Here's a playbook for personal income tax planning

I WAS recently asked to share some tips for personal income tax planning. Historically, when compared to corporates, the scope for such planning for individuals is perhaps less fertile. However, as we try to get to terms with "living with Covid-19", some left-field topics from individual income tax angles could come to the fore.

The following are some brief tax thoughts, not necessarily all pandemic-linked:

FOR THE GAINFULLY EMPLOYED

It is important to distinguish between a reimbursement for a business expense incurred by the employee and one designed merely to reimburse the employee in respect of his private expenditure.

The latter is taxable, the former is not. Many have their work-life boundaries increasingly blurred due to prolonged work-from-home (WFH) situations; some employers may demand presenteeism, micro-manage and ask for constant employee work-status updates, but look to soften the impact on their people with more expansive employee reimbursements.

If your employer reimburses say, your entire mobile bill, WiFi expenses and the like, it is in your own interest to identify/reasonably apportion the bill amount relating to work purposes as such a component should not be taxable for you.

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FOR THE RETRENCHED

Singaporeans who were retrenched this year may still have to pay such tax next year, if relevant income thresholds are exceeded, because income tax is imposed on income earned in the preceding year. This may present cashflow challenges for many, even if they received retrenchment payments to alleviate the financial impact.

It will be relevant to note that a terminal payment to a retrenched employee may in fact consist of many components, some of which are taxable (such as salary in lieu of notice, gratuity for past services, commuted leave pay, pro-rated bonuses); other components are not taxable (such as retrenchment payments that are made to the laid-off employee to compensate for the loss of employment and restrictive covenant).

In this harsh climate, many distressed employers may be dealing with large-scale and time-sensitive retrenchment exercises. They may not have sufficient time to discuss individual packages in detail; they may also be wound up more quickly (for example, under Simplified Insolvency Programme).

The upshot is that an affected employee may no longer be able to request for information or documentary support from the (already wound-up) employer if needed, if future disputes were to arise between the individual employee and the Inland Revenue Authority of Singapore (Iras).

To avoid the situation where the description (or lack thereof) ascribed to the payments by the employer leads to adverse/incorrect tax outcomes for the individual concerned, the affected individual has to be mentally resilient enough to keep proper and contemporaneous documentary support and to also seek to maintain sufficient granularity accordingly.

FOR GIG WORKERS

Iras says that, with the jobs taken up by gig workers (for example, independent consultants, coaches, private hire car drivers, home bakers) being mostly short-term, in piecemeal and on an independent basis, they are generally self-employed persons engaged on a contract for service (not "contract of service"). This means that the income earned through gig work is assessable to tax not as employment income, but as the individual's business income.

One positive implication of this is that the range of tax deductions for expenditure incurred is much broader for business income than for employment income. For example, if you are an aspiring Key Opinion Leader or influencer, that sharp tuxedo you rented as an accessory to produce a James Bond-themed, fee-paying video log (vlog) should certainly accord you with some tax claim.

On the other hand, your friend who rented the same tuxedo on his own account for his upcoming black-tie corporate event is unlikely to be able to claim a tax break for that cost against his (only) source of employment income.

Furthermore, as someone who is now taking the brave entrepreneurial step of being in business, the concept of losses, while generally unwelcome, can become relevant and of use to you. These should therefore be tracked by you filing your tax return appropriately. This is because your (tax-adjusted) business losses can generally be carried forward to be used in future years; they can help you save on taxes if you turn profitable later, or even if you subsequently earn income in the capacity of an employee again. In this vein, you should look backwards for a tax blind spot, as some business losses can be carried back to refund at least part of your prior year's tax paid.

FOR THE GENUINELY ALTRUISTIC

Leaving aside economic, morality, social responsibility considerations and the like, it may be legally possible to pay zero income tax even if one earns significant employment income. Arithmetically, this can be the outcome if the individual concerned is prepared to donate amounts close to 40 per cent or more of his/her earnings to approved an Institution of a Public Character (IPC), given that such donations carry 250 per cent tax deduction value.

In Singapore, with the highest-paid individuals being currently taxed at no higher than 22 per cent, donating in the proportions described above may possibly be regarded by many as a "nuclear option", if simply for personal tax reduction.

However, when viewed from the lens of non-native Singaporeans who may be used to much higher personal tax rates elsewhere - the equivalent top marginal personal tax rates in the US and France are 37 per cent and 45 per cent respectively - making significant donations may not always be radical, especially where it maintains their expected post-tax income levels and concurrently satisfies charitable intent.

FOR THE SUPER-RICH AND BROADER MATTERS BEYOND

While the basis for this piece was premised on income tax planning for individuals, given the recent discourse on various media platforms, it would be remiss not to make some reference to the topic of wealth taxes in Singapore.

That the country must maintain the principle of taxing wealth appears undisputed from the government's standpoint if various Budget statements over the last two decades are revisited; key questions relate to the means with which this can be made even more efficient.

A problem with many forms of wealth tax is the ease with which such tax is susceptible to being "tax-planned away". When the announcement for removal of estate duty was made during Budget 2008, property tax was singled out as the remaining wealth tax and lauded for its virtues, including the inability to tax-plan it away.

Be that as it may, in seeking to enhance progressivity - a system under which those with higher wealth contribute more than the rest - the property tax system has been refined fairly frequently since 2010. One may also ask if property tax alone is indeed sufficient for taxing wealth if the underlying assets of the super-rich are increasingly held in digital forms (such as through tokenisation) and being diversified away from traditional real estate.

These broadly suggest the need to ensure our tax regimes remain "fit for purpose", a conviction which cuts across many other aspects of taxation, including and prominently in the field of corporate taxation, where longstanding international tax rules (in place for a century or so) are set for fundamental reform on a global scale. In fact, a reaffirmation of this point was made in a tweet by OECD secretary-general Mathias Cormann on Oct 8, hailing "a far-reaching agreement which ensures our international tax system is fit for purpose in a digitalised and globalised world economy". He was referring to the OECD's statement that day, triumphantly headlined "International community strikes a ground-breaking tax deal for the digital age".

With recent signalling that Singapore will correspondingly be poised to make important changes to its corporate tax regime in due course and be "compatible with international norms", the tax work ahead is aplenty indeed.

• The writer is tax practice leader at Baker Tilly Singapore.