SINGAPORE - Proposed change in the tax treatment of accommodation benefit provided to employees
The Income Tax Amendment Bill in 2018 proposed changes to the tax treatment of accommodation benefits provided to employees in Singapore. If the bill is passed, the proposed changes will take effect from the Year of Assessment (YA) 2020.
Accommodation benefits provided by an employer during an employee’s assignment in Singapore are taxable as part of their employment income. The Income Tax Amendment Bill in 2018 has proposed changes to the basis of calculating the taxable value.
Current tax treatment
Since YA 2015, the taxable value of employer provided accommodation is calculated based on the following:
- Annual Value (“AV”) of the property minus any rent paid by the employee; and
- Furniture and fittings computed on the basis of 40%/50% of the AV (depending on whether the property is partially or fully furnished)
Under an administrative concession, employers may use the actual rent paid as the value of the taxable accommodation benefit should the AV be unavailable, or if obtaining the AV is regarded as an administrative burden for the employer.
Proposed Tax Treatment Change
If the bill is passed, the taxable value of the accommodation benefit provided by an employer will be based on the following:-
- Rent paid by the employer (including any rent paid on furniture and fittings); OR
- If no rent is paid, the AV minus any rent paid by the employee
The proposed bill also provides for the Comptroller of Income Tax (“Comptroller”) to reject the amount of rent paid, if the rent paid does not reasonably reflect the market level. In such a case, the AV (or other values deemed reasonable to the Comptroller) will be used.
Actual rent vs Annual Value
It is a generally accepted principle that a benefit provided to the employee should be taxed based on the open market value (OMV) of that benefit unless there is a specific tax concession provided for a lower taxable value. Under the current rule, where the AV of the rental accommodation is higher than the actual rental paid by the company, the employee can be taxed at a value higher than the OMV. The OMV of rental accommodation should generally be the rent paid by the company to the landlord in an unrelated party transaction.
The proposed change better aligns the taxable value of the accommodation benefit with the OMV.
In a rental situation where it is not conducted at arms’ length, the proposed bill provides the Comptroller with the ability to reject any value of actual rent paid that does not reasonably reflect what a third party tenant is expected to pay for the accommodation in the market. In a situation, where a company owns the premises to be provided for the employee’s use, the AV of the property will likely be used as the taxable value.
Administrative convenience and consistency
Aside from the above, taxation based on actual rent paid reduces the administrative process involved in obtaining and ensuring the AV retrieved is updated. Currently, where it is an administrative burden to obtain the AV, as a tax concession, the rent paid can be used as the taxable value. This creates income reporting inconsistencies by employers - where some employees’ accommodation is taxed on the AV while properties that do not have easily available AV are taxed on the actual rent paid.
We are of the view that this change in the tax law gives more clarity and consistency to the basis to calculate the taxable value of accommodation benefit. The change also reduces the administrative burden to the employer in the reporting of this.
In view of the upcoming change, companies are recommended to review their policy on accommodation benefits provided to employees. Some preliminary questions for the company to consider:-
- Should the company continue with providing housing benefit or housing allowance in view of this change?
- How will the proposed change affect the tax liability of the employee’s remuneration package?
Wu Soo Mee