Is Your Expense Subject to Singapore’s Central Provident Fund (CPF) Income Taxation?

​​Ìt is the one thing that rattles and distresses all employees - completing expense claims accurately so as to receive payments in due course. Expense management is critical to any business, large or small, and setting up a process in your organisation is a key component of any business operation. 

Being engaged and happy at work, without being saddled by additional stress over expense claims administration, is what every employee and employer wishes for. In Singapore, it helps if employees know if their expenses will be subject to CPF or income tax regulation. 

In this article, we'll be looking at the following two areas:

 

Central Provident Fund (CPF) Contributions

  • This is enforced by the Central Provident Fund Board, a Singapore government agency. 
  • Only Singaporeans or Singapore permanent residents are entitled to CPF contributions from their employer. 
  • The employer's responsibility is to apply CPF contribution rates to employee wages every month.

Income Tax Reporting

  • This is enforced by the Inland Revenue Authority of Singapore (IRAS), a Singapore government agency. 
  • All income earned by employees in Singapore is subject to tax.
  • The employer's responsibility is to report employee employment income at the year-end.
  • In Singapore, income tax is reported and calculated on an annual basis.

 

Interestingly, not all payments to employees applicable for CPF contributions are subject to income taxation and vice versa.

Here we break down some of the more commonly occurring expenses, where employees may be uncertain of applicability to CPF / income taxation, and we provide tips that could help make submitting, approving and paying expenses more efficient, more appropriate, and less frustrating.

  • If an employee is claiming transportation expenses, check to see that receipts are accurately labelled as business expenses such as an official trip to a client’s office. If it is a lump sum receipt where a specific business transport occurrence is indiscernible, this will be subject to income taxation for the employee.

  • If a medical benefit is given to a staff and their dependents, and if this benefit is not applicable to all staff in the company, then rule of thumb is that it is considered a personal benefit and thus is taxable. Medical tests that are provided as part of health screenings and medical payments given as part of staff benefits, are also subject to CPF contribution. 

  • With working from home being the status quo, the boundaries are blurred as to what is considered a personal or work-related expense. Another question has arisen – what about the additional costs employees have had to bear while working from home? 

  • If provision is given to an employee for WiFi and mobile phone reimbursement, it can be complicated. 

  • If a mobile phone line is given, this may be a business expense, if the entire use is related to business, it is thus NOT taxable. 

  • However, if it is in the form of a monetary allowance, thus increasing the wages of the employee, then it will be subject to income taxation reporting and CPF. 

 

A mini checklist should ideally be available to those charged with administering of expenses whether they be finance or human resource professionals, for them to have a sound understanding of whether their respective payment expense items need to be further reviewed. Also informing employees that employee flexible benefits, given as reimbursements, may be considered wages and thus subject to CPF or Income Taxation. 

  • Does the payment increase the wages of the employee?
  • Is this payment backed by a receipt and is the expense related to the course of work?
  • Who is entitled to this payment?
  • Is there a nature of payment description for this expense item in the company policy?

Digitisation of the expense claims process can be very useful to the employer and employees. With the use of software, everyone in the company can easily track their spending habits and verify the data provided for claims. With the vast array of software available, business owners no longer need to waste money as finance teams endure long hours of verification of employees’ claims. 

Expense management need not be complex and can be drastically simplified to save time and headache if companies look at embracing AI-powered digital expense management solutions. These solutions are useful for big enterprises, as well as small- and medium-sized enterprises (SMEs) in Singapore.

Maria Khizhniakova