PERSON

How are different ‘persons’ taxed?

• Companies (done)
• Individuals (today)

01/03/2017 (C) POH 1

Income Tax Aspects Peculiar
to Individuals

01/03/2017 (C) POH 2

Outline
 Employment income
 Residence of individuals
 Taxation of resident individuals
 Personal reliefs (overview)
 Tax rates
 Tax rebates (overview)
 Taxation of non-resident individuals
 Tax rates
 Section 13(6) exemption
 Section 40B relief

01/03/2017 (C) POH 3

Income Tax Aspects Peculiar
to Individuals
Employment Income

01/03/2017 (C) POH 4

Employment Income - Outline
 Source of employment income
 Capital versus income
 Inducement payment
 Restrictive covenant payment
 Compensation for the loss of the office
 Salary in lieu of notice of termination
 Gains or profits from employment
 Section 10(2) ITA
 Allowances
 Benefits-in-kind
 Timing of tax accrual
 Bonus
 Director’s fee

01/03/2017 (C) POH 5

 Source of employment income

01/03/2017 (C) POH 6

Source of employment income

 s12(4): source of employment income is

where the duties of the employment are
discharged or performed

01/03/2017 (C) POH 7

Duties performed in SGP

Employment income is SSI

01/03/2017 (C) POH 8

Duties performed overseas

Duties performed overseas

incidental to and part of a constitutes an

SGP employment overseas employment

employment income is employment income is

SSI FSI

See CAST 7.3.2.1 for some relevant factors to consider

01/03/2017 (C) POH 9

 Capital v Income

01/03/2017 (C) POH 10

Capital versus income

 Inducement payment
 Restrictive covenant payment
 Compensation for the loss of the office
 Salary in lieu of notice of termination

Note: The true purpose for making the

payment is important; the label attached to
the payment is not
01/03/2017 (C) POH 11
Inducement payment

Payment received before commencement

of employment relationship; to induce or
persuade individual to take up employment
with the prospective employer

01/03/2017 (C) POH 12

Inducement payment
 Compensation for loss of substantial personal
rights/advantages/status (i.e. loss of the PMA)
 Capital; not taxable
OR (more likely)
 Reward for future employment services
 Income; taxable

 How to decide between the two:

 How substantial are the rights, etc. given up
 Whether future services will be adequately remunerated
 Whether payment is payable outright

01/03/2017 (C) POH 13

Restrictive covenant payment
 Payment in consideration of employee’s
undertaking:
 not to set up biz in competition with the employer
 not to take up employment with a competitor
upon leaving employment

 Consideration for undertaking not to compete

(i.e. to give up a future source of income /
PMA)
 Capital; not taxable

01/03/2017 (C) POH 14

Compensation for the loss of the office

 Payment to compensate for the premature

termination/curtailment of an expectation of
continued employment in the foreseeable future

 Compensation for the loss of the source of the

income (i.e. the employment / PMA)
 Capital; not taxable

01/03/2017 (C) POH 15

Salary in lieu of notice of termination

 Direct substitution for the salary that

would have been earned by the
employee had proper notice of
termination been given by the employer

 Taxable employment income

01/03/2017 (C) POH 16

 Gains or profits from employment

What constitutes employment income?

01/03/2017 (C) POH 17

Gains or profits from employment

s10(2)
In subsection (1)(b), “gains or profits from any
employment” means —

(a) any wages, salary, leave pay, fee, commission,

bonus, gratuity, perquisite or allowance (other than a
subsistence, travelling, conveyance or entertainment
allowance which is proved to the satisfaction of the
Comptroller to have been expended for purposes
other than those in respect of which no deduction is
allowed under section 15) paid or granted in
respect of the employment whether in money or
otherwise;
…

01/03/2017 (C) POH 18

‘Paid or granted
in respect of employment’
 Must be a reward for duties / services
rendered in the course of the
employment, whether in the past,
present or future

 Need not be paid/borne by the employer

01/03/2017 (C) POH 19

 Gains or profits from employment

Allowances paid to staff

01/03/2017 (C) POH 20

Allowances paid to staff
“gains or profits from any employment” means:

any wages, salary, … or allowance (other than

a subsistence, travelling, conveyance or
entertainment allowance which is proved to the
satisfaction of the Comptroller to have been
expended for purposes other than those in
respect of which no deduction is allowed under
section 15) paid or granted in respect of the
employment whether in money or otherwise.

01/03/2017 (C) POH 21

Allowances paid to staff
 An allowance generally is taxable
employment income
 However, any part (or the whole) of the
allowance that falls within the brackets is
NOT taxable employment income
(… a subsistence, travelling, conveyance or
entertainment allowance which is proved to the
satisfaction of the Comptroller to have been expended
for purposes for which deduction is allowed [to the
employee])

01/03/2017 (C) POH 22

 Gains or profits from employment

Perquisites / Benefits-in-kind

01/03/2017 (C) POH 23

Perquisites / BIK
 s10(2)(a): “ … perquisite … whether in money
or otherwise”
 Valuation rules
(depending on type of BIK)
 GENERAL RULE:
MV to employee (= Cost to employer)
 ITA valuation rules
 IRAS formulae / scale rates
 IRAS administrative concessions
https://www.iras.gov.sg/IRASHome/Businesses/Employers/Tax-Treatment-of-Employee-
Remuneration/List-of-Benefits-in-Kind-Granted-Administrative-Concession-or-Exempt-from-Income-Tax/

01/03/2017 (C) POH 24

Interest-free/subsidised loans
(for employee’s personal use)

 Interest subsidy

 Market interest – Interest borne by employee

01/03/2017 (C) POH 25

Interest-free/subsidised loans
(for employee’s personal use)

01/03/2017 (C) POH 26

Interest-free/subsidised loans
(for employee’s personal use)
 Scenario 1:

 Interest subsidy generally taxable

 Concession (i.e. not taxable):

 Employee has no control or influence over
employer, or no substantial shareholding in
employer; OR
 Loan scheme open to all staff on same terms

01/03/2017 (C) POH 27

Interest-free/subsidised loans
(for employee’s personal use)

01/03/2017 (C) POH 28

Interest-free/subsidised loans
(for employee’s personal use)
 Scenario 2:

 Interest subsidy taxable

01/03/2017 (C) POH 29

Employee’s income tax
borne by employer

Tax-on-tax computation applies*

*not examinable (See CAST 15.8 for examples)

01/03/2017 (C) POH 30

Premium paid by employer for
insurance on employee’s life
 Who is the beneficiary?
 Employee / Dependants
 Taxable benefit

 Employer (i.e. keyman insurance)

 Not a reward to employee
 Not taxable

01/03/2017 (C) POH 31

Club membership fees
paid by employer
 Corporate membership
Individual membership held in trust for
employer

 Entrance fees  not taxable

 Annual subscription fees  taxable on

portion thereof attributable to private use

01/03/2017 (C) POH 32

Club membership fees
paid by employer
 Individual membership beneficially
owned by employee

 Entrance fees  taxable

 Annual subscription fees  taxable on

portion thereof attributable to private use

01/03/2017 (C) POH 33

Employer’s CPF contributions

 Statutory
 Exempt in the hands of the employee
 (Deductible for employer – see seminar on Deductions)

 Excess
 Taxable on the employee
 (Not deductible for employer – see seminar on Deductions)

01/03/2017 (C) POH 34

Employer’s contributions to an overseas
pension/provident fund

General treatment*:

 Taxable on the employee

 (Deductible for the employer if contributions are obligatory under the

fund or under the employment contract – see seminar on Deductions)

* An IRAS administrative practice that deviates from this treatment may apply
in certain situations

01/03/2017 (C) POH 35

Home leave passage
provided by employer
 Taxable on the employee based on the cost to
the employer
 Concession for employees who are not
Singapore citizens or PRs:
 Taxable benefit = 20% of cost
 Limited per year to one return passage each for
employee and spouse, two return passages for
each child
This concession will be withdrawn from YA 2018.

01/03/2017 (C) POH 36

Housing benefit (rent-free/subsidised housing provided by
employer, other than in a hotel / serviced apartment)

w.e.f. YA 2015,

Taxable benefit =
 Annual Value (AV) of the property
less
 Rent contributed by employee (if any)

01/03/2017 (C) POH 37

Furniture and fittings (provided by the
employer) in a residential property
w.e.f. YA 2015,
Taxable benefit = X% of AV of the property

where:
• X% = 40% if partially furnished (i.e. only fittings, e.g.
lightings, air-conditioner / ceiling fan, or water-heater,
provided)
• X% = 50% if fully furnished (i.e. both fittings and
furniture / household appliances provided)

01/03/2017 (C) POH 38

Car benefit
(car provided by the employer for the employee’s private use)

 Cost of petrol borne by employee

 Taxable benefit
= 3/7 x [(Car cost – Residual value)/10]
+ $0.45/km x private km

 Cost of petrol borne by employer

 Taxable benefit
= 3/7 x [(Car cost – Residual value)/10]
+ $0.55/km x private km

01/03/2017 (C) POH 39

Employee stock options

Option to purchase shares granted in

respect of employment (i.e. reward for
employment services)

Taxable benefit from employment

quantified under s10(6)

01/03/2017 (C) POH 40

Employee stock options

 Companies listed on SGX

 Taxable benefit
= (Last done price on listing date
– Price paid by employee)
x No. of shares acquired under the option
 Accrues for tax in the year of exercise

01/03/2017 (C) POH 41

Employee stock options

 Other companies
 Taxable benefit
= (MV on date of exercise
– Price paid by employee)
x No. of shares acquired under the option
 Accrues for tax in the year of exercise

01/03/2017 (C) POH 42

Employee stock options

GRANT EXERCISE LISTING SALE

$1.10 $1.20 $1.30 $1.50

Option price: $1 per share

10,000 shares granted under the option
Option exercised for 8,000 shares

01/03/2017 (C) POH 43

Taxation of employment income

Question 1 – Allowances,
Reimbursements, BIK (housing and
related benefits, car benefit)

Question 2 – various other BIK

01/03/2017 (C) POH 44

 Tax-Accrual of Bonus
and Director’s Fee

01/03/2017 (C) POH 45

Tax-accrual of bonus

 Contractual bonus

 Non-contractual bonus

 Conditional bonus paid in advance

See CAST 11.3.1A for details

01/03/2017 (C) POH 46

Tax-accrual of director’s fee

 Director’s fee approved in arrears

 Director’s fee approved in advance

See CAST 11.3.1A for details

01/03/2017 (C) POH 47

Income Tax Aspects Peculiar
to Individuals
Residence of Individuals

01/03/2017 (C) POH 48

How to determine if an individual is a
resident or non-resident?
 Statutory tests – s2(1)
 Qualitative test
 Quantitative tests
 Physical presence
 Employment
(to be a SGP resident, satisfy any one/more of the tests)
 IRAS concessionary practices
 2-year concession
 3-year concession

01/03/2017 (C) POH 49

Qualitative test
 ‘normally residing’ in SGP in the PY?
 factors to consider
 absence(s) from SGP (if any) must be:
 temporary
 reasonable

 not inconsistent with claim to be a resident

Consider:
 period of absence?

 purpose of absence?

 intention to return?

01/03/2017 (C) POH 50

Quantitative tests
 Physical presence
 physically present in SGP for at least 183
days in the PY?
 Employment
 exercising an employment in SGP for at
least 183 days in the PY?
 test is not applicable to non-executive
directorships
(see CAST 6.3.1.2, Illustration 4)

01/03/2017 (C) POH 51

Concessionary practice

 2-year concession
 exercising an employment in SGP or
physically present in SGP
 for a continuous period of at least 183 days

 straddling across 2 consecutive calendar

years
 resident for both relevant Ys/A

01/03/2017 (C) POH 52

2-yr concession - Example

 Senor Maccaroni Roma (normally lives

o/s SGP)
 Arrives in SGP and commences SGP
employment: 1.9.2016
 Leaves SGP after completing SGP
employment: 31.5.2017
 Consider his SGP residence status for
YA 2017 and YA 2018

01/03/2017 (C) POH 53

2-yr concession - Example
SGP emp (or PP) ≥ 183 days

1.9.2016 31.5.2017

< 183 days < 183 days

CY 2016 2017

YA 2017 2018

01/03/2017 (C) POH 54

Concessionary practice

 3-year concession
 exercising an employment in SGP or
physically present in SGP
 over a continuous period

 straddling across at least 3 consecutive

calendar years
 resident for all relevant Ys/A

01/03/2017 (C) POH 55

3-yr concession - Example

 Senor Pizza Napolitano (normally lives

o/s SGP)
 Arrives in SGP and commences SGP
employment: 1.10.2015
 Leaves SGP after completing SGP
employment: 31.3.2017
 Consider his SGP residence status for
YA 2016, YA 2017 and YA 2018

01/03/2017 (C) POH 56

3-yr concession - Example
SGP emp (or PP) ≥ 3 consecutive CYs

1.10.2015 31.3.2017

< 183 days < 183 days

CY 2015 2016 2017

YA 2016 2017 2018

01/03/2017 (C) POH 57

Income Tax Aspects Peculiar
to Individuals
Taxation of Resident Individuals

01/03/2017 (C) POH 58

Taxation of resident individuals –
Personal reliefs
 Entitled to personal reliefs, based on
personal/family circumstances
 Personal reliefs are deducted against AI
to arrive at CI
 List of personal reliefs (s39) – next slide

01/03/2017 (C) POH 59

Taxation of resident individuals –
Personal reliefs
 Earned income relief
 Spouse relief
 Handicapped spouse relief
 Child relief
 Qualifying child relief
 Handicapped child relief
 Working mother’s child relief
 Grandparent caregiver relief
 Relief for life insurance premiums
 Relief for employee’s contributions to approved pension, provident fund or society
(e.g. CPF), including relief for CPF contributions by a self-employed person
 Aged / Handicapped parent relief
 Handicapped sibling relief
 Relief for course fees
 Relief for a National Serviceman, including relief for the wife/widow and parents of
a National Serviceman
 Relief for contributions made to the Supplementary Retirement Scheme (SRS)
 Relief for CPF top-ups
 Foreign domestic worker levy relief
Note: Total personal reliefs capped at $80K per individual per YA from YA 2018

01/03/2017 (C) POH 60

Taxation of resident individuals –
Tax rates

 Tax liability = CI x Tax rates

 Graduated progressive tax rate structure
– see Part A, 2nd Schedule ITA

01/03/2017 (C) POH 61

Taxation of resident individuals –
Tax rates in Part A, 2nd Sch (YA 2012 to YA 2016)

01/03/2017 (C) POH 62

Taxation of resident individuals –
Tax rates in Part A, 2nd Sch (w.e.f. YA 2017)

01/03/2017 (C) POH 63

Taxation of resident individuals –
Tax rebates
 Rebates are set off against tax liability

 One-off rebate
For YA 2017, 20% rebate of the tax payable,
capped at $500

 Parenthood rebates

01/03/2017 (C) POH 64

Income Tax Aspects Peculiar
to Individuals
Taxation of Non-Resident Individuals

01/03/2017 (C) POH 65

Taxation of
non-resident individuals
 Tax rate
 Generally, a flat 22% (w.e.f. YA 2017)

 Reliefs for SGP employment income

 Section 13(6) exemption
 Section 40B relief

01/03/2017 (C) POH 66

s13(6) and s40B

Non-resident exercising
SGP employment
(Tax treatment of SGP
employment income?)

SGP employment SGP employment

 60 days in PY > 60 days
but < 183 days in PY

Emp income exempt Emp income taxable

– s 13(6) – claim s40B relief

01/03/2017 (C) POH 67

s13(6) exemption

 Exemption of SGP employment income

 NR individual;
 Employment in SGP ≤ 60 days in PY; AND

 Employment is a short-term employment

(i.e. does not straddle across at least 3
consecutive calendar years – see CAST
20.3.3, Illustration 4)

01/03/2017 (C) POH 68

s40B relief

 Tax SGP employment income based on:

 flat rate of 15%; or

 resident basis (i.e. with personal reliefs, and
applying graduated rates in Part A, 2nd Sch),

whichever is the higher liability

01/03/2017 (C) POH 69

Example –
SGP employment income of NR individual

 Senora Spaghetti Venezia (a NR)

 Commences SGP employment: 1.12.2016
 Completes SGP employment: 31.3.2017

 Advise on the taxability of her SGP

employment income

01/03/2017 (C) POH 70

Example –
SGP employment income of NR individual
SGP employment

1.12.2016 31.3.2017

> 60 days
≤ 60 days
< 183 days
CY 2016 2017

YA 2017 2018

01/03/2017 (C) POH 71

Residence of individual
and income tax implications

Question 3

01/03/2017 (C) POH 72