What you need to know to claim staff gifts and celebrations this year

It is just early January 2020 and we are already counting down to the Chinese New Year! Decorations are appearing and Chinese New Year parties are kicking off. Many Singaporean businesses will pay for their staff, and in some cases spouses, to kick up their heels as an at an end of year celebration or arrange for a nice gift. As an employer, there are a few things to be aware of when planning or giving gifts to employees, in order to assess or to keep tax bill in check or claim a deduction for the expense incurred related to the festivities.

CHINESE NEW YEAR PARTIES

Please do note that from the Company’s perspective a Chinese New Year party off-premises for staff is regarded as an ‘entertainment’ expense.

The typical perspective is that ‘entertainment’ expenses are tax deductible as such entertainment cost are considered to have been incurred in the production of the Company’s income. 

The above entertainment benefits are not subject to tax in the hands of the employees if the benefits are available to all staff in order to achieve the objective of fostering good relationship.

GIFTS

From the Company’s perspective, expenses related to gifts to staff are tax deductible as they are considered as staff cost from the Company’s perspective. 

From the employees’ perspective, depending on the type and the value of the gifts received, certain gifts given by the employer may be taxed in the hands of the employees. As Chinese New Year approaches, the gifting of red packets is by an large a tradition not only during family gatherings, but also within the organization. During such festive occasions, employees will not be taxed on gifts which are not ‘substantial’ in value and where they are generally given to all employees. 

As a general rule, gifts are not substantial if they are valued below S$200. When red packets below S$200 are given out to your employees, this will not be taxed in the hands of the employees. However, if the value exceeds S$200, the entire value will be taxable, and it is the obligation of the employer to track and report such benefits as a benefit-in-kind. 

If during the year, employees receives multiple gifts valued less than S$200 on different festive occasions, but when the aggregated value exceeds the threshold of S$200, such will not for either gift to be taxable in the hands of the employees as the value of each gift would not have exceeded the said threshold.

SPECIFIC GST MATTER ON GIFTS

If you are a GST-registered company, you can claim the GST incurred on the gifts and cost of party (unless the party is extended to family member) as input tax provided that all the conditions for claiming input tax are met. 

As for accounting for output tax, it will be required to account for output tax (without raising an invoice) if the value of each gift, excluding GST, is S$200 or more.