Tax relief schemes if you are self-employed

Last updated on March 16th, 2018 at 09:36 am

 

If you are a self-employed individual, you earn your revenue/commissions from the service that you provide. Unlike friends who work as an employee, your income does not have an automatically CPF contribution to it. Hence, it is even more important to spend time in your own retirement planning and explore tax relief schemes.

To encourage contributions for retirement, IRAS recognises a few schemes and provide tax reliefs for them. I had just contributed to my SRS and CPF accounts to save on my tax bills for next year. These 3 schemes are not new but you may not have maximised them fully. I’d be sharing key benefits for you in this post.

  1. Supplementary Retirement Scheme (SRS)

The limit for SRS contribution for year2016 is $15,300. Contribute to this account if you want invest into financial markets and get higher long term returns. A much wider range of investment tools qualify for SRS funds than CPFOA and CPFSA. SRS possibly allows you to withdraw funds if you need (with a penalty factor to it) unlike CPF contribution.

Do note that SRS funds cannot be used for mortgage payment.

cpf-life-retire-peace-of-mind

Image from: http://www.sgmoneymatters.com/cpf-minimum-sum-retirement-scheme/

2. Voluntary contribution to CPF (All 3 accounts).

The limit for CPF contribution as self employed is $37,740 for this year2016 (Previously $31k). I would suggest that you contribute through this scheme if you have mortgages to pay for. At least, some parts of this contribution will flow to your CPFOA for mortgage deduction. The voluntary contribution method also helps you pay off some of your mandatory medisave liability as a self-employed.

If you do not have mortgage commitments, possibly explore the SRS method first due to its flexibility.

 

3. Retirement top-up scheme to CPFSA

The limit under the retirement scheme top up is $7,000 for this year2016. CPFSA has a current limit of $161,000 for year2016 (if you want to explore this scheme) and the cap will increase by $5k every year after. You may read our post to find out on the differences between CPFSA and SRS.

 

These 3 schemes can be concurrently used for your own retirement savings

All of them come with a tax relief benefit. If you have more than sufficient for your own retirement (good for you), further explore relief by Medisave or Retirement account top up for your parent. You can contribute with tax relief of up to $7,000.

To match up to someone employed, you would at least have to contribute 20% of your income towards retirement. The tax relief you can derive will easily be a few thousand dollars depending on your chargeable income level. I have advised self-employed individuals on the topic of retirement planning and tax relief planning. The list of individuals include

  • Dentist/ Dental Therapist on revenue sharing
  • Doctors on hourly-rated locum pay
  • Real estate agents on commissions
  • Private tuition teachers on hourly-rated pay
  • Interior designers/ Renovation contractors on revenue

 

Common questions asked:
  1. What are allowable business expenses? Answer: Must be related to your business and supported by proper and complete source documents. These commonly include staff costs, rental costs,  advertising, transport to meet client etc. Personal transport is not claimable. Please engage a tax professional for advice.
  2. Can I claim “Life insurance relief”: Check our post below

 

 

 

Josh Tan

As a dad now, I have a new found perspective on financial matters concerning parents. I share many of the concerns that you have and as I search for answers myself, I'll share them through my articles. Being keen on investing and personal finance matters, I started a journey in the financial planning industry and have been blessed to share what I am passionate about for the last 10 years.