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Responsibilities as an employer

At a glance - Tax treatment of staff discount

Nature Taxable/ Not taxable

Staff discount (excluding interest free or subsidized loans and discounted stock options or awards).

The employer and/or related entities offers the discount to employees, employees’ family members, relatives and friends.

With effect from YA2011, this discount is not taxable if the value of the good or service does not exceed $500 and the staff discount scheme is available to all employees.

If the staff discount scheme is available to a small group of employees or if the good or service exceeds the exemption threshold of $500, the whole amount of staff discount is taxable.
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Staff discount

Q1 Why are staff discount benefits taxable?

As employees obtain the goods or services at a price lower than the market price due to the employees’ relationship with their employer, the staff discount enjoyed is a benefit from employment and is therefore taxable in the hands of the employees.

Q2 How do I compute the taxable staff discount benefits?

The taxable value of the staff discount enjoyed by an employee is the difference between the market value of the item and the amount paid by the employee.

Q3 How do I determine the market value?

The market value to be used is the lowest of either (i) the recommended retail price (RRP), (ii) lowest market price in a calendar year or (iii) the most preferred customer price in a calendar year:

  • RRP - the price the manufacturer recommends the retailer to sell the product for and is usually the highest price quoted in the market.
  • Market price – the price that a good or service is offered or will fetch, depending on market forces.
  • Most preferred customer price – the arm’s length price that is lower than RRP chargeable to a group of unrelated third parties. Examples include VIP members, privilege cardholders, credit card holders and corporate clients (i.e. some forms of identification is needed).

The price to be used must be one that is generally made available to all i.e. no restriction on the number of buyers that can enjoy the price. Where a special price of $X is given to the first N buyers, that price cannot be used as the price of an item for staff discount purposes, notwithstanding that it may be the lowest market price or most preferred customer price in that calendar year.

Q4 How do I apply the exemption threshold?

If the market value of goods or services offered to the employee exceed the exemption threshold of $500, the full value of the staff discount enjoyed is taxable. For example, if the market value of a handphone is $600 and the employee is able to purchase the handphone at $550, the taxable value is $50 (i.e. $600 - $550).

The threshold of $500 is applicable per item of goods or services offered.

Q5 How do I count an item of good or service?

Separate items of goods (e.g. a bicycle) or supply of services (e.g. a haircut) would be counted as an item by itself. Where the goods or services are sold as a bundle or package (e.g. a box of four mooncakes, a package of twelve spa sessions), that bundle or package would be counted as an item.

The above, however, will not apply to employers who are in the hotel, food and beverage industry. As most of these establishments quote prices that are exclusive of service charges, GST and other miscellaneous charges (i.e. their displayed prices are not the final prices that consumers would ultimately pay), the hotel accommodation, food and beverage consumed at eateries or restaurants would be counted on a per bill basis instead. 

Please see examples on how the exemption threshold may be applied:

Last Updated on 6 April 2011

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