What is the Qualifying Child Relief and Should I Change the Apportionment?
Credit: Photo by S&B Vonlanthen on Unsplash
(Disclaimer: This article is not tax advice. You may want to consult a qualified tax advisor for your specific tax circumstances.)
So you have just welcomed a newborn into your family and received the IRAS text message about tax savings and child relief/rebate. Congratulations! In the tired fuzzy haze of the early newborn weeks, it is easy to overlook apportioning this tax relief to your greatest advantage.
As a new parent, you are entitled to tax
relief through the Qualifying Child Relief (QCR) or Handicapped Child Relief
(HCR). In Singapore, there are few ways to reduce tax, and the QCR is one such
means.
New parents can reduce their chargeable income by $4,000 per child (or $7,500 for HCR) until the child is 16 years old.
By default, IRAS equally apportions this relief (50/50) to each spouse. This works well when both parents are joint income earners in similar tax brackets.
However, there are some scenarios where parents may consider changing the apportionment to better work in their favour:
1) One spouse earns significantly more or is the sole bread-winner
2) Working mother already has large tax reduction via Working Mother’s Child Relief (WMCR) and has hit the maximum cap of personal reliefs.
- Large Income Disparity / Sole Breadwinner
In a family where one spouse earns
significantly more, or where one spouse is the sole breadwinner, the family
will likely benefit from 100% apportionment of the QCR to the spouse with a
higher income, to reap potential tax savings of up to $880.
Individual income tax rates up to
YA2023.
- Working Mother with more than one child in the family
For working mothers with more than one child in the family, the Working Mother's Child Relief already significantly reduces their taxable income.
As such, further adding to their tax relief may have less of a significant impact than if the apportionment was 100% to the husband, assuming he is also an active income earner.
How WMCR can reduce taxable income for a working mother.
Having one child will reduce the chargeable income for a working mother by 15%, but with two or more children, the 35% & 60% reduction in taxable income can have the effect of shifting them one or two brackets lower.
Since the maximum reduction of chargeable income is capped at $80,000, the effect of adding QCR to further reduce the working mother’s taxable income could be diminished. Thus, they may consider full apportionment of QCR to their husbands, who have less tax reducing options, to get a larger net reduction.
Additional Tips
Do note that any changes made to the apportionment will be reset to 50/50 upon the birth of a new child in the family. Both spouses will receive an SMS notification early in the year and there is a short window of time to make adjustments. If the window is missed, they may try to appeal through IRAS via email on a case by case basis.
For the mentioned IRAS tax deductions pertaining to children to be eligible, the child should be less than 16 years old, and should not have an annual income exceeding $4,000.
Conclusion
The QCR offers parents a useful opportunity to reduce their tax burden, especially when expenses run high with a new family member. Utilise your QCR apportionment smartly and treat the new mother to something nice with the tax savings instead!
For more financial hacks, do speak to one of
our Excelsior Financial consultants today.
Written by:
“You are your best investment, but always have a Plan B.”