Retrenchment and Retirement Benefits

Employees may receive retrenchment benefits when they are retrenched and retirement benefits when they have reached their retirement age.

Retrenchment Benefits

Retrenchment benefits are payments given by employers to compensate for the loss of employment.

Payments to compensate employees for the loss of employment and payments for restrictive covenants are not taxable as they are capital in nature.

Other Payments Are Taxable

Payments (such as salary in-lieu of notice, gratuity, ex-gratia and etc.) apart from the payment for loss of employment are taxable.

Some employers may pay their employees lump sum payments that consist of payment for loss of employment together with other payments that are taxable.

For details, please refer to retrenchment pay that constitutes payment for loss of employment (80KB).

Please note that where the employment is terminated and salary in-lieu of notice, gratuity, ex-gratia, etc. is paid by the employer to the employee before the year-end, the payments accrue at the year-end and will be taxed in the following Year of Assessment (YA).

Example
Mr Tan's employment with ABC Pte Ltd is terminated on 30 Dec 2016, due to the company's restructuring and downsizing of its business. ABC Pte Ltd pays Mr Tan one-month salary in-lieu of notice and retrenchment benefit.

The tax treatment will be as follows:
(i) The one-month salary in-lieu of notice received by Mr Tan on 30 Dec 2016 is taxable in the YA 2017, alongside his salary and bonuses received in the year 2016.
(ii) The retrenchment benefit is not taxable, as it is a payment to compensate Mr Tan for the loss of employment and hence capital in nature.

Reporting Retrenchment Benefits

You need to declare the full amount of retrenchment benefits under 'employment - others ' in your tax form and send to IRAS:

  1. Amount and breakdown of retrenchment benefits;
  2. A copy of documents related to this lump sum payment; and
  3. A copy of your contract of employment.

You may send us the details by email , fax or post .

Employers that participate in the Auto-Inclusion Scheme (AIS), will inform IRAS of the amount of retrenchment benefits paid to employees. You do not need to report the retrenchment benefits in your tax form if your employer participates in AIS.

Retirement Benefits

All retirement benefits including gratuities and pensions are taxable unless they are specifically exempted under the Income Tax Act.

Non-Taxable Retirement Benefits

Retirement benefits are not taxable if they are received from the following tax exempt pension schemes/funds:

  1. Government pension schemes under any written law relating to pensions in Singapore (including the Pensions Act, Singapore Armed Forces Act and Parliamentary Pensions Act); and
  2. CPF/designated funds.

Approved Pension and Provident Funds

The retirement benefits accrued from existing approved pension and provident funds up to 31 Dec 1992 will remain tax-exempt. The tax-exemption will apply when they are paid out on the date of retirement based on the statutory retirement age.

If you receive the retirement benefits from existing approved pension and provident funds:

a) Before retirement

You are taxable on the total amount of retirement benefits received. You are not eligible for tax exemption.

b) After retirement

You are taxable only on funds accrued from 1 Jan 1993 to date of retirement. The funds will be taxed at the time the benefits are received.

Reporting Retirement Benefits

You need to declare the taxable retirement benefits under 'employment - others ' in your tax form.

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