Taxpayer A	30,000	84	140	112
Taxpayer B	100,000	4,150	3,690	3,920
Total	130,000	4,234	3,830	4,032
Illustration B:
		Actual tax payable
	Net Income	A gets QCR	B gets QCR	QCR is shared equally
Taxpayer A	82,000	2,247	2,506	2,345
Taxpayer B	82,000	2,506	2,247	2,345
Total	164,000	4,753	4,753	4,690
Illustration C:
		Actual tax payable
	Net Income	A gets QCR	B gets QCR	QCR is shared equally
Taxpayer A	350,000	46,050	46,850	46,450
Taxpayer B	350,000	46,850	46,050	46,450
Total	700,000	92,900	92,900	92,900
Note: QCR is assumed to be $4,000.

 Things to note:

• Be aware that there is a combined cap of $50,000 for the Working Mother's Child Relief + QCR.  Don't breach it no matter what!

• Be aware that QCR reduces the Net Income but also reduces your actual Personal Tax Rebate (PTR) (30% for YA 2013, capped at $1,500).  Good news if you still have more than $94,348 after deducting the QCR - you get the full benefit of QCR!  That's because $94,348 is the amount where you get the max rebate of $1,500. 

• On the website, IRAS actually encourages you to make a claim for Parenthood Tax Rebate ($5,000 for first child) for convenience as soon as you are entitled to it, even if you have no tax to pay.  Don't do that!  That is because the split of the rebate between spouses will be fixed for future years.  It's better to know exactly how much tax you have to pay before determining the split of the rebate!  Otherwise, one might end up using the rebate over many years while his/her spouse has to pay tax every year.

That's all you need to know, really.  So go do your part as a taxpayer, but don't pay more than you should!