Fringe Benefits. FASTAX 6 Jun 2017

Transcription

1 Fringe Benefits FASTAX 6 Jun

2 Fringe Benefits Extra benefits (goods or services), given free to all employees in addition to wages/ salaries. Can I claim input tax incurred on fringe benefit provided to my employees? Do I need to account for output tax when I let my employees use my business goods for free? 2

3 Fringe Benefits Based on 2 nd edition of e-tax guide on GST: Fringe Benefits Applies with effect from 16 May 2016 Before 16 May 2016, you may have claimed input tax on the provision of fringe benefits to your employees based on previous versions of the e-tax Guide. No input tax needs to be repaid. However, you are still required to account for output tax if the fringe benefits are goods that have either been: i. Given as gifts to employees under the Gift Rule; or ii. Used temporarily by your employees for their private purposes. 3

4 Claiming Input Tax Is supply contractually made to taxable person? Yes Is input tax specifically disallowed under Regulations 26 & 27? NO Expense incurred for biz purpose? (Close Nexus Test) NO Input tax disallowed Start NO Yes Is the employee acting as the agent of the taxable person in receiving the supply or have you met the admin concession? NO Input tax disallowed because supply is made to employee e.g. telephone bill made in the name of employee for personal calls Yes Input tax disallowed e.g. club subscription fees, medical & accident insurance premiums, medical expenses, family benefits, cost and running expenses of motor cars. Yes Input tax allowed. 4

5 Input Tax Claims Input tax is claimable if all of the following conditions are satisfied: You are GST-registered Goods or services are supplied to you Goods or services are used for the purpose of your business Goods or services are used for the making of taxable supplies or out-of-scope supplies which would be taxable supplies if made in Singapore It must not be disallowed under Regulations 26 and 27 of the GST (General) Regulations 5

6 Claiming Input Tax Goods and services acquired solely for the private use by: i. GST-registered sole-proprietor; ii. partners of a GST-registered partnership; iii. directors of a GST-registered company; and iv. persons connected to the GST-registered sole proprietor, partnership or company, as the case may be. NOT allowed to claim GST because the purchases will not be considered as used for the purpose of business. 6

7 Claiming Input Tax Supplied to you = Contractually made to business Tax invoice issued by the supplier is addressed to you Prima facie, supply will be treated as contractually made to you Tax invoice addressed to your employee Your employee must be acting as your agent in acquiring the supply of goods or services There are fringe benefits that are clearly contracted in the employee s name and he is unlikely to be acting as an agent E.g. professional memberships, educational courses and mobile phone plans 7

8 Claiming Input Tax Admin Concession For tax invoices addressed to your employee, you can claim input tax if: your employee is reimbursed; and the expenses are recognised as business expenses in your business accounts If you partially reimburse your employee, you will be allowed to claim GST in proportion to the amount reimbursed Only the portion attributable to business usage is claimable 8

9 Claiming Input Tax Admin Concession If you have difficulties determining the business and private portions of the expenses, you may claim input tax as follows: a) For full reimbursements: based on 4/7 of the GST incurred on the expenses. 4/7 is an estimate of the number of days that an employee spends at work in a week b) For partial reimbursements: based on 7/107 of the amount reimbursed or 4/7 of the GST incurred on the expenses, whichever is lower. 9

10 Claiming Input Tax Allowances: Pre-determined amount to cover an estimated expense and will be given to your employee regardless of whether it is incurred. GST is NOT claimable even if receipt/ invoice is provided by your employee after the expense is incurred. E.g. Flat $20 meal allowance if he works beyond normal office hours. NOT claimable 10

11 Accounting for Output Tax YES when the taxable person is entitled to claim/has been allowed input tax in respect of the goods given free to employees 11

12 Accounting for Output Tax You must account for output tax based on the Open Market Value of the supply of goods given away for free to your employees except when: The cost of the goods (gift) is $200 (exclusive of GST); or No input tax was allowed on the purchase or importation of those goods (e.g. purchase from non GST-registered supplier and disallowed expenses); or Free catering of food/beverage; or Free accommodation in a hotel, inn, boarding house or similar establishment. 12

13 Accounting for Output Tax Are free services provided by employer to employees subject to output tax? NO GST need not be accounted on services provided for free 13

14 Accounting for Output Tax Examples Even though you are able to claim GST on the following services procured, you are not required to account for output tax when they are provided free to your employee: Transportation provided from MRT to workplace Insurance required under Work Injury Compensation Act 14

15 Accounting for Output Tax Important! You need to distinguish free services from deemed supply of services A deemed supply of service occurs when goods held for business purposes are put to private use 15

16 Accounting for Output Tax Business goods used temporarily for free by employees for their private purpose You are required to account for output tax if you allow your business goods to be used temporarily for free by employees, except where: No input tax has been allowed on the purchase of the goods; or There is a close nexus to your business activities not regarded as provided for employees private use 16

17 Accounting for Output Tax Deemed Supply of Services Example A carpet cleaning company allows its employee to use its carpet cleaning equipment free of charge for his private usage. Input tax has been claimed on the equipment. No close nexus output tax is accountable Value of supply = COST of letting your staff use for free 17

18 Accounting for Output Tax Goods Services If given free to employees, GST is accountable. GST is accountable on deemed supply of services. Exception: Free food & accommodation Gift $200 Gift > $200 but no input tax was claimed previously Exception: There is a close nexus to your business activities Free services There is a close nexus to your business activities 18

19 Close Nexus Test Close Nexus Test Whether fringe benefits are incurred for the purpose of business Whether free use of business goods by employees is for the purpose of business Input tax is claimable, if all other conditions in Slide 5 are met Output tax need not be accounted on the free use of business goods 19

20 Close Nexus Test The Close Nexus Test is satisfied if any of the following is met: 1. Is necessary for the proper operation of your business 2. Directly maintains or promotes the efficiency of your business operations 3. Primarily promotes staff interaction 4. Encourages the upgrading of your employee s skills and knowledge relevant to the business 5. Is given in recognition of the contribution of your employee towards the business 6. Promotes corporate identity 20

21 Close Nexus Test Indicator 1: Necessary for the proper operation of business Key idea: the benefit must be provided in order for your business to function Depends on factors such as the business nature, commercial requirements, industry practice and regulatory requirements Example: Dormitories provided to house foreign workers in the construction industry, so as to meet regulatory requirements and ensure the quick and efficient allocation of labour 21

22 Close Nexus Test Indicator 2: Directly maintains or increases the efficiency of business operations To allow your employee to better utilise his time and effort in carrying out his job duties contributes to efficiency of business operation Example: Provision of meals in the course of a business meeting which allows the meeting to be carried on without the disruption of a lunch break 22

23 Close Nexus Test Indicator 3: Primarily promotes staff interaction Benefits incurred for corporate events/ activities that primarily promote staff interaction improve working relationship between staff and encourage future cooperation Example: Goods (e.g. door gift) and services (e.g. entrance ticket is free) provided to employees at organised company events such as corporate dinner and dance 23

24 Close Nexus Test Indicator 4: Encourages the upgrading of employee s skills and knowledge relevant to the business Expenses incurred to upgrade skills and knowledge will be regarded as having a close nexus if they enable your employee to: Better perform his job duties Progress further in your company Perform other job functions in your company Example: Professional membership fees for accountants IT programming course for IT engineer 24

25 Close Nexus Test Indicator 5: Given in recognition of employee s contribution towards the business Goods and services must be given to reward your employees for their past contributions or performance Strong link to job contribution or performance Example: Excellent service award Long-term service award 25

26 Close Nexus Test Indicator 6: Promotes corporate identity Corporate identity is the overall image and brand of your business Provision of the benefit is primarily to promote the image of your business Example: provision of uniforms to promote the corporate image 26

27 Application Exercise 27

28 Application Exercise Question 1 ABC Pte Ltd has paid for its employee the subscription fee to Institute of Certified Public Accountants of Singapore (ICPAS) as they believe that being a member of a professional body would greatly aid the business in terms of the accuracy of their financial statements. The tax invoice for the subscription fee is billed to the company. Is the GST incurred claimable? Answer: The subscription to ICPAS is regarded as for business purpose since it helps the employees better perform their job duties (e.g. preparing financial statements) satisfies the Close Nexus Test Indicator 4: Encourages the upgrading of employee s skills and knowledge relevant to the business. Hence, input tax incurred on the subscription fee of professional bodies (e.g. ISCA and SIATP) is claimable if you satisfy the other conditions for claiming input tax. 28

29 Application Exercise Question 2 In year 2013, Hao Lian Pte Ltd will be organizing an annual lucky draw for their employees where the top prize would consist of S$2,000 and a 20-inch television which cost S$321 (inclusive of GST). Is output tax accountable in the above scenarios? Answer: For the cash amount of S$2,000, GST is not accountable as cash rewards are not treated as a supply. For the television prize: If input tax has been claimed, output tax should be accounted (since the cost of TV w/o GST = 100/107 x $321 = $300). If input tax is not claimed, output tax on such gift need not be accounted. 29

30 Application Exercise Question 3 Shiok Enterprise is in the movie industry. Due to the nature of such industries, employees incur high entertainment expenses. Out of goodwill, the directors have agreed to reimburse the entrance fee and subscription fee for recreational sporting club to employees. The relevant tax invoices are issued to the company s name. The business has decided that such expenses are incurred for business purposes. Is the GST claimable? Answer: No. Input tax claims are disallowed under Regulation 26 of the GST (General) Regulations. 30

31 Application Exercise Question 4 X Trading bought some goods from a non GST-registered supplier for S$5,000. It was later decided that these goods are to be given free to one of their employees as a recognition of his hard work for the previous FY. The directors has noted that it is necessary to account for output tax for goods given free to employees. Is this correct? Answer: There is no requirement to deem (account) output tax as no input tax was allowed to them previously. 31

32 Application Exercise Question 5(a) XYZ LLP is currently providing 20 days of free hotel accommodation in Singapore for their foreign employees who are relocating to Singapore so that they are able to find a flat. Is the GST claimable and is output tax required to be deemed? Answer: As an administrative concession, you can claim GST incurred on temporary accommodation (e.g. hotel room and serviced apartment) provided to your foreign employees who relocate to or come to Singapore for business activities, such as meetings and projects. Generally, the provision of accommodation not exceeding a period of 30 days is regarded as temporary accommodation. 32

33 Application Exercise Answer (CONTD): If the family members of foreign employees are staying together in the provided temporary accommodation, any costs incurred to house the family members, even on temporary basis, are blocked as family benefits under Regulation 26 of the GST (General) Regulations. However, if he is entitled under your company s policy to a specific type of accommodation (e.g. a hotel suite) for his individual stay, input tax will be allowed in full even if the accommodation is used to house both the employee and his family members so long as no additional cost is incurred to accommodate the latter. E.g. if costs are incurred to provide additional beds in the hotel suite for the family members, input tax on such additional costs will be disallowed. 33

34 Application Exercise Answer (CONTD): Output tax is not required to be deemed since this is provision of accommodation to employees. 34

35 Application Exercise Question 5(b) All of XYZ LLP s potential employees are required to undergo a medical check-up before they are assessed to be acceptable. Can input tax be claimed? Is output tax required to be deemed? Answer The input tax incurred for the pre-employment medical examination which is a compulsory requirement in their employment criteria is claimable. This is not disallowed under Regulation 26 of the GST (General) Regulations since they are yet to be employees of the company. The accounting of output tax for such free services is not required. 35

36 Exercise Preparation of GST Return 36

37 Answers Box Description S$ 1 Total value of standard-rated supplies 2 Total value of zero-rated supplies 3 Total value of exempt supplies 4 Total value of (1)+(2)+(3) 5 Total Value of taxable purchases 6 Output tax due 7 Input tax and refunds claimed 8 Net GST to be paid to / claimed from IRAS 9 Total value of goods imported under MES and other approved schemes 37

38 Answers Box Description S$ 1 Total value of standard-rated supplies 4,000 2 Total value of zero-rated supplies 2,000 3 Total value of exempt supplies Total value of (1)+(2)+(3) 6,300 5 Total Value of taxable purchases 50,935 6 Output tax due Input tax and refunds claimed 3, Net GST to be claimed from IRAS 3, Total value of goods imported under MES and other approved schemes 0 38

39 Thank you! =) Disclaimer: This information aims to provide a better general understanding of IRAS practices and is not intended to comprehensively address all possible tax issues that may arise. This information is correct as at 16 May While every effort has been made to ensure that this information is consistent with existing law and practice, should there be any changes, IRAS reserves the right to vary our position accordingly. 39

40 40