IR8A filing: Common pitfall to avoid

Time flies, it has been over a month since prepared my last article on “Bonus 2015: Better to pay in Dec 2015?” As they say, the holiday’s season are over and it is now tax reporting time.

By 1 March of every year, all employers in Singapore are required to submit the tax returns for all the employees in the previous year. The tax return which is known as IR8A form contains a summary of all taxable income of the employee that is derived from the employment with the employer and it must be completed for ALL employees:

·       Full-time resident employee;

·       Part-time resident employee;

·       Non-resident employee;

·       Company director (including a non-resident director); and

·       Pensioner.

Employers with up to 10 employees can choose to issue a hardcopy version of the IR8A to their employees. However, all employers with more than 10 employees will need to file this electronically.

 

3 Common pitfalls for IR8A filing

A) As a common guideline, employee payment items that requires CPF contributions are normally taxable. However, there are exceptions to this rule. Below are some such cases:

·       Payment of rent for employee to third party – This is considered as a benefit in kind because there is no direct payment to employee, no CPF contribution is incurred. However, this is a taxable benefit.

·       Notice Pay – Should the employer pays a staff notice pay during the termination process, this notice does require CPF contribution but it is still taxable.

·       Retirement benefits – Similar situation as Notice Pay.

Note: The above list is by no means exhaustive. Please refer to IRAS and CPF website for the full list.

 

B) Benefits In Kind refer to non-wage benefits provided by employers to their employees. These benefits are given to employees as part of their overall remuneration packages and can take the form of either goods or services.

Below are some of the major categories of benefits in kind.

·       Accommodation and Related Benefits

·       Air Passage

·       Awards

·       Car and Car-related Benefits

·       Benefits relating to Loans

·       Central Provident Fund (CPF) Contributions

·       Insurance Premium

For more information, please refer to https://www.iras.gov.sg/irashome/Businesses/Employers/Tax-Treatment-of-Employee-Remuneration/ for more details.

 

C) Employee Bonus

There are 2 types of employee bonuses in IRAS context

·       Contractual Bonus - A contractual bonus is paid in accordance with the terms of a contract of service and cannot be withdrawn by the employer without legal consequences. Examples of a contractual bonus are:

·       13th month payment or annual wage supplement; and

·       bonus paid under a "deferred bonus plan" or "retention bonus plan".

 

·       Non Contractual Bonus

On the other hand, non-contractual bonus means the employer can withdraw or cancel it at any time before the actual payment of the bonus without legal consequences. This bonus is taxable based on the date on which the bonus is paid.

 

That’s all I have to share for now. If you need help on IR8A matters, feel free to drop me an email at steve.koh@aghrm.com

 

Steve Koh

Director, AGHRM

 

AGHRM is a Singapore based cloud HR and payroll solutions provider. We help companies to streamline HR operations by empowering employee self-service and automating time consuming processes. AGHRM is also an appointed ICV integrated solutions provider.