Tax Principles and Flexible Benefits

All gains and profits derived by an employee due to his employment are taxable. Benefits are "gains and profits" and are taxable unless exempted or given an administrative concession.

Tax Principle

All gains and profits derived by an employee in respect of his employment are taxable, unless they are specifically exempt from income tax or are covered by an existing administrative concession.

The gains or profits include all benefits, whether in money or otherwise, paid or granted to him in respect of employment.

Benefits Extended to Family and Friends

Where employers also extend the benefits to the employee's family members, relatives and friends, the benefits would be taxable in the hands of the employee as a benefit from employment.

Declaration of Benefits-in-Kind

Employers have to declare the benefits-in-kind unless the benefits-in-kind are found in the list of benefits-in-kind granted administrative concession or exempt from income tax .

Flexible Benefits Scheme or Cafeteria Benefits

Under the flexible benefits scheme (also known as cafeteria benefits), staff are given a flexible benefits budget and can choose their own benefits from a range of benefits.

Offering benefits under the flexible benefits scheme does not change the tax treatment of the benefits.

Taxable vs. Non-Taxable Reimbursements

If an employee seeks reimbursement for an item that has been granted concession or exempt from tax, the reimbursement is not taxable. Reimbursement for an item that has not been granted concession or exempt from tax is taxable.

For example, reimbursement to an employee for expenses incurred for medical treatment sought by the employee remains not taxable even if the reimbursement is claimed under the flexible benefits scheme.

On the other hand, holiday reimbursement remains taxable even if it is one of the items which an employee can claim under the scheme.

Employer's Responsibility

An employer offering the flexible benefits scheme would have to make a distinction between taxable and non-taxable benefits. The employer has to keep track of the taxable items so that the taxable benefits are reported in the Form IR8A.

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