Common Mistakes to Avoid & Things to Take Note of

This implies that there is no genuine business need for the expenditure and that it is made merely to obtain the PIC cash payout. This is not acceptable. Do note that, even if the claim is approved, IRAS may, within the next 5 years, check and ask for records to prove that the expenditure was genuine and payment was made.

You will have to refund the PIC cash payout if you are not able to produce sufficient records to prove the above. Penalties may apply.

'I can help you set up the business and find 3 employees for you'

Example:

• Vendor, for a fee, helped a start-up to register a business with ACRA and contribute CPF for 3 persons. The business owner did not know who his 'employees' were and merely signed on the PIC cash payout claim form. The claim was rejected after IRAS interviewed the claimant and uncovered the arrangement.
• Vendor persuaded a real estate agent to set up a company and contribute CPF for 3 persons even though there was no genuine commercial reason for setting up a company and employing 3 persons. The claim was rejected after IRAS uncovered the arrangement.

You should not set up a business or hire 3 employees merely for the purpose of making a PIC cash payout claim. You are ultimately responsible for the accuracy of your claims even if the vendor had helped you submit the claim.

You will bear the penalties if the PIC claim is found to be incorrect.

'To meet the PIC condition, you just need to find any 3 persons and pay them CPF in that month'

Example:

• Vendor persuaded a tuition business to claim PIC cash payout on $25,000 of external training. The business owner, who did not previously hire any employee, found 3 family members to send for training and contributed CPF on them to create the impression that they were employees. The claim was rejected after IRAS found that the 3 employees were not genuine employees and the training attended was not for business purposes.

Hiring 3 employees purely for the purpose of meeting the PIC condition is not acceptable. It must be to meet genuine business needs.

You will bear the penalties if IRAS subsequently finds that the 3 employees were not hired for genuine business purposes. 

While a part-timer can be considered as 1 of the 3 local employees, it is not acceptable to hire part-timers for the purpose of meeting the PIC conditions and not for meeting any genuine business need.

You will bear the penalties if IRAS subsequently finds that the part-timers were not hired for genuine business purposes.

'I can help you set up a business and after claiming PIC cash payout, you just need to close off the business.'

Example:

• Vendor helped a claimant register a business with ACRA and contribute CPF for 3 persons. After the business received the PIC cash payout successfully, it applied to ACRA to terminate the business. The claim was recovered by IRAS when it discovered that the business was a shell company and the 3 employees were not hired for genuine business purposes.

You should not set up a business or hire 3 employees merely for the purpose of making PIC claims.

You will bear the penalties if IRAS finds that you are abusing the PIC scheme by making use of fraudulent arrangements to obtain PIC benefits.

Claiming PIC on Overpriced Expenditure

Example:

• Company A developed a website which was developed based on a standard template that is widely available and free of charge on the Internet. Company A purportedly paid $25,000 to develop it. Company A is not allowed to claim PIC on the website as the market value of an equivalent website is nil.

Claiming both PIC cash payout and 400% tax deductions/ allowances on the same dollar of PIC expenditure

Example:

• Company A claimed PIC cash payout on the training cost of $1,000. It cannot claim a 400% tax deduction on the same training expense against its income in its tax return. The training cost of $1,000 is no longer available as a tax deduction and the business has to add back the amount to its tax computation.

You may refer to our Worked Examples (Scenario B) (PDF, 177KB) for more details.

Claiming for expenditure on equipment that is not in the PIC IT and Automation Equipment List

The following items are not prescribed IT and automation equipment and cannot be claimed:

• Air-conditioning unit purchased from retail store
• Closed circuit TV (CCTV)
• Digital camera
• Freezer/ chiller/ refrigerator
• Furniture and fittings
• Motorcycle
• Motor vehicle
• Refrigerated display
• Renovation and refurbishment cost (e.g. cost paid to install office workstation)
• Uninterrupted power supply (UPS)
• Audio Equipment

Businesses can only claim for expenditure on prescribed equipment in the PIC IT and Automation Equipment List (PDF, 246KB).

Businesses that invest in equipment not in the prescribed list but that automate or mechanise their business processes and enhance productivity may apply to IRAS to have their equipment approved for PIC benefits on a case-by-case basis.

You must check that the equipment purchased qualifies for PIC by checking the PIC IT and Automation Equipment List before you submit a claim. You can also refer to the list of examples of IT and automation equipment qualifying for PIC (by industry) and/or use the Equipment Search Function (XLSX, 3.45MB) to find out whether your equipment qualifies for PIC.

The purchases must be for business use and help to improve the productivity and innovation efforts of the business. IRAS will reject claims for purchases that are not actively used by the business.

Businesses can receive a total of 400% tax deductions/ allowances (comprising 100% normal deduction and 300% enhanced tax deduction) on their qualifying expenditure.

You are not allowed to claim 400% enhanced tax deduction on expenditure that has already been deducted as an expense (100% normal deduction) against the income; the enhanced tax deduction is restricted to 300%.

Claiming non-qualifying expenditure

Non-qualifying expenditure includes:

• Course fees on training attended by business owners
• Consultancy fees and PIC audit fees claimed as training expenditure
• GST paid by a GST-registered business on an item qualifying for PIC (GST component is not claimable for income tax purpose as the GST-registered business can claim input tax in its GST return)
• Cost of PIC IT and automation equipment not incurred during the relevant financial period of the YA of claim
• Cost of PIC IT and automation equipment (i.e. principal repayments for equipment acquired on hire-purchase terms) not incurred during the relevant financial period of the YA of claim
• Costs that are not PIC IT and automation equipment such as warranty fees, service maintenance fees or consumables
• Consulting fees unrelated to the development of the PIC IT and automation equipment
• Expenses that have been defrayed by a grant or subsidy received from the Government or any statutory board. Qualifying expenditure for PIC benefits is the expenditure amount minus the grant or subsidy

You must ensure that claims are only made on qualifying expenditure.

Businesses should check that an expense qualifies for PIC before making a claim.

Insufficient records to substantiate PIC claims

Example:

• Some businesses have not been able to furnish supporting documents, when requested by IRAS, such as:
  • Evidence of payment e.g. bank statement and receipts
  • Invoices
  • CPF payment records

All PIC claims must be properly substantiated, otherwise the claim may be rejected.

Businesses are required to maintain all supporting documents for a period of at least 5 years. These should be submitted to IRAS upon request.