Stop Making These 12 Common Mistakes When Paying for Your Income Tax in Singapore (2024)

Filing income tax in Singapore can be daunting and riddled with potential pitfalls. Countless individuals would not notice themselves ensnared in common errors, and the common mistake could cost them financially and legally every year.

The Singaporean Revenue Authority reported that a significant percentage of taxpayers make at least one mistake on their tax returns.

32,944 Singaporeans made mistakes when paying income tax in 2022. These statistics show a pressing need for clarity and guidance.

Here, we address these challenges head-on, providing solutions to avoid these frequent missteps. Armed with this knowledge, you can navigate the complexities of Singapore income tax with confidence and precision.

1. Incorrect or Incomplete Personal Information

In Singapore’s income tax context, the accuracy and completeness of personal information are paramount.

This information forms the backbone of your tax profile and directly influences how your taxes are calculated and processed.

Any discrepancies or outdated details in your personal information can lead to erroneous tax assessments, processing delays, and potential legal issues.

Examples

• Address Updates: If you move and don’t update your address with IRAS, you might miss essential tax notices.
• Bank Account Information: Incorrect bank details can delay tax refunds, leading to unnecessary complications.
• Marital Status: Your marital status affects your eligibility for certain tax reliefs. Failing to update this information can result in incorrect tax benefits.
• Employment Information: Employment or income level changes need to be updated promptly. This affects the tax calculation, especially if you’ve switched jobs or had a significant salary change.

2. Overlooking Deductible Expenses

In the realm of income tax in Singapore, overlooking deductible expenses is a common yet costly mistake.

Many taxpayers miss the opportunity to lower their taxable income because they are not fully aware of the expenses that can be legally deducted.

Understanding and claiming these deductions can significantly reduce the amount of tax payable, ultimately benefiting the taxpayer.

{If you want to avoid such a costly mistake, read our article on the 10 legal tips on how to reduce income tax in Singapore.)

Examples

• Charitable Donations: Contributions made to approved charitable organisations are deductible yet often overlooked.
• Educational Expenses: Tax deductions for course fees related to professional development or further education can be claimed, but they are frequently overlooked.
• Rental Expenses: Landlords often miss out on deducting allowable expenses related to property rental, like maintenance costs.
• Medical Expenses: Specific medical expenses for oneself or dependents can be deductible under certain conditions.

3. Not Reporting All Income Sources

A critical aspect of accurately filing income tax in Singapore involves reporting all sources of income. Taxpayers often err by omitting specific income streams, either inadvertently or through a lack of understanding.

This oversight can lead to incorrect tax assessments and potentially severe legal ramifications. In Singapore’s tax system, it’s imperative to declare all income sources, not just those from primary employment.

Examples

• Part-time or Freelance Income: Income from freelance work or part-time jobs, in addition to full-time employment, must be declared.
• Rental Income: Earnings from renting out property often get overlooked but are subject to taxation.
• Investment Income: This includes dividends, interest from deposits, and any other earnings from investments.
• Overseas Income: For certain tax residents, income earned overseas must also be declared in Singapore.

4. Misunderstanding Tax Residency Status

A common area of confusion when dealing with income tax in Singapore relates to one’s tax residency status.

This status is crucial as it determines the rate at which an individual is taxed and what income is subject to taxation.

Tax residency in Singapore depends on the duration of stay and the nature of residence in a given tax year. Misinterpretations of these criteria can lead to incorrect tax filings.

Examples

• Expatriates: Expatriates often assume they are non-residents for tax purposes without understanding the specific residency criteria.
• Short-Term Assignments: Individuals in Singapore for short-term assignments might misclassify themselves, leading to improper tax rates applied.
• Returning Singaporeans: Singaporeans returning after a period abroad may misunderstand how their overseas income and residency period affect their tax status.

5. Incorrectly Claiming Reliefs

Tax reliefs are designed to reduce taxable income, but they must be claimed correctly according to the specific criteria set by the Inland Revenue Authority of Singapore (IRAS).

Misunderstanding these criteria or claiming inapplicable reliefs can result in inaccurate tax submissions and potential penalties.

Examples

• Dependent-Related Reliefs: This is claiming reliefs for dependents, like children or parents, without meeting the full criteria (e.g., income limits of dependents).
• Education-Related Reliefs: Misapplying reliefs for educational expenses, such as claiming non-qualifying courses or exceeding the claimable amount.
• CPF Contributions and Reliefs: Incorrectly reporting CPF contributions or claiming reliefs not applicable to one’s circumstances.

6. Late Filing and Payment

Late filing and payment of income tax in Singapore is a prevalent issue that can lead to penalties and added stress for taxpayers.

The Inland Revenue Authority of Singapore (IRAS) stipulates strict deadlines for filing and paying taxes.

Failure to adhere to these deadlines results in unnecessary penalties and interest charges, complicating an otherwise straightforward process.

Examples

• Missing the Filing Deadline: The typical deadline for tax filing is April 15th. Failure to meet this deadline can lead to late filing fees.
• Delay in Tax Payment: IRAS imposes late payment penalties if tax payments are not made by the stipulated date.
• Underestimating Payment Due Dates: Taxpayers sometimes forget that payment deadlines can differ from filing deadlines.

7. Not Utilising e-Filing

E-Filing, offered by the Inland Revenue Authority of Singapore (IRAS), is a convenient, fast, and secure method for submitting tax returns.

Many taxpayers who opt for traditional paper filing miss out on the benefits of e-filing, such as quicker processing times, immediate confirmation, and reduced risk of errors.

Examples

• Delayed Processing: Paper filings take longer than electronic submissions, leading to slower updates and refunds.
• Increased Error Risk: Manual paperwork is more prone to errors compared to the guided process of e-Filing.
• Missed Deadlines: The convenience of e-filing, available 24/7, helps prevent missed deadlines, a benefit not available with paper filing.

8. Ignoring Notices from IRAS

Ignoring notices from the Inland Revenue Authority of Singapore (IRAS) is a significant misstep in managing Singapore’s income tax responsibilities.

These notices often contain critical information or requests for action regarding one’s tax filings.

Neglecting these communications can lead to various complications, including penalties, additional charges, or legal proceedings.

Examples

• Requests for Additional Information: IRAS may request further details to clarify or complete your tax assessment. Not responding can halt the process.
• Notices of Assessment (NOA): Overlooking the NOA, which details your tax payable, can lead to missed payment deadlines.
• Audit and Compliance Checks: Failing to respond to audit queries or compliance checks can escalate to legal issues.

9. Failing to Keep Proper Records

Failing to keep proper records can result in difficulties in claiming deductions, proving income, or responding to queries from the Inland Revenue Authority of Singapore (IRAS).

This oversight can lead to inaccurate tax assessments, disallowed claims, or penalties for non-compliance.

Examples

• Receipts for Deductible Expenses: Not retaining receipts for deductible expenses, like business or medical expenses.
• Income Documentation: Failing to keep documents proving all sources of income, including payslips, rental agreements, and investment statements.
• Bank Statements: Bank statements corroborating income and expense claims are not preserved.

10. Lack of Understanding of Tax Changes

Staying informed about changes in Singapore’s tax income rate and tax laws is crucial for accurately filing income tax returns.

Tax regulations and rates can change annually, influenced by economic conditions, policy shifts, or legislative amendments.

So make sure you know the basics of how to calculate income tax in Singapore!

A lack of awareness or understanding of these changes can lead to incorrect tax filings, resulting in either overpayment or underpayment of taxes and potential compliance issues.

Examples

• Alterations in Tax Rates: Not being aware of the current year’s revised Singapore income tax rates.
• Changes in Deductions and Reliefs: Missing out on new deductions or claiming discontinued reliefs.
• Updates in Tax Policies: Awareness of policy changes, such as for foreign-sourced income or digital transaction taxes.

11. Filing Under the Wrong Tax Category

Choosing the incorrect tax category is a standard error in Singapore’s income tax filings.

This mistake typically arises from misunderstanding the various tax categories and their applicability to different income types and taxpayer profiles.

Filing under the wrong category can lead to incorrect tax calculations, resulting in either overpayment or underpayment of taxes and potential complications with IRAS.

Examples

• Individual vs. Business Income: Confusing personal income with business income, leading to filing under the wrong category.
• Resident vs. Non-Resident Tax Rates: Misclassifying residency status and applying incorrect tax rates.
• Different Types of Income: Different types of income have specific tax considerations. For example, rental, investment, or employment income has different considerations.

12. Attempting DIY Without Understanding

The trend of ‘Do-It-Yourself’ (DIY) income tax filing can be risky for those without a clear understanding of Singapore’s tax system.

While self-filing offers independence and can be cost-effective, it requires a thorough knowledge of tax laws, deductions, and filing procedures.

Errors due to a lack of understanding can lead to incorrect filings, resulting in potential legal issues and financial losses.

Examples

• Misinterpreting Tax Laws: DIY filers often misinterpret the nuances of tax laws, leading to incorrect claims or reporting.
• Overlooking Deductions and Reliefs: Many miss out on beneficial deductions and reliefs without proper tax knowledge.
• Technical Errors in Filing: Lack of familiarity with the e-filing system can result in technical mistakes.

Conclusion

Navigating the intricacies of income tax in Singapore requires attention to detail and an up-to-date understanding of the tax system

From ensuring accurate personal information to comprehending tax residency status and correctly claiming reliefs, each step is crucial for compliance and optimising tax liabilities.

Recognising and avoiding these common mistakes is key to a smooth and efficient tax filing process.

Stay informed, be meticulous, and consider professional guidance when necessary to master your Singapore personal income tax responsibilities.

Frequently Asked Questions (FAQs)