Guide To Providing Car Benefits To Directors & Employees Of A Company

Some companies provide car benefits to directors and top management as part of a competitive compensation package to attract and retain top talent.

These benefits may serve as a status symbol, reflecting the company’s success and enhancing its brand image. Additionally, offering company cars ensures directors have a convenient, reliable, and quick-mode of transportation, which can increase productivity and efficiency.

The practical aspect of efficiency and productivity is crucial, as directors and management typically have packed schedules – filled with meetings, events, and business activities, often in various locations.

While some may think that the provision of car benefits can be a tax-efficient way of compensating directors compared to higher salaries, this isn’t necessarily true in Singapore. The Inland Revenue Authority of Singapore (IRAS) has strict guidelines concerning the tax treatment for cars and car-related benefits.

Whether you are the business owner, director, part of the management team, or a highly-valued employee, it’s worth noting that any car-related benefits that you receive from your company are generally taxable.

In other words, while it’s a nice benefit that you enjoy from the company, it’s ultimately part of your employment benefits package that you have to pay income tax on.

Read Also: Cost Guide To Buying A Commercial Vehicle In Singapore

Car Provided By Employer

RAS explains that the value of the benefit derived from a new car is computed as follows:

3/7 x [(car cost – PARF rebate)/10 + actual running and maintenance costs incurred by the employer]

For example, let’s take the following scenario.

Cost of a brand new car: $200,000

PARF rebate: $10,000

Value of benefit would be 3/7 X [($200,000 – $10,000)/10] = $8,142.

In addition, actual running and maintenance costs incurred by the employer will also added as part of the overall car benefits. If we assume this to be $5,000 a year. The total car and car-related benefit enjoyed would be $13,142 ($8,142 + $5,000). This will be considered as taxable income.

Driver/Chauffeur Services

Similarly. Driver/chauffeur services are considered a taxable benefit. This can be calculated with the following formula:

[Annual cost of driver x (private mileage / total mileage)]

For example, assuming a company hires a driver at a salary of $60,000 per year ($5,000 per month) and based on the mileage recorded, 40% of the time is spent ferrying their CEO on personal matters.

In this instance, the taxable benefit attributed to the CEO would be $24,000 for the year (0.4 X $60,000).

Car Park Charges

Car park charges that are reimbursed or provided by the employer (e.g. season parking, daily car park charges or complimentary ticket) at one or more locations when an employee drives from home to work and parks his/her own car in the office car park or a nearby car park are taxable. In other words, season parking at home and the office, which are reimbursed by the company, are taxable benefits. 

However, reimbursement of car park charges for client meetings (i.e. for work purposes) is not taxable.

ERP Charges

Allowance on ERP charges is taxable. However, if the ERP charges are incurred for work purposes, they are not taxable.

Reimbursement On Mileage For Business Usage

It also common to see employees using their own personal car for business purposes. In such cases, reimbursements for business usage can be a fair arrangement.

Such reimbursement on mileage for business usage is not taxable. According to IRAS, the rate of reimbursement for mileage depends on the company’s policy. While there is no prescribed mileage rate, the reimbursement made by the company should be reasonable.

Read Also: Why Some Companies Choose To Give Allowance, And Others Pay Reimbursements

Taxes, Repairs & Maintenance Expenses Of Employee’s Own Vehicle

Any taxes, repair and maintenances expenses that are paid for by the company for an employee’s own vehicle would be considered as a taxable benefit. 

Car Allowance

Car allowances are considered taxable income.

Understanding The Tax Implications When Car Benefits Are Provided

Whether you are an HR professional designing the car benefits for your company or an employee who is a recipient of these benefits, it’s crucial to understand the tax implications of these benefits.

IRAS enforces precise guidelines on the taxation of these benefits, ensuring that any perks from company-provided cars, chauffeur services, or car allowances are appropriately taxed.

Read Also: 10 Types Of Company Benefits That Employees Have To Pay Income Tax On

This article was first published on 5 February 2024 and has been updated.

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