You will build a worksheet that recreates your tax bill and shows your marginal rate.
Shu Ting had her notice of assessment open and a blank spreadsheet beside it. She wanted one thing from the next half hour: a sheet that could rebuild her tax bill from the bottom up, so that every decision later in the year would start from her own numbers. If the sheet matched IRAS to the dollar, she could trust it.
This exercise builds that sheet. You'll need your latest notice of assessment from your IRAS account, the current resident rate table from the IRAS website, and about thirty minutes.
Open a new spreadsheet and make three blocks, one under the other.
The first block is income. Put one row for employment income, copied from your notice, and a row for any other income the notice lists, such as rent or trade income. Add a total row.
The second block is deductions and reliefs. Copy each one exactly as the notice shows it: approved donations first, if you have any, then each personal relief on its own row. Earned Income Relief, CPF relief, and any family reliefs go here. Add a total.
The third block is the result. One cell for chargeable income, which is total income minus total deductions and reliefs. Then cells for tax, marginal rate and average rate, which you'll fill in next.
Shu Ting's figures, which are examples for this course, looked like this. Employment income of S$110,000. Reliefs adding up to S$18,000. Chargeable income of S$92,000.
Now build the rate table. Make a small table to the side with three columns: the bottom of the band, the top of the band, and the rate. Copy the bands from the current IRAS resident rate table for the year of assessment on your notice. Don't use last year's table or one from an article, since the bands change.
For each band, the tax is the part of your chargeable income that falls inside it, times that band's rate. In a spreadsheet, the part inside a band is the smaller of your income and the band's top, minus the band's bottom, and never less than zero. Write that formula once, copy it down every band, then add up the column.
This course uses an invented practice table so that the examples can be checked. It is not the IRAS table:
0% on the first S$20,000 3% on the next S$20,000, up to S$40,000 6% on the next S$40,000, up to S$80,000 10% on the next S$40,000, up to S$120,000 14% on everything above S$120,000
On Shu Ting's S$92,000, the first band gives nothing. The second gives 3% of S$20,000, which is S$600. The third gives 6% of S$40,000, which is S$2,400. The fourth band holds the last S$12,000, and 10% of that is S$1,200. Her tax under the practice table is S$600 plus S$2,400 plus S$1,200, which is S$4,200.
Her marginal rate is the rate of the band her last dollar sits in, so 10%. Her average rate is S$4,200 divided by S$92,000, about 4.6% of chargeable income, and lower still as a share of her total income.
Put the tax from your notice in the cell next to your calculated tax, and a third cell for the difference.
If the difference is zero, your sheet works. If not, the gap usually has one of a few causes. The most common is a rebate. In some years the government grants a personal income tax rebate, which comes off the tax at the end, and the notice shows it on its own line. Shu Ting's sheet said S$4,200 and her notice said S$4,000. The notice had a rebate line of S$200, an example figure, and once she added a rebate row her sheet matched.
Other causes are a band copied wrongly, a relief missed when you typed it in, or the wrong year's table. Fix each one until the difference is zero. Don't leave an unexplained gap, because every later lesson builds on this sheet.
If you were not taxed as a resident, the sheet won't match, and lesson 1.2, Tax residency and what it changes, explains why.
The last cell answers one question: how much tax would one more S$1,000 of relief save?
Make a copy of your chargeable income cell minus S$1,000, run it through the same band formulas, and subtract that tax from your current tax. For Shu Ting, chargeable income would fall to S$91,000, still inside the 10% band, so the tax would fall by S$100.
Her brother Darren built the same sheet. His example chargeable income was S$33,000, his tax under the practice table S$390, and his marginal rate 3%. A further S$1,000 of relief would save him S$30. Same relief, and a third of the value.
There is one more thing the cell will show you later. Near the bottom of a band, a large relief can drop part of your income into the band below. A S$15,000 relief would take Shu Ting from S$92,000 down to S$77,000. The first S$12,000 comes out of the 10% band and the last S$3,000 out of the 6% band, so the saving is S$1,380 instead of S$1,500. Your sheet handles that on its own, as long as you run the whole calculation and don't simply multiply by your marginal rate.
When your calculated tax matches your notice, you're ready for the activity. Keep the file somewhere you'll find it again, since modules 3 and 4 add to it.
Build the worksheet from your own notice of assessment and write the tax a further $1,000 of relief would save you.
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