Productivity and Innovation Credit Scheme

Applying for Cash Payout

Company A, which runs a retail outlet, invested in a Point-of-Sale (POS) system and sent its staff for customer service courses in the financial year 2016 (YA 2017). The company paid for the staff training in Jul 2016 but the staff only attended the training in Sep 2016. The company has met the relevant qualifying conditions for PIC and decided to elect for the cash payout option.

 1: The POS System is on the prescribed list of PIC IT and automation equipment and has been put to use by the business at the point of electing for PIC cash payout. 

 2: The qualifying cost of $7,000 ($5,000 + $2,000) cannot be claimed as capital allowance/ tax deduction against Company A's income in the Income Tax Return. 

 3: As compulsory e-Filing is required from 1 Aug 2016, taxpayer will need to submit the PIC cash payout application form via mytax.iras.gov.sg any time after the end of the relevant financial quarter(s), but not later than 30 Nov/ 15 Dec 2017 (if e-Filing Form C-S/ C). 

 4: The PIC cash payout conversion rate is 60% as expenditure is considered incurred before 1 Aug 2016 as the equipment was delivered before 1 Aug 2016. 

 5: The PIC cash payout conversion rate is 40% as expenditure is considered incurred only when the staff attended the training on 10 Sep 2016. The payment made in July 2016 is considered as prepayment.

 6: The total cash payout the company will receive is $3,800.

Claiming Tax Allowance/ Deduction

Company B, which runs a manufacturing company, invested in Computer Numerical Control (CNC) cutting machines and sent its staff for customer service courses in the financial year 2016 (YA 2017). The company has met the relevant qualifying conditions for PIC and decided to claim PIC enhanced allowance/ deduction in its Income Tax Return for YA 2017. 

 1: The CNC cutting machine is on the prescribed list of PIC IT and automation equipment. 

 2: The total allowance/ deduction is $208,000 ($50,000 + $2,000 + $150,000 + $6,000), which is deductible against Company B's business income. Thus, the total tax savings, based on the prevailing corporate tax rate of 17% on the total allowance/ deduction, is $35,360. 

Applying for Cash Payout

Mr Lee runs a retail sole-proprietorship business and the business' relevant financial period is from Jan 2016 to Dec 2016 (YA 2017). He bought computers for his business which were delivered in Jun 2016. In addition, he paid training cost for his staff in Jul 2016 but his staff only attended the training in Sep 2016. Mr Lee met the relevant qualifying conditions for PIC and decided to elect for the cash payout option.

 1: Computers are qualifying equipment on the prescribed list of PIC IT and automation equipment and have been put to use by the business at the point of electing for PIC cash payout. 

 2: The qualifying cost of $12,000 ($8,000 + $4,000) cannot be claimed as capital allowance / tax deduction against Mr Lee's income in his Income Tax Return. 

 3: As compulsory e-Filing is required from 1 Aug 2016, taxpayer will need to submit the PIC cash payout application form via mytax.iras.gov.sg any time after the end of the relevant financial quarter(s), but not later than 14 Apr/ 18 Apr 2017 (if he e-Files Form B). 

 4: The PIC cash payout conversion rate is 60% as expenditure is considered incurred before 1 Aug 2016 as the equipment was delivered before 1 Aug 2016. 

 5: The PIC cash payout conversion rate is 40% as expenditure is considered incurred only when the staff attended the training on 10 Sep 2016. The payment made in Jul 2016 is considered as prepayment.

 6: Mr Lee will receive a non-taxable cash payout of $6,400 ($4,800 + $1,600). His chargeable income without deducting the qualifying cost of $12,000 is $28,000 and his tax payable is $160. Tax payable is calculated based on the progressive individual income tax rates. Thus, his net cash received will be $6,240 ($6,400 - $160).

Claiming Tax Allowance/ Deduction

Mr Tan runs a manufacturing sole-proprietorship business and the business' relevant financial period is from Jan 2016 to Dec 2016 (YA 2017). He bought computers in Jul 2016 and a Computer Numerical Control (CNC) cutting machine in Nov 2016 for his business. Mr Tan met the relevant qualifying conditions for PIC and decided to elect for PIC enhanced allowance / deduction in its income tax return for YA 2017. 

 1: Computers and CNC cutting machine are on the prescribed list of PIC IT and automation equipment. 

 2: Before electing for PIC enhanced allowance, his chargeable income (CI) is $200,000 and his tax payable is $21,150. Mr Tan's total allowance will be $44,000 (i.e. $8,000 + $3,000 + $24,000 + $9,000) which is deductible against the business income. His CI will be reduced to $156,000 ($200,000 - $44,000) and his revised tax payable is $13,350. Thus, his total tax savings will be $7,800 ³ ($21,150 - $13,350).

 3: The total tax savings of $7,800 is calculated based on the progressive individual income tax rates.

An individual who is not carrying out an active business takes the following action(s) to make PIC cash payout claims with IRAS:

1. Incorporate sole-proprietorships or companies with ACRA;
2. Make minimum/ low CPF contributions for persons who are not employees, such as parents, siblings, friends or other persons. This is done so that they appear to be employees of the claimants for PIC claims when in fact no work was done or the works which were purportedly done were not for bona fide commercial reason; and/ or
3. Sign agreements with related/ friendly parties to purchase items or services such as mobile apps or websites at inflated prices.

The claims will be disallowed as the PIC arrangements are abusive. The actions are contrived, overvalued and put in place so as to make PIC cash payout claims without bona fide commercial reason. IRAS will consider whether these claims should be subject to criminal investigations.

In some abusive PIC arrangements, a group of individuals sets up multiple businesses and sells PIC-qualifying products or services among them typically at inflated prices. There is no bona fide commercial reason for such sales aside from obtaining a PIC cash payout.
Such an arrangement may include the following:

1. Two individuals arrange to set up a company each, Company A and Company B. Both companies provide identical services (e.g. training).
2. Company A engages Company B to conduct training to Company A's employees for $15,000; while Company B also engages Company A to conduct similar training to their employees for $15,000.
3. The cost for delivering both sets of training is negligible since the companies could have provided the training services to their own employees.

Companies A and B both seek to benefit from PIC cash payouts and bonus of $24,000 each. The claims will be disallowed as the PIC arrangements are abusive. Aside from deriving PIC cash payouts, there is no bona fide commercial reason for the arrangements. IRAS will consider whether these claims should be subject to criminal investigations.

An individual sets up many companies. These companies derive minimal revenues, but would each incur PIC qualifying expenditure that is disproportionate to their revenue (e.g. ten times the revenue) and claim PIC cash payouts and bonus. For example:

1. A director sets up Companies X, Y, and Z to sell baby products through mail order - Company X sells clothes, Company Y sells toys and Company Z sells diapers.
2. All companies derive $1,000 in sales in the relevant period.
3. All companies engage an e-commerce vendor to develop a website and inventory management system for each of the companies. Each company incurs $15,000 on the software.
4. All companies would claim PIC cash payouts and bonus of $24,000 each. The net receipt of the companies would be $9,000 each after subtracting $15,000 paid to the software vendor.
5. In participating in this arrangement, the director of Companies X, Y, and Z would benefit $27,000 in total.

The claims will be disallowed as the PIC arrangements are abusive. Apart from the purpose of obtaining PIC cash payouts, there is no bona fide commercial reason to incur such disproportionate expenditure and to duplicate three sets of website and inventory management software for this scale of business activity. IRAS will also consider whether these claims should be subject to criminal investigations.

Vendors, salespersons and consultants may approach you and offer to help you claim PIC cash payout if you buy their products/ engage their services. Please be mindful of those who misrepresent the intention of the PIC scheme. Here are some signs that you could be asked to participate in an unacceptable PIC arrangement.

If you make incorrect PIC cash payout claims based on wrong advice by vendors, salespersons and consultants, you may need to pay a penalty and/ or face imprisonment as you are ultimately responsible for the accuracy of your PIC application.
Please refer to the IRAS website or contact IRAS (details listed below) should you wish to:

1. Get assistance or clarification on PIC
2. Verify if the advice given to you by vendors, salespersons or consultants is accurate

When submitting PIC cash payout claims, both businesses and PIC consultants should take note of the correct procedure and common mistakes to avoid. This will minimise unnecessary delays in the processing of the PIC application and help businesses to keep a clean record with IRAS.

For more details, please refer to Common Mistakes Made by Companies when Filing PIC claims.