This year, Chinese New Year will be celebrated on 29 and 30 January (Wednesday and Thursday – offering a perfect opportunity to use 1 day of leave to enjoy a 5-day long weekend.
In the spirit of celebrating Chinese New Year, employers may give employees red packets (aka hongbaos or angbaos) and/or festive gifts such as Bak Kwa, pineapple tarts or other things.
While these gifts are a token of good wishes and appreciation for employees, what we may not know is that they may be taxable in Singapore!
Do Employees Have To Pay Tax On CNY Hongbaos?
Cash given to employees in CNY red packets is considered a cash gift. According to IRAS, a cash gift for festive seasons (like Chinese New Year, Hari Raya, Deepavali or Christmas) of up to $200 is not taxable. Similarly, non-cash gifts that are worth up to $200 are also exempt from taxes.
However, this cash or non-cash gift must be available to all staff (i.e. not just a select few).
In addition, both cash and non-cash gifts that are over $200 are subject to income tax. In this instance, the full value of the gift will be subject to income tax. For example, if employees get a red packet of $201, the full amount of $201 is taxable and not just the additional $1.
Finally, the tax exemption threshold of $200 is applicable per occasion. In other words, if an employee gets $200 in a CNY red packet, and another $200 when they get married in the same year, both cash gifts are not taxable as they both fall under the tax exemption threshold. Again, the wedding cash gift would also need to be something given to all employees rather than just to a select few.
Read Also: 10 Types Of Company Benefits That Employees Have To Pay Income Tax On
Do Employers Have To Make CPF Contributions For CNY Hongbaos?
Apart from taxes, both employers and employees have to understand whether CPF contributions need to be paid on any gifts, especially for cash benefits.
The CPF website clearly states that CPF contributions have to be made for cash payments given to employees in hongbaos. As there is no mention of any numerical figures, we can also take this to be the case regardless of the amount (i.e. whether it is more or less than tax exemption threshold of $200). Similarly, CPF contributions would also need to be paid for other cash gifts – for their wedding or other festive occasions.
By default, this also means that both employers and employees must make CPF contributions on their hongbao cash gift. Since such cash benefits will also be considered as Additional Wages (AW), as it is not wages paid based on employee’s employment during that month.
For non-cash benefits, that are not legal tender or convertible into cash, no CPF contributions is required. This means non-cash CNY gifts, regardless of its value, do not require CPF contributions. However, gifts such as money order or cash vouchers, which can be redeemed as cash, is considered a cash benefit, and will attract CPF contributions.
Read Also: 10 Types Of Employee Payments (Apart From Salary) That Businesses Need To Pay CPF For
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