In 2020, we have a total of four budgets to date, with many schemes introduced to support both individuals and companies.
With this, an important question for both individuals and companies arise. Are these grants from the government taxable, either at the personal income or the corporate income tax level?
Let’s start at the individual level.
Personal Income Tax: Which Grants, Subsidies & Awards Are Taxable?
The good news is that generally speaking, most grants, subsidies and awards that we receive from the government are considered non-taxable. This include grants such as the GST Vouchers and National Service Housing, Medical & Education (HOME) Awards.
However, if these grants, subsidies and awards are earned and considered as a type of remuneration in return for our effort, achievements and employment, they could be regarded as taxable income.
For example, NSman income is considered taxable income. This would include awards and allowance such as IPPT monetary incentive, marksmanship and your service and make-up pay, which are either earned, or provided as a remuneration, for our service.
So, while these are incentives given by the government, they are also considered as taxable income.
At the individual level, we don’t have to worry much as most grants are considered non-taxable. For example, the Solidarity Payment of $600 that was paid to all Singaporeans aged 21 and above is considered a gift and thus non-taxable.
Even if they are (e.g. your well-deserved $500 IPPT Gold), they are generally not significant enough to make an impact on your final taxable income.
Of course, if you are already at the highest personal income tax bracket (22%), you will pay an extra $110 (22% of $500) for your IPPT gold. This may seem significant for most of us, but if your taxable income is already above $320,000, we doubt you will be feeling the pinch.
Corporate Income Tax: Which Grants & Payouts Are Taxable?
If you are running a company, it’s important to know which grants and payouts are taxable.
Companies, unlike individuals, tend to get more grants and payouts at higher quantum. Companies are generally taxed at 17% unless they have been granted tax incentives that allow for lower tax rates.
For example, your company receives a government grant of $100,000. As the purpose of the grant is to help cover operating expenses, this grant is revenue in nature and your company will be liable to pay corporate income tax on this grant. The current corporate income tax rate is 17% and the corresponding corporate tax payable is $17,000.
How To Differentiate Between Grants & Payouts That Are Taxable
As explained by IRAS, the following guiding principle is one way business owners can use to determine whether a grant or payout is taxable.
– Grant/payout is taxable if it’s given to supplement trading receipts or to defray operating expenses of the company. The grant/payout is revenue in nature.
– Grant/payout is non-taxable if it’s given for the purpose of acquiring capital asset of the company. The grant/payout is capital in nature.
For example, under the Wage Credit Scheme (WCS), the Government co-funds a percentage of wage increases given to Singapore Citizen employees who earned a gross monthly wage of up to $5,000*. As this grant is used to help cover the increase in the cost of labour, which is an operating expense, the grant is revenue in nature. The grant is therefore considered as a taxable income.
Another example would be maternity/paternity leave (Government Paid Leave/ Benefit). Since payouts are given to the company to compensate them for the loss of productivity that they suffer when their employees are on leave, it’s considered as a revenue payout for the company and is thus taxable.
Other examples include the SkillsFuture Enterprise Credit, which encourages employers to undertake enterprise and workforce transformation. This is also considered as a taxable grant since it is intended to defray operating cost of the employers. You can check out a list of grants/payouts which IRAS has clarified on here.
It’s worth noting however, that the Job Support Scheme (JSS) is exempted from corporate income tax.
Do Check With Your Accountant Or With IRAS If You Are Unsure
If you are running a company, you would likely already have an accountant, whether internal or external, to help you with your tax filing. Your accountant should know what to do (we hope!).
If you don’t have an accountant, it will be best to check directly with IRAS if you are unsure about which grants/payouts are taxable to avoid under or over declaring your income.
As a gentle reminder, the Corporate Tax Filing Season 2020 is running from now till 15 December 2020. You can find out more details on how to file in your companies’ tax filing obligations on the IRAS website.
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