11 March 2013

The IRAS has issued a new e-Tax guide to replace the e-Tax guide titled “New Tax Treatment of Director’s Fees and Bonus from Employment” published on 2 Nov 1993.

The new e-Tax Guide retains the 1993 e-Tax Guide’s coverage of bonus payments for services rendered in a particular accounting year that are paid shortly after the end of that year; and director’s fees approved in arrears.

In addition, the new e-Tax Guide clarifies the tax treatment of other payment/approval arrangements for bonuses and director’s fees which have not been specifically addressed in the 1993 e-Tax Guide. These clarifications are as follows:

(a) Contractual bonuses payable in accordance with the terms of a bonus plan adopted by an employer

In the case of contractual bonuses with terms attached, the bonus becomes taxable income to the employee:

(i) when the contracted conditions are met, in the case where the employer’s liability to pay bonuses is contingent upon conditions to be met in the future, or

(ii) when the bonus is paid (ie the bonus payment date), in the case of a conditional bonus paid in advance. If the employee subsequently returns the bonus, the amount returned is considered as an adjustment of income in the year when the amount is returned.

(b) Director’s fees approved in advance and director’s fees approved in arrears

Director’s fees approved in advance
In the case of director’s fees approved in advance, the earliest date when the director can be entitled to the director’s fees, is as and when his services are rendered. If the director can enforce the payment of director’s fees on a monthly basis under the terms in his/her letter of appointment, he/she would be entitled to the director’s fees on a monthly basis.

Director’s fees approved in arrears
In the case of director’s fees approved in arrears, the earliest date when a director is entitled to the director’s fees, is the date the fees are voted and approved at a company’s AGM. If a director is not entitled to director’s fees approved in arrears on the date the fees were voted and approved at the company’s AGM, supporting documents must be available to show that the director could only enforce the payment of director’s fees on a date falling after the date the fees were approved at the company’s AGM

(c) Situations where IRAS will not allow deduction of director’s fees or employees’ bonuses for the year in which they are accrued as expenses in a company’s financial accounts

Provisions for director’s fees or employees’ bonuses made for a year, where the amount and/or the timing of payment are not properly ascertained, will not be allowed a deduction for the year. The new e-Tax guide provides examples of such situations and some corresponding workings on how deductible amounts are calculated under such situations.

The new e-Tax guide “Tax Treatment of Director’s Fees and Bonuses from Employment” is now available on the IRAS website.

Source: This article was extracted from the Inland Revenue Authority of Singapore (IRAS) website. Visit http://www.iras.gov.sg for more information.