After a public consultation on proposed changes, on 10 September 2018 the Ministry of Finance tabled an Income Tax Amendment Bill in Singapore’s Parliament. Amongst the changes introduced by the new bill, the most significant affects the way employers report the value of the accommodation benefits that they provide to their employees working and living in Singapore.
The Current System
Under Singapore’s current system employers who lease accommodation on behalf of their employees must report the taxable value of that accommodation according to its Annual Value (AV) - which is based on an estimated rent prescribed by the Inland Revenue (IRAS). Here, a variety of factors are used to determine value, including rent levels in the surrounding area, and the physical attributes of the property.
From an administrative perspective however, in this system, employers must search the IRAS property tax portal to establish their properties’ AV - which is set at 150% for fully-furnished properties, and 140% for partially-furnished properties.
The government’s proposed amendments to the income tax bill seek to simplify the way accommodation benefits are reported by eliminating the need for employers to search the portal for the AV of their properties when reporting their taxable value.
Under the new system, employers will instead use the actual rent paid in order to establish the taxable value of a property leased for employees. In situations where no rent is paid (where employers own their properties, for example) AV will continue to apply - and this will also be the case if IRAS determines that the actual rent does not reflect the market rate.
The proposed amendments are set to take effect from the 2020 assessment year - that is, from 31 December 2019.
Consequences for Employers
For employers in Singapore already reporting the taxable values of accomodation benefits using actual rent paid, the 2018 amendments won’t have a practical impact. For employers switching from the AV system, however, the reporting process will be significantly simplified - saving them both time and money. Global employers in particular, with mobile employees living and working in the city-state will see their Singaporean tax compliance burden eased.
Beyond those savings however, there are both potential positive and negative financial consequences for employers reporting under the new system - a result of taxable values increasing or decreasing based on whether actual rent paid is higher or lower than the previous 140%-150% AV rate.
Employers should take steps to notify employees who are being provided with accommodation in Singapore of the changes - which will take effect for benefits provided in the 2019 income year. In some circumstance, employers may wish to assess the financial benefit of providing an accommodation benefit, and consider replacing it with a housing allowance.
For more information on tax compliance and reporting obligations in Singapore, contact activpayroll or browse our Singapore Global Insight Guide.