Tax treatment of staff discounts on products and services given to employees, employees' family members, relatives and friends.
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Tax Treatment of Staff Discount (Summary Table)
| No. | Nature | When is it taxable | When is it not taxable |
|---|---|---|---|
1 | 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. | If the staff discount scheme is available to a small group of employees or if the value of the item of goods or service exceeds $500, the whole amount of staff discount is taxable. | Staff discount is not taxable if the value of the goods or service does not exceed $500 and the staff discount scheme is available to all employees. |
Reason for Tax on Staff Discounts
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.
Calculating Taxable Staff Discounts
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.
Market Value - Amount Paid by Employee = Taxable Staff Discount
Market Value of Items
The market value to be used is the lowest of either
- the recommended retail price (RRP);
- lowest market price in a calendar year; or
- the most preferred customer price in a calendar year.
RRP is the price the manufacturer recommends the retailer to sell the product for and is usually the highest price quoted in the market.
Market price is the price that a good or service is offered or will fetch, depending on market forces.
Most preferred customer price is 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).
"Available to All" Price
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, even if it may be the lowest market price or most preferred customer price in that calendar year.
Value of Goods or Services Exceeding $500
If the market value of goods or services offered to the employee exceeds $500, the full amount of the staff discount enjoyed is taxable.
Example:
- Market value of a handphone = $600
- Employee purchase price from his employer = $550
- Taxable staff discount = $600 - $550 = $50.
The benchmark of $500 applies to the market value, including GST if applicable.
Value of Goods or Services on Per Item Basis
The benchmark of $500 is applicable per item (i.e. goods or service) offered. Separate items of goods (e.g. a bicycle) or supply of services (e.g. a haircut) would be counted as an item by itself.
a. Per Bundle or Per Package Basis
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), the entire bundle or package is considered an item.
b. Per Bill Basis
The separate item or per bundle/package basis does 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.
Examples
Example 1: Value Per Item Exceeds $500
Company A is in the business of providing spa treatments. The retail recommended price (RRP) of its signature treatment is $180 per session and $2,000 per package for 12 sessions.
XYZ credit cardholders are entitled to 5% discount for every session or can purchase the package at $1,800.
In celebration of the company's 10 years anniversary, company A allows the first 20 walk-in customers to purchase the package at a promotional price of $1,680. Company A operates a staff discount scheme of 25% on all its spa services.
If the employee purchases a spa package, the benefits derived from the staff discount would not be exempted from tax because the most preferred customer price of $1,800 exceeds $500.
Per Package
RRP: $2,000
XYZ Credit Card Holders: $1,800
Staff Price: $1,500 (25% discount)
Taxable Value
Market Value - Amount Paid by Employee = Taxable Staff Discount
Lowest Package Price - Staff Price = Taxable Value
$1,800 - $1,500 = $300
In this case, the taxable value would be $300. The special price of $1,680 was not used as the most preferred customer price as it was only offered to the first 20 walk-in customers.
Example 2: Value Per Item Below $500
Company B operates a chain of supermarkets. A customer purchased the following items from one of the supermarkets:
| Description | Price (inclusive of GST) |
|---|---|
1 induction cooker | 149.00 |
1 garment steamer | 88.00 |
2 boxes of bird's nest | 93.40 |
1 pack of fragrant rice | 27.80 |
2 packs of frozen chicken wings | 18.90 |
3 packs of baby diapers | 64.50 |
3 tins of milk powder | $ 122.10 |
$ 563.70 |
To entice employees to purchase groceries from its supermarkets, Company B grants its employees a discount of 8% for every purchase they made. If employee H bought the same items as above, he would have to pay $518.60 (i.e. $563.70 less 8% of $563.70) to the cashier.
Since the price of each item does not exceed $500, the staff discount enjoyed by employee H would be exempted from tax.
Example 3: One Item Exceeds $500
Company C operates an electronics store, selling home entertainment and home appliance products. A customer purchased the following items:
| Description | Price (inclusive of GST) |
|---|---|
1 plasma television | $899.00 |
1 washing machine | $399.00 |
1 vacuum cleaner | $149.00 |
$1,447.00 |
To entice employees to purchase products from its electronics store, Company C grants its employees a discount of 25% for every purchase they made. If employee J bought the same items as above, he would have to pay $1,085.25 ($1,447 less 25% of $1,447).
As the price of the plasma television exceeds $500, the staff discount on the benefit derived from the staff discount in respect of the television would not qualify for the administrative concession.
The staff price (after 25% discount): $674.25
The taxable value would be: $899 - $674.25 = $224.75
The staff discount enjoyed by employee J for the washing machine and vacuum cleaner would be exempted from tax as the price of each item does not exceed $500.
Example 4: Employer Supplies Hotel Services
Company D operates a five-star hotel chain internationally. The price structure (inclusive of service charges and taxes) for a Superior Room is as follows:
| Walk-in customer | VIP customer | Staff | |
|---|---|---|---|
1 night stay | $380 | $340 | $300 |
2 nights stay | $720 | $650 | $570 |
Since company D supplies hotel services, the hotel stays will be counted on a per bill basis.
If an employee enjoys 1 night stay, the benefits derived from staff discount would be exempt from tax since the final bill that is incurred by the VIP customer does not exceed $500.
If an employee enjoys 2 nights stay, the taxable value of benefits derived from staff discount would be:
$650 - $570 = $80
Example 6: Staff Discount for Small Group of Employees
Company F operates a retail chain selling watches. The company allows its senior management staff to purchase the watches at a discount of 40%.
The retail recommended price of Model AB watch is $480. The public can purchase the watch at $432 (at discount of 10%) during the Great Singapore Sale.
If a senior management staff purchases one Model AB watch, the benefits derived from the staff discount would not qualify for the administrative concession as the discount scheme is not made available to all employees.
In this case, the taxable value would be:
$432 - $288 ($480 less 40% of $480) = $144
Example 7: Employees Get $X Worth of Goods Free Annually
Company G manufactures and sells healthcare products. Its best-selling product for the year is a leg massager which has a retail price of $688.
Company G operates a staff discount scheme that allows its employees to redeem up to $800 worth of its products (valued at the recommended retail price) every year.
If the employee redeems a leg massager, the benefits derived from the staff discount would not be exempted from tax because the recommended retail price of $688 exceeds $500.
In this case, the taxable value would be:
$688 - $0 = $688
Example 8: Staff Discount Extended to Family Members
Company K is an insurance company which offers a staff discount of 5% on insurance premiums to its employees and their family members. This discount is not available to other third parties.
Employee M purchased a life insurance policy in February for a sum insured of $200,000 with a monthly insurance premium of $200. In addition, his wife also purchased an annual Premium Travel Insurance policy in the year with an insurance premium payable of $550.
To determine the value of the life insurance policy, Company K would need to determine the total insurance premiums paid by Employee M under the policy.
Employee M
The value of the life insurance would be $2,200 ($200 x 11mths) for the 1st year and $2,400 ($200 x 12 months) for each subsequent year for the rest of the tenure of the life insurance.
The taxable value of benefits derived from staff discount would be:
1st Year: $2,200 - $2,090 ($2,200 less 5% of $2,200) = $110
Subsequent Years: $2,400 - $2,280 ($2,400 less 5% of $2,400) = $120
Wife's Policy
Employee M would also be assessed on the discount enjoyed by his wife on the insurance premium payable on the travel insurance policy. The taxable value of benefits would be:
$550 - $522.50 ($550 less 5% of $550) = $27.50