The word “tax” can be a confusing concept to several people. This is because there are so many elements and fields one needs to look into. Also, many people do not know that their taxes can be reduced in several ways legally.
For example, every business or individual can claim tax relief for their donation to a qualified organisation. They can get to deduct 2.5% off every dollar spent, and as such, the sum of this tax relief amounts to 250% tax-deductible donations.
In this guide, we will explore ways in which you can reduce the amount of tax paid through donations.
What Donations Are Tax-Deductible?
Tax-deductible, are simply donations made to approved entities to reduce the total amount of tax paid. However, there are numerous types of contributions that can be classified as ‘tax-deductible donations.
Therefore, not all donations or contributions can be said to be charitable donations that incur the law of tax-deductible donations.
According to tax-deductible donations made effective on the first day of January 2005, the following are acceptable tax deductibles.
- Donations are made to the Institutions of Public Character (IPCs), as well as its other facilities, events, and programs under the IPC name.
- Donations made to accepted programmes and legitimate confirmation of the donor’s label (name & logo) by IPC or other valid donees.
- Donations are made to a valid donee who is among the accepted donation programmes.
Types of donations that are deductible are;
This type of donation concerns individual and corporate donors. In addition, it represents donations made to IPC or the Singaporean government to increase society’s growth.
NOTE: Donors should be mindful of the donation given to these organisations. One should also confirm the IPC status of these organisations to avoid any form of issue or delay.
You can obtain more information on the benefits of cash donations on the IRAS website.
This type of donation concerns individual donors only. Share donation consists of shares registered on SGX (Singapore Exchange) or IPC-approved units in the trust that are exchanged in Singapore.
One thing to note about this type of donation is that its value is not constant. Instead, it is determined by its last price in the market or IPCs.
Additionally, pending shares donations are not accepted because the date of donation is often marked by the date when the share is legally transferred to IPCs.
This type of donation concerns corporate donors only. However, this tax-deductible scheme has been repealed from February 21, 201, but corporations that donated before this stipulated date are qualified for a tax-deductible donation.
Computer donation majorly involved donating computer hardware, software, accessories, and peripherals such as monitors, printers, and scanners.
To be eligible for this donation, however, the corporation must have;
- Made the donation to the qualified educational, research, or other institutions and all IPCs; and
- The computer system or its components must have been approved by IMDA.
This type of donation concerns individual and corporate donors. It involves charitable contributions made to museums registered under the National Heritage Board (NHB), with the artefacts held in the museum deemed valued by National Heritage Board (NHB).
Donations under the Public Art Tax Incentive Scheme (PATIS)
Under the National Heritage Board (NHB), this type of donation concerns individual and corporate donors.
This donation started operating on the 1st of April, 2006 and qualifies individual and corporate donors that offer money or services in a way that aids public display in sculptures or works of art through NHB or its recipient.
Land and Building Donations
This type of donation concerns individual and corporate donors. This type of donation allows individuals or corporations that make donations of lands or buildings to IPC from the 1st of April 2003 to qualify for tax deductibility.
What is the Amount of Tax Deduction?
According to the Minister of Finance, Heng Swee Kiat, the Budget 2021 has been extended by another two years. And as such, Singaporeans would attain the benefit of 250% tax-deductible from 1 January 2016 to 31 December 2023.
To calculate the amount of tax deduction, follow the following steps.
- Step 1: Simply download the IRAS Taxable Income Calculator.
- Step 2: Input the correct details in the required place, such as the taxable income, personal reliefs, and rebates.
- Step 3: Mention the amount you desire to donate, but first, multiply it by 2.5%
- Step 4: You should see the tax amount payable.
NOTE: The calculation is done automatically. Also, the tax assessment details should be reported to IRAS via the internet because manual donations based on receipts are no longer permissible by IRAS.
How Can You Claim the Tax-Deductible Donations?
Tax-deductible donations are only admissible to individuals or corporations that have made such donations in the preceding year.
When an individual makes a share donation to an IPC organisation in 2022, such an individual would be eligible for tax deductibility in the following year, 2023. This is because they can make a claim from the Year of Assessment (YA) for that year, 2023.
A good thing about this is that no necessary formalities are required as donors do not need to report the amount of donation on tax returns, for they are automatically evaluated on the tax assessment.
A significant requirement is to provide the individual’s or corporation’s means of identification. This could be NRIC, FIN, UEN, etc. However, this should be given to IPCs during donation in order to be eligible for the deductible tax.
The Singaporean government is always setting valuable policies seeking to help individuals and business owners at large while also gaining adequate funds from the tax they pay.
Over time, these policies are reviewed to change the scheme to fit into the dynamic society.
Companies have even more reasons to give back to society through these tax-deductible donations. The process of applying is quite simple to implement. Hire an experienced tax consultant to manage and guide you on how to reduce your taxes legally.