In Budget 2016, it was announced that personal income tax reliefs would be limited to just $80,000. This will take effect from year of assessment 2018 and is expected to raise an additional $100 million a year in revenue for the Government.
It is a progressive tax meant to ensure that those who earn more will pay higher taxes, but working mothers who earn $150,000 or more will be affected, too.
Who will be affected?
A working mother of two, earning $150,000 per annum, will have to pay higher taxes. This will likely be a fairly common scenario, says Girish Vikas Naik, director of global mobility at PwC International Assignment Services.
Experts like him expect that one in 10 working mothers currently claiming Working Mother’s Child Relief (WMCR) will be affected.
Girish says: “It is very rare for men to get up to $80,000 in personal income tax relief unless he is providing for a set of parents or grandparents, siblings and contributing the maximum amount to his SRS.”
Those who care for parents or grandparents living in Singapore, or who plan for their older age by making Supplementary Retirement Scheme contributions, may also be affected, he says.
How many will be affected?
About 1 per cent, or about 15,000, of tax-resident individuals are expected to be affected.
What is the impact of the new cap?
High-earning working mothers who have two children or more may feel penalised, despite their contributions to the economy. Girish says: “Ten per cent of working mothers may be a small percentage, but it is the message that it is sending.”
He suggests that working mothers be excluded from the cap to ensure that only very high-income earners are affected.
Is it possible for a high-income earner to pay no taxes at all?
Yes. Imagine this scenario for a working mother below 55 years old and earning $150,000 per annum who also:
- Has three children and claims relief for each of them – she gets a total of WMCR of $90,000 and qualifying child relief of $12,000.
- Supports one set of parents living with her and one parent is handicapped –she gets a parent relief of $9,000 and handicapped parent relief of $14,000.
- Hires a maid – she will get a foreign maid levy relief of $6,360.
- Is a wife to an NSman – she gets an NSman wife relief of $750.
- Tops up cash to her parents’ CPF accounts up to the maximum amount of $7,000 each – she gets a tax relief of $14,000.
- Supplements her retirement savings by up to a maximum of $12,750 – she gets relief for the $12,750.
- Attends training courses, costing $5,500 yearly, related to her profession – she gets relief on the maximum of $5,500.
- The amount of total personal income tax relief she can claim is $180,840, freeing her of tax charges.
But once the new cap takes effect, she will have to pay $2,650 in taxes per annum, at the current tax rate.
If this same woman does not claim any relief other than the earned income relief of $1,000, how much tax will she have to pay?
She will pay a tax of $10,950, with her taxable income at $140,000 after deducting the earned income relief of $1,000. The first $120,000 attracts a tax of $7,950. The next $20,000 is taxed at 15 per cent, which comes up to $3,000 in taxes. So the total taxes payable comes up to $10,950.
There are 15 personal income tax reliefs. If one were to tick all the relevant boxes, what is the highest amount of relief a person can technically claim right now, before the cap sets in?
The highest amount one can technically claim is more than $380,000, depending on the number of children she has and the number of handicapped siblings and siblings-in-law she is supporting. The WMCR is capped at $50,000 per Singaporean child. If she has five children, her total earned income is non-taxable. So, in this case, the maximum WMCR a working mother can claim is $250,000.
She can also claim $7,500 per handicapped child or $4,000 per qualifying child. If all five children are handicapped, the total child relief she can claim is $37,500.
Her earned income relief is $1,000, assuming she is below 55 years old.
Maximum course fee relief is $5,500, maximum CPF cash top-up relief is $14,000, NSman wife relief is $750 and maximum Supplementary Retirement Scheme relief is $12,750.
Parent relief is $9,000 per parent or $14,000 per handicapped parent living with her and she can claim for up to two dependents. So the maximum tax relief she can claim is $28,000.
If she is also supporting a handicapped sibling or sibling-in-law living with her, the relief is $5,500 each. So the more handicapped siblings and siblings-in-law she is supporting, the higher the tax relief she can claim.
Depending on her earned income, she also gets to claim relief on her CPF contributions. The maximum one can claim for CPF relief is $20,400. If she hires a maid, the foreign maid levy relief claimable for this year’s assessment is $6,360.
A version of this article first appeared in The New Paper.