IRAS issues e-Tax Guide: “Qualifying conditions for pension/provident funds to be approved under section 5 of the ITA”

13 October 2014

On 8 October 2014, the Inland Revenue Authority of Singapore (IRAS) issued an e-Tax Guide, “Qualifying conditions for pension/provident funds to be approved under section 5 of the Income Tax Act (ITA)”.

An employer whose pension/provident fund is an approved section 5 fund is allowed a tax deduction on the contribution to the fund. The investment income derived by the fund is tax exempt. All benefits paid out of the fund to the employees, other than the amount of tax-exempt benefits accrued up to 31 December 1992 paid upon retirement, are taxable at the time of their entitlement to such benefits.

This Guide sets out the qualifying conditions that a pension/provident fund must meet in order to obtain approval under section 5 of the ITA. Essentially, they are:

  • contributions to the fund must be alienated to a third party, i.e. trustee(s) of the fund. This effectively means that the employer must make cash contribution for his employees to a fund which is set up under a trust;
  • benefits provided under the fund must be made available to all employees, both bargainable and executive;
  • the same formula for computing the benefits under the fund must be applied to all employees;
  • the level of benefits payable to each employee must not exceed the following formula (hereafter referred to as the “benefit limit formula”):

(2.25 x last drawn salary x number of years of service) less total employer contributions to the Central Provident Fund (CPF) account of that employee;

  • employees cannot contribute to the fund; and
  • the trustee(s) of the fund must exercise statutory duty of care according to the prevailing Trustees Act (Cap 337) with regard to the management and investment of monies in the fund.

This Guide replaces the IRAS e-Tax Guide published on 15 July 2011.

For full details, please refer the e-Tax Guide on the IRAS website.

Source: This article was extracted from the Inland Revenue Authority of Singapore’s (IRAS) website. Visit for more information.