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Individual Income Taxation
Why does the Government not exempt older workers (above 55 years of age) from taxation to help them when the economy is not doing well? This group of workers is most vulnerable to retrenchment.
Currently, older workers are eligible for a higher quantum of earned income tax relief. While individuals below the age of 55 may claim $1000 of earned income relief, those between the age of 55 and 59 may claim $3,000 of earned income relief and those aged 60 and above may claim $4,000 of earned income relief. With effect from YA2003, the first $20,000 of income is also not taxable. Most older workers earning about $2,000 a month would therefore be paying minimal (or nil) tax and will not benefit from such tax exemption. Furthermore, exempting tax would have limited impact in improving the ''employability'' of the elderly group of workers as the cost to business/employers remains unchanged.
Are retrenchment payments taxable?
Retrenchment payments are not taxable. The sum is paid for the loss of office. It is treated as a capital receipt, and therefore not taxable. This is true even when the retrenchment payments are provided for in the contract of service or collective agreements, or when the payments are computed based on the number of years of service. However, employers often include other payments for services to be rendered, or already rendered, when paying out retrenchment benefits. Such payments are taxable. Examples are salary in lieu of notice and gratuity for services. They are payments which the employee would have got even if he were not retrenched.
In summary, retrenchment benefits as such are not taxable. However, if other payments are also made which the employee would have got even if he were not retrenched, these portions will be taxable. The description by employers on the payouts is also irrelevant to IRAS. They will look at the facts to determine the nature of the payment.
Who gets rebates on S&C and utilities charges?
Rebates on S&C and utilities charges are given to eligible Singapore citizen households. By Singapore citizen households, we mean that there should be at least one Singapore citizen in the household.
Can the Government consider increasing the personal relief? This will help people across the board, esp. those who are out of job.
Tax reliefs serve as a sign of recognition for individuals' efforts. They are not intended to compensate taxpayers for expenses incurred.
The Government appreciates that many Singaporeans are affected by the economic downturn. We have therefore decided to grant a 5% tax rebate to all taxpayers as part of the off-budget package. This is on top of the 10% tax rebate already announced in the 2001 Budget Statement. For 2002, taxpayers will receive a 10% tax rebate.
Are the low-income residents of HDB executive apartments/maisonettes being penalised as they get lower quantum of ERS and do not enjoy rebates on service and conservancy charges (S&CC)?
The GST offset package, which the Government has introduced, will ensure that most households including all lower-income households will not be worse off for at least 5 years. The Government has worked out the S&CC rebates such that those with lower income will get more than those with higher income. As there is a clear correlation between income and housing-type, as a general framework, it is reasonable to differentiate the allocation of rebates by housing-type. Within this general framework, HDB executive flat dwellers get Economic Restructuring Shares (ERS) but not the HDB-related rebates.
Using the annual value cut-off of $10,000 means that Singaporeans who do not live in HDB flats but in cheaper private property will also get the higher amount of ERS. The amount of ERS a person will get in January 2003 depends on the Annual Value of the person's home based on IRAS's records on 1 December 2002. 90% of all households will get $1200 worth of ERS. Based on current records, all HDB flats except only for a few exceptionally large flats should get $1200 worth of ERS.
The Government recognises that comprehensive as the offset package is, it may not cover everyone. Any household with an income below the median household income of $3,600 which finds that their package of rebates and ERS shares does not fully offset their extra tax for at least 5 years, may approach their CCC for assistance.
What is the change in the taxation system for dividends arising from Budget 2002?
Presently, the existing imputation system could hinder companies from distributing corporate income to shareholders, as they require sufficient tax credits before dividends can be paid. In particular, there are restrictions on the distribution of dividends from capital gains and other non-taxable corporate income. Under the imputation system, a company may not be able to pay out as much dividends to shareholders as it would wish to, due to such restrictions.
The new one-tier system will free companies from a number of restrictions relating to the distribution of corporate profit as dividends, including removing current restrictions on the distribution of dividends from capital gains and other non-taxable corporate income. The one-tier system, along with new measures in group relief and the lower corporate tax rate, will increase company profits available for distribution. These could result in higher dividend payouts for all shareholders. This would benefit all shareholders, including individuals who either do not pay income tax or are in the lower-income tax brackets.
Nevertheless, the government is mindful of the fact that many companies will not be able to make full use of their accumulated dividend franking credits by 1 Jan 2003. Hence, it has allowed a 5-year transition period from 1 Jan 2003 to 31 Dec 2007 for companies to pay franked dividends out of any unutilised dividend franking credits as of 31 Dec 2002. All shareholders will still be able to receive dividends with credits attached during this period.
Can divorcees and widowers claim procreation tax rebates?
The Government will allow divorcees (with effect from YA2003) to continue claiming their procreation tax rebates granted before their divorce.
Currently, individuals may continue to claim any unexpired procreation tax rebates even after the death of their spouses.
Why aren't dwellers of HDB Executive Apartments / Executive Maisonettes given rebates?
The Government has worked out the rebates such that those with lower income will get more than those with higher income. There is a clear correlation between income and housing-type. Therefore, as a general framework, it is reasonable to differentiate the allocation of rebates by housing-type. Within this general framework, executive flat dwellers get Economic Restructuring Shares (ERS) but not the HDB-related rebates.
The Government recognises that comprehensive as the offset package is, it may not cover everyone. Any household with an income below of $3,600 can apply to their CCC for assistance, if their package of rebates and ERS shares does not fully offset their extra tax for at least 5 years.
While stock options will be deemed to be exercised at the point that foreign employees finish working, this does not mean they actually have to physically cash in their stock options. Is this correct?
Yes, the foreign employees need not physically cash in their stock options. The stock options are merely deemed to be exercised for tax purposes.
What is the tax rate charged for stock options?
The gains from stock options are part of employment income. The tax rate charged depends on the amount of income an individual earns and whether the individual is regarded as a tax resident or non-resident in Singapore. If an individual is a tax-resident, then his income will be taxed at graduated rates from 4% to 22%. If an individual is a non-resident, then his income will be taxed at 15% or resident rates, whichever gives rise to higher tax.
What do foreign employees need to do when they find out their contract is going to end? Will their company handle this for them, or do they need to inform IRAS?
When a foreign employee ceases employment, the company will have to seek tax clearance by informing IRAS at least one month before the cessation of employment. There is no obligation on the foreign employees to inform IRAS.
Why was it decided to make this change to the stock option tax system?
The earlier announced position had been to require employers to track their foreign employees when they leave the country until they exercise their stock options. However, after wide consultation with companies and tax practitioners on the implementation of this measure, it was found that tracking employees would be onerous, increase business costs, and be very difficult to effect. This ''deemed exercise'' rule simplifies the process for both employers and employees, while assuring the stock option holders that they will not be worse off. If the gains when the foreign employees actually exercise their options later on are lower than what was deemed, they can ask IRAS to refund the difference.
I am a single working adult who needs to employ a maid to look after my parent who is seriously ill. Why am I not allowed to claim for the foreign maid levy relief?
There are various types of personal reliefs provided in our income tax assessment system. Some of these are general reliefs provided to individuals like the Earned Income Relief. There are also other reliefs that serve specific objectives and thus are provided only to specific group of qualifying individuals. The foreign maid levy (FML) relief is one targeted relief meant to encourage married women to re-join the workforce after they have set up their families. This is the reason why FML relief is provided only to married working women. Therefore, we are not able to allow you to claim this relief.
However, if you have contributed to your parent's maintenance, you can qualify for the parent relief. The parent relief is given as a recognition for individuals taking care of their parents who are 55 years old or more, or are physically or mentally handicapped. It is however not meant to compensate the individual in full for the expenses incurred in caring for his/her parents.
Why is it that only one child in a family can claim for parent relief when the other siblings also help to maintain the parents?
Parent relief is not meant to compensate taxpayers in full for any particular expense incurred in caring for their parents. It is a form of recognition for individuals taking care of their parents who are 55 years old or more, or are physically or mentally handicapped. Hence, the relief is tied to the particular parent who is being cared for.
Under the current framework, only one sibling can claim relief for each parent. This stipulation is a practical one. Siblings should decide amongst themselves who should claim the parent relief. Allowing apportionment of the fixed quantum of relief among the various siblings based on criteria such as expenses incurred by each sibling is not feasible, as there will be conflicting claims and disputes (given that this situation arises because it is not possible for siblings to decide amongst themselves who should claim the relief and how to share it).
Regarding the exemption of bank interest from income tax to take effect from 1 Jan 2003, it is difficult for the public to compute the amount of interest that is taxable and the amount of interest that is exempt from income tax.
Individuals may approach their bank to obtain the relevant interest income values for the purpose of computing the interest that is exempt from income tax.
The amount of interest that is declared for income tax purposes is as follows: For savings and current accounts, the lower of the actual interest income derived from the savings or current account, or the interest income that would have been derived from a $100,000 deposit in a savings or current account.
For fixed deposit accounts, the lower of the actual interest income derived from a standard fixed deposit account or the interest income that would have been derived from a $100,000 fixed deposit account.
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