Hi, I’m Jarrad Brown – Financial Planner to Australian expats in Singapore and around the world. Welcome to my video series where we cover the personal finance basics for Australians at home and abroad.
Today I’m thrilled to have with me, Managing Director of CST Tax, Boon Tan. Boon provides both personal and corporate income tax to our clients, both in Singapore and Australia and has been an incredible resource for our clients. I’m thrilled to have him with us here today to cover some of the common questions that our Australian expat clients face.
B: Thanks for having me Jarrad
J: Thank you for joining us.
How does the Singapore tax system work for Australian expats?
J: Boon, as a starting point perhaps you can just give us a bit of an overview of the Singapore tax system for individuals, how it works, what do people need to be aware of.
B: The Singapore tax system is a little bit different to what us as Aussies would be used to. The system is a territorial system which means that only income sourced in Singapore is taxable in Singapore.
The term sourcing means things such as employment income, bank interest, dividends from Singapore companies, that’s sourcing. Only that type of income is taxable in Singapore as a tax resident of Singapore.
You can have, as a lot of our clients do, an investment property back in Australia generating income. That income is not taxable in Singapore even if you bring the money into Singapore. That applies to foreign income from anywhere around the world.
J: OK, that makes sense.
How do I actually pay tax in Singapore as an Australian expat..?
J: As far as actually paying your tax, how does it work? In Australia, we get our Notice of Assessment, we can start paying our tax online. How does it work in Singapore? What do we do once we get our Notice and how do we actually start paying tax?
B: Good question, another very different approach here in Singapore is the fact that there’s no pay as you go withholding system. Your salary, if you’re an employee, will be a gross salary, and it’s going to be up to you at the end of the year to file your return, to determine your tax liability, and then to fund that. A lot of people need to be careful that although you get a dollar, just be mindful that the dollar hasn’t had any tax paid on it yet.
There’s a couple of options once you get your Notice of Assessment. You can either pay a lump sum or you can enter what is called a GIRO repayment plan, and that is basically a direct debit from your bank account taken every month by IRAS over a span of between 8 to 10 months. It becomes if you like a quasi-pay as you go, but it’s always in arears. You’re paying a monthly instalment based on your last tax return. That is, funnily enough, interest free as well, so something that is quite unusual as well for us Aussies that are used to a system where you pay a lump sum or if you pay over time, there’s interest charged.
What should Australian expats be mindful of..?
J: OK, so it sounds like Singapore is placing a lot of responsibility on the individual to actually make sure that they’re actually saving for their tax bill when it arrives.
B: Absolutely, one of the things that we do a lot of for people who have just arrived in Singapore is to actually do a cash flow program, looking at what kind of income will you have, what expenses would you have depending on rent, family, living expenses, and then working out that your estimated tax liability is going to be X, so think about putting away a certain amount every month. A good option is setting up a second bank account and just doing a transfer into the savings account.
How does the tax year work in Singapore for Australian expats..?
J: I understand that the tax year is also different in Singapore to Australia. Could you walk us through the dates and how that works?
B: Yes, the tax year in Singapore follows the calendar year for individuals so 31 December is the end of the financial year. You will get your report on your earnings from your employer by 1st March every year, and then your tax return will be due on the 15th April the following year.
For example, 31 December 2019 year end, your tax return will be due 15 April 2020.
What Tax Deductions are available in Singapore for Australian expats..?
J: Boon, can you tell us a little about the income tax deductions available here? What can I as an individual claim or look to reduce my taxable income with?
B: That’s a good question. As you and I both know in Australia, if you incur an expense for work purposes, it’s generally deductible. We’re used to things like car expenses, telephone, mobile bills. In Singapore, because it’s such a simplified system and the rate of tax is low, the deductions are actually limited for an employee. Quite often, the tax authorities take the view that if you’re incurring an expense for work purposes, your employer should actually be reimbursing you, so will not give you a deduction.
Having said that, your tax liability can be reduced by things called rebates and offsets. Some common ones that are applicable to expats are your spouse rebate.
Tax rebates: Spouse and child rebates
B: If you have a spouse who is non working in Singapore so someone on a Dependant Pass for example, and as long as they’re not earning more than S$4,000 from worldwide sources, you can claim a rebate of S$2,000. A rebate would basically reduce your taxable income.
In addition to that, another common one is the child rebate. Each child aged below the age of 16, you can claim a S$4,000 rebate.
The interesting part here is that your child can be, by birth, can be a step-child or someone adopted, and they don’t need to actually physically living in Singapore. Often, you’ll have families who have had Mum and Dad move up to Singapore to work, but the 1 or 2 children remain Australia at boarding school. Just because they’re there, you’re still eligible to claim two lots of the S$4,000 rebate for each child.
Tax rebates: Life insurance
B: Another interesting one that a lot of people aren’t aware of is life insurance. In Australia, we can’t claim life insurance policy deductions against our taxable income. In Singapore, you can actually claim the actual premium amount of S$5,000, whichever is less. The only key requirement there is that the insurance underwriter providing you with the life insurance cover must have some presence in Singapore.
If you think about some of the global insurance companies, think about whether they have a presence here in Singapore and are selling life insurance here in Singapore. If that’s the case with your policy, you’re able to claim the premium and reduce your taxable income.
Again, it doesn’t need to be a Singapore based premium, so you can have a premium policy in Australia where you’re paying the premium from Australia, and you can still make that deduction here in Singapore.
J: OK great, so when people are actually looking at their life insurance, their personal protection, not only should they be looking at are they actually covered offshore, but also looking at is it actually tax deductible.
B: Absolutely, yes.
J: OK, that’s brilliant.
What is the Supplementary Retirement Scheme and can Australian Expats use it..?
J: Boon, one of the common strategies amongst a lot of our clients, being Australian expats, we all love to pay as little tax as possible, and one of the common questions we get asked is the Supplementary Retirement Scheme, the SRS system. Could you please tell us a little bit about it broadly? How it works, and how do people actually find out a bit more?
B: The SRS scheme is a retirement scheme where you can make contributions from your gross salary or income into a specific account segregated, where you can earn income on that capital and not get taxed. To set up an account, there’s only three providers in the market, and they’re the three major banks, UOB, DBS and OCBC.
There are some specific rules around withdrawal elements, and there are taxable issues to consider. Whilst it is an opportunity to claim a deduction for contributions and be mindful that there is a cap on the deductions each year, which is revised by the tax office, you need to really consider the long-term strategy with a view of how long you might be in Singapore because there are penalties for withdrawal from the SRS at certain points in time.
J: OK, so it certainly sounds like something that’s not a ‘one-size-fits-all’ and people need to do their homework.
B: Absolutely not.
J: OK, fantastic.
Can I invest my SRS contributions..?
J: With the SRS contributions, they can claim the deduction, what can they actually do with that money? Can they invest it? Does it need to go into a bank account? What are their options?
B: That bank account, which is set up for the contributions is specifically there for investment and to generate growth and income. The idea is that when you hit your retirement age, you are then able to use that to fund your retirement so all of that income and capital accumulating in there is tax free.
J: OK, excellent.
NoR Scheme for Australian Expats in Singapore
J: One of the common scenarios that our clients face, they’re in Singapore and a lot of them are in regional roles which means a lot of travel to various parts of Asia and all of the world. A lot of them are travelling for large chunks of the year so one of the common questions that we get asked is this NoR scheme. Could you just tell us a little bit more about it? What is it and how does it work? What does it mean for an individual, an Australian expat here in Singapore?
B: Absolutely. NoR stands for the Not Ordinary Resident scheme, and it’s a concession provided by the Singapore Government to attract companies to set up regional hubs in Singapore, and to attract overseas talent to base themselves here.
Under the NoR scheme, the concession is if you have taxable income of at least S$160,000, and are outside of Singapore for at least 90 days during the year for work, then the first 5 years that you are a Singapore tax resident, you are able to pro-rata your taxable income based on actually the days that you’re in Singapore.
For example, if you travel for 100 days in the year, then those 100 days, if you are able eligible for the NoR scheme, will actually be exempt from tax in Singapore. It’s very important to make it clear that whilst it’s not taxable in Singapore, that doesn’t automatically mean that it’s taxable somewhere else in world, for example, the place that I’ve gone to work. This is actually a concession for Singaporean tax residents, so it doesn’t change your tax residency status. It doesn’t mean that it’s taxable in the other jurisdiction. It’s just a concession and an effort for you that the Government introduced to encourage you to live and work here in Singapore.
How much tax could I actually save..?
J: OK, that’s great, so someone travelling potentially a third of the year could actually have a fairly significant saving on their tax bill on what is ordinarily a fairly low rate anyway, but still make a meaningful difference.
B: Absolutely. The top tax rate is 22% in Singapore. If you are a very high-earning executive travelling around the world, and like you said, one third of your time is outside, then you could think that your effective rate of tax would drop from 22% downwards. There is a cap on that rate. You can’t drop below 10%, so if you travel enough such that your rate falls below 10%, it will automatically cap itself at 10%, which is still a fantastic result if you’re at that higher income level.
J: Absolutely, so certainly something worth people looking into.
How do I actually claim the NoR Scheme..?
B: Absolutely. To claim the NoR scheme, the most important thing to remember is that the claim must be made at the same time that you lodge your return. It’s only available for the first 5 years that you are a resident in Singapore, and it’s very much a ‘use it or lose it’ situation.
I’ve met a number of expats here who, as you’ve said, have heard on the grapevine about the NoR, but not really looked into it, and they’ve come in year 2, ‘Last year I travelled 120 days, can we go back and amend..?’. Unfortunately you can’t, as it is very much a ‘use it or lose it’. You can’t amend your return for an NoR claim.
J: OK, that makes sense.
What changes are coming for the NoR scheme..?
J: I’ve heard, again through the grapevine, that there are some changes announced in the latest Budget when it comes to the NoR scheme, around how long it will be valid for. What do people actually need to think about and consider when they’re applying?
B: Yes, so the key change to the NoR scheme is that in this year’s Budget, it was announced that this current year, the year ending 31 December 2019, will be the last year that you can enter the system. That means that you must enter the system by making a claim for the NoR scheme this year. If you do that this year, you have the benefit of the next 5 years assuming that this is your first year in Singapore.
If you’re already in Singapore for the past 2 years, then entering it this year will mean that you’ve got 2 more years from the time until the first 5 years. If, unfortunately, you don’t meet the qualifications to claim the NoR scheme, then you actually can not benefit from that exemption because you need to enter it this year, which means that when you file you file your return in April 2020, you will be submitting an NoR application.
J: Got it, so anyone travelling extensively with their work should really be getting onto this quickly.
B: Absolutely, and the key point is to just note the number of days that you’re outside for work, and let’s be mindful of the fact that if you’re travelling to multiple cities, sometimes you’re going across the span of a weekend, that is still travel for work. The only time that it won’t is if you’re on annual leave.
J: Got it.
What should new Australian expats in Singapore do for their personal income tax..?
J: Boon, for new Australians moving into Singapore, so brand new, offshore first time as an expat, or potentially they’ve been elsewhere around the world, what are the top 3 action items that they should think about as soon as they can when they arrive?
B: The first one is, because it’s a gross tax system, there’s no withholding, be very mindful of the fact that you need to save for tax. Think about really planning your cash flow – how much do I need to save? How much do I need to put aside for my tax going forward?
The second is that you’re aware of the tax deductions that you can claim, and think about what kinds of receipts you need to maintain, and where you’re not sure, get some guidance, and ask questions to clarify things.
The third, especially this year, given that it is the end of the NoR scheme, being mindful of whether you’re going to qualify for those 90 days or not. Generally, that is the hardest bit that a lot of people are going to come across. Will I actually travel more than 90 days travelling here.
How do people get in touch with you..?
J: Boon, that has been really helpful, thank you, how do people reach out to you and get guidance if they have any questions.
They can check us out on our website, www.csttax.com.sg, and reach out to me on the contact details below.
J: Fantastic, Boon’s contact details are provided in the summary below. Feel free to reach out to him, check out the website at www.csttax.com.sg, or give him a call on the number provided also.
Thank you and see you next time.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.
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