employee condition in order to qualify for PIC cash payout? The company or the soleproprietorship? New!...9

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1 Frequently Asked Questions on Cash Payout Option under the Productivity and Innovation Credit (PIC) Scheme ( PIC Cash Payout ) (Updated as at 19 Dec 2014) A1. Overview of the cash payout scheme What is the cash payout? What is the qualifying period for the cash payout? How is the cash payout cap applied? What is the maximum amount of cash payout I can receive? Who is eligible to apply for the cash payout? Revised on 27 Nov 2014! I was granted a waiver of income tax return (Form C/Form C-S) submission by IRAS but I have recommenced business and would like to apply for cash payout. What should I do? If my business does not meet the qualifying condition of having 3 local employees during the relevant financial period for Year of Assessment 2013 for PIC cash payout, can we make the claim for the YA 2013 incurred expenditure in subsequent YAs when we meet the qualifying condition? 4 8. Do I need to make CPF contributions on my local employees for all 12 months of each YA? I have incurred wage costs on both my Singaporean and non-singaporean employees. Am I eligible to apply for the cash payout? I have both full- time and part- time employees. Am I eligible to apply for the cash payout? For YA 2016, my company intends to employ two more employees on part-time basis for only three months, and contribute to the CPF for these employees, to qualify for the PIC cash payout. The company already has one local employee (with CPF contributions). Can the company qualify for PIC cash payout? I am self-employed and have contributed to my Medisave Account. Am I considered an employee of the business? Is the cash payout taxable? Can I convert the qualifying expenditure under PIC into a cash payout if my business still has taxable income? Is partial conversion of the qualifying expenditure into cash payout allowed? Can PIC IT and Automation Equipment acquired on hire purchase (HP) qualify for cash payout? Can I claim tax deductions or allowances in my income tax return after the expenditure has been converted into a cash payout?... 7 A2. Applying for the cash payout How do I apply for the cash payout? My business financial year ended on 31 Mar 2014 (YA 2015). When can I apply for the cash payout? If so, when will I receive the cash payout? My business financial year ended on 31 Mar 2014 (YA 2015). I have made a claim and received my cash payout for qualifying expenditure (Items 1 and 2) incurred in financial quarter, Oct 2013 to Dec I omitted to make a claim for a qualifying expenditure (Item 3) incurred in the same quarter i.e. Oct 2013 to Dec 2013 and want to make a claim for item 3. Can I do it and if so, how? I am submitting my company s Estimated Chargeable Income ( ECI ) soon. Do I have to submit any forms (for purposes of PIC) together with the ECI? Can I submit a facsimile copy of the Cash Payout Application Form to IRAS?... 8 For sole-proprietorships When can I submit my claim for cash payout if I am a sole-proprietor with multiple soleproprietorships? If I have more than one sole-proprietorship, how many claim forms must I submit? I am not required to file certified statement of accounts for income tax purposes for both my sole-proprietorship and partnership as both businesses have revenue of less than $500,000 each. Do I have to submit certified statement of accounts if I wish to apply for the cash payout? If a sole-proprietorship is owned by a company (not an individual) and the PIC qualifying expenditure was incurred by the sole-proprietorship, which entity should fulfil the 3-local- Page 1 of 11

2 employee condition in order to qualify for PIC cash payout? The company or the soleproprietorship? New! A3. Receiving the cash payout Will the cash payout be used to offset my tax arrears? When will I receive the cash payout? How will the payment of the cash payout be made? My business uses different bank accounts for GIRO payment of income tax and GST. In which bank account will cash payout be credited to? What will happen in the event that the GIRO crediting is not successful (e.g. bank account is closed)? I have misplaced the cheque for the payment of cash payout. What should I do? A4. Recovery of the cash payout Under what circumstances do I have to repay the cash payout? How do I inform IRAS if I dispose of an equipment/ipr in respect of which a cash payout was claimed within the 1 year holding period? How is the recovery of cash payout on disposed IPRs computed? Is there a penalty for disposing a piece of equipment for which cash payout was claimed within the holding period? Page 2 of 11

3 A1. Overview of the cash payout scheme 1. What is the cash payout? To support small but growing businesses which may be cash-constrained in innovating and improving productivity, eligible businesses can opt to convert qualifying expenditure to a nontaxable cash payout subject to a cap ( cash payout cap ) as follows: YA Cash Payout Rate Expenditure Cap Maximum Payout 2011 to % $200,000 over 2 YAs combined $60,000 over 2 YAs 2013 to % $100,000 per YA (cannot be combined across YAs) $60,000 per YA 2. What is the qualifying period for the cash payout? The cash payout option is available from YA 2011 to YA How is the cash payout cap applied? For sole-proprietorships and companies (including registered business trusts), the cap is applied at the individual or company level; for partnerships, the cap is applied at the partnership level. 4. What is the maximum amount of cash payout I can receive? For YA 2011 and YA2012, you can convert qualifying expenditure up to $200,000 (but not less than $400 for each YA) taken together for the 2 YAs at the rate of 30% for all six qualifying activities. This means you can opt for a total cash payout of up to $60,000 for two YAs combined. For YA 2013 to YA 2018, you can convert qualifying expenditure up to a cap of $100,000 for each YA (but not less than $400) for all six qualifying activities taken together at the cash conversion rate of 60%. This means you can opt for a total cash payout of up to $60,000 for each YA. 5. Who is eligible to apply for the cash payout? Revised on 27 Nov 2014! Sole-proprietorships, partnerships and companies (including registered business trusts) are eligible as long as they: i) Incurred* the qualifying expenditure and are entitled to PIC during the basis period for the qualifying YA; ii) have active business operations in Singapore; and iii) employ at least 3 local employees (Singapore Citizens or Permanent Residents with CPF contributions) excluding sole-proprietors, partners under contracts for service and shareholders who are directors of the company. *An expense is incurred when the legal liability to pay has arisen, regardless of the date of actual payment of the money. For more information and examples of when an expense is considered incurred, please refer to Examples of when an expenditure is considered incurred. Page 3 of 11

4 6. I was granted a waiver of income tax return (Form C/Form C-S) submission by IRAS but I have re-commenced business and would like to apply for cash payout. What should I do? If your company has re-commenced business, you are required to notify IRAS immediately by completing and submitting the form "Request for Income Tax Return (Form C/ Form C-S) and Notification of New Accounting Year-End". Please note that failure to give notice of chargeability is an offence under Section 94A of the Income Tax Act. However, if you have not done so and would like to apply for cash payout, please submit this form together with the PIC cash payout application form to avoid any delay in the processing of the cash payout. 7. If my business does not meet the qualifying condition of having 3 local employees during the relevant financial period for Year of Assessment 2013 for PIC cash payout, can we make the claim for the YA 2013 incurred expenditure in subsequent YAs when we meet the qualifying condition? No. PIC cash payout is given on qualifying expenditure incurred during the basis period of the YA and business must have 3 local employees during the relevant month(s) of the YA (refer to Question 8 for more information on how to determine the relevant month(s)). For example, if the business had only 2 local employees in YA 2013 during which the qualifying expenditure was incurred, it will not be eligible for cash payout. If your business subsequently has 3 local employees in the relevant month(s) in YA 2014, it can claim cash payout on qualifying expenditure incurred in YA However, it cannot claim cash payout for the YA 2013 expenditure. 8. Do I need to make CPF contributions on my local employees for all 12 months of each YA? No, these contributions do not need to be made for all 12 months of the YA. To qualify for the cash payout, businesses must have contributed CPF on the payroll of at least 3 local employees as follows: Year of Assessment (YA) Relevant month(s) for determining 3-local-employee condition 2011 and 2012 In the last month of the basis period for the qualifying YA to 2015 In the last month of the quarter or combined consecutive quarters to which the cash payout option relates. Please see Worked Examples for YAs 2013 to to 2018 For all three months in the quarter or last three months of the combined consecutive quarters to which the cash payout option relates. Please see Worked Examples for YAs 2016 to I have incurred wage costs on both my Singaporean and non-singaporean employees. Am I eligible to apply for the cash payout? Only employees who are Singaporeans and Permanent Residents will be considered when determining the number of qualifying local employees. Your non-singaporean employees will not be taken into consideration. Page 4 of 11

5 10. I have both full- time and part- time employees. Am I eligible to apply for the cash payout? Both full-time and part-time employees who are Singaporeans and Permanent Residents will be considered when determining the number of qualifying local employees. The following groups of people are excluded when determining the number of qualifying employees for the purpose of cash payout: Self-employed (this includes a sole proprietor and partner under contract for service) Shareholder who is also a Director of the company (as defined in Section 4(1) of the Companies Act). 11. For YA 2016, my company intends to employ two more employees on part-time basis for only three months, and contribute to the CPF for these employees, to qualify for the PIC cash payout. The company already has one local employee (with CPF contributions). Can the company qualify for PIC cash payout? No, a company will not qualify for PIC cash payout if employees are employed just for headcount purposes in claiming PIC. There must be a genuine employer-employee relationship that was entered into for bona fide commercial reasons. An example of a bona fide employeremployee relationship would be when a company hires two additional employees to work in a retail shop from Oct to Dec to cope with the spike in sales volume in those months. IRAS will take enforcement action against individuals or companies engaged in false/fraudulent PIC cash payout claims. 12. I am self-employed and have contributed to my Medisave Account. Am I considered an employee of the business? No. As you are self-employed, you are the owner of the business and thus cannot be considered as an employee of the business. The eligibility of a business to claim the cash payout is based on the number of employees who are not business owners. 13. Is the cash payout taxable? No, the cash payout is not taxable. 14. Can I convert the qualifying expenditure under PIC into a cash payout if my business still has taxable income? Yes. However the qualifying expenditure available for computing enhanced allowances/ deductions will have to exclude the qualifying expenditure elected to be converted into a cash payout. 15. Is partial conversion of the qualifying expenditure into cash payout allowed? Partial conversion is allowed for qualifying expenditure relating to leasing of PIC IT and Automation Equipment, in-licensing of qualifying IPRs, training, design project and research and development. Partial conversion is not allowed for qualifying expenditure relating to purchase of PIC IT and Automation Equipment, registration and acquisition of IPRs. Page 5 of 11

6 For the purchase of PIC IT and Automation Equipment as well as the registration and acquisition of IPRs, you have to decide whether to claim the enhanced allowances/deductions under PIC or to convert such expenditure into a cash payout on a per equipment, per filing or per IPR basis respectively subject to a cap of $100,000* for each YA. The excess expenditure on the same equipment/ipr exceeding the cap will be forfeited and will not qualify for tax allowances/ deductions against your income. * Expenditure conversion cap for YA 2013 to YA Example Equipment A is purchased at cost of $150,000 in YA 2014 Enhanced allowances under PIC = 300% x $150,000 = $450,000 (Total Capital Allowance = Base Capital Allowance of $150,000 + Enhanced Capital Allowance under PIC of $450,000) You can either claim $600,000 as capital allowance against your income or opt to convert the qualifying expenditure of $150,000 into a cash payout. The cash payout is computed at 60% of the qualifying expenditure (i.e. 60% x $150,000 = $90,000), subject to a cash payout cap of $60,000 for YA You cannot make a partial conversion, i.e. you cannot apply for a cash payout on the $100,000 expenditure and claim the remaining $50,000 expenditure as capital allowance of $200,000 (400% x $50,000). If only $100,000 expenditure is converted to a cash payout, the remaining $50,000 expenditure will be forfeited. Conversion of qualifying expenditure into a cash payout on a per equipment basis does not apply to lease payments for PIC IT and Automation Equipment. 16. Can PIC IT and Automation Equipment acquired on hire purchase (HP) qualify for cash payout? From YA 2012 to YA 2018 Businesses can opt for cash payout on assets purchased under HP agreements signed during the basis period for YA 2012 to YA 2018, with repayment schedule straddling two or more financial years. The expenditure conversion cap and cash payout rate to be applied is determined based on the YA relating to the period in which the HP agreement is signed. For example, the cash payout rate for a HP agreement signed during the period relating to YA 2012 is 30%. The amount of cash payout for each YA will be computed based on the principal amount paid during the basis period for that YA, even if the repayment schedule extends beyond the period for the last qualifying YA (i.e. YA 2018). To qualify for cash payout, the business must contribute CPF on the payroll of at least 3 local employees: For YA 2012 in the last month of the basis period in which the hire purchase agreement is signed. For YA 2013 to YA 2015 in the last month of the quarter or combined consecutive quarters in which the hire purchase agreement is signed. Page 6 of 11

7 For YA 2016 to YA 2018 for all three months in the quarter or last three months of the combined consecutive quarters in which the hire purchase agreement is signed. If you are claiming cash payout on PIC IT and Automation Equipment acquired under a hirepurchase agreement entered into during the basis period for YA 2013 to YA 2018, please submit the completed Hire-Purchase Template (available on IRAS website) together with your PIC Cash Payout Application Form. For YA 2011 The cash payout option is not available for assets purchased under HP agreements (with repayment schedule straddling two or more basis periods) signed during the basis period for YA Can I claim tax deductions or allowances in my income tax return after the expenditure has been converted into a cash payout? No. Once you have elected to convert the qualifying expenditure into a cash payout, you cannot claim tax deductions or allowances on the encashed expenditure. Thus you are advised to evaluate carefully before making the election to claim the cash payout. A2. Applying for the cash payout 18. How do I apply for the cash payout? You can apply for the cash payout by submitting the completed PIC Cash Payout Application Form to IRAS. Businesses can now apply for the cash payout after the end of any financial quarter(s) in the business financial year, but no later than the filing due date of the income tax return for each YA. 19. My business financial year ended on 31 Mar 2014 (YA 2015). When can I apply for the cash payout? If so, when will I receive the cash payout? From YA 2013, businesses can apply for cash payout on a quarterly or combined consecutive quarters basis. This means that you can apply for cash payout by submitting the PIC Cash Payout Application Form anytime after the end of your financial quarter(s), but not later than the income tax return filing due date of the relevant YA (15 Apr for sole-proprietorship and partnership; 30 Nov for company). In this case, as your financial year ends on 31 Mar 2014, the financial quarters for YA 2015 are: Quarter From To Q1 Apr 2013 Jun 2013 Q2 Jul 2013 Sep 2013 Q3 Oct 2013 Dec 2013 Q4 Jan 2014 Mar 2014 You can submit the application for cash payout after the end of each quarter, i.e.: Q1: Submit in Jul 2013 Q2: Submit in Oct 2013 Page 7 of 11

8 Q3: Submit in Jan 2014 Q4: Submit in Apr 2014 You can also combine consecutive quarters for your cash payout application, for example, combine Q1 and Q2 and submit one application in Oct 2013, after Q2 has ended. The due date to submit the application(s) for cash payout is 15 Apr 2015 for sole-proprietorship and partnership; and 30 Nov 2015 for company. If your claim for cash payout is approved, you will generally receive the cash payout within three months of receipt of the duly completed PIC Cash Payout Application Form. For instance, if you are claiming cash payout on qualifying expenditure incurred in Q4 (financial quarter from Jan 2014 to Mar 2014) and have submitted the Cash Payout Application Form on 15 Apr 2014, the cash payout will generally be made by IRAS by 15 Jul 2014 if your claim is approved. 20. My business financial year ended on 31 Mar 2014 (YA 2015). I have made a claim and received my cash payout for qualifying expenditure (Items 1 and 2) incurred in financial quarter, Oct 2013 to Dec I omitted to make a claim for a qualifying expenditure (Item 3) incurred in the same quarter i.e. Oct 2013 to Dec 2013 and want to make a claim for item 3. Can I do it and if so, how? You can re-submit the cash payout application form for the same quarter (i.e. Oct 2013 to Dec 2013 quarter). In the form, you should only include claims for the new item (i.e. Item 3) and not Items 1 and 2, which were previously approved. Please note that penalties may be imposed on duplicate claims made. Alternatively, you can include the claim for Item 3 together with your claim for a subsequent quarter in the same financial year provided you have met the 3-local-employee condition for that subsequent quarter. 21. I am submitting my company s Estimated Chargeable Income ( ECI ) soon. Do I have to submit any forms (for purposes of PIC) together with the ECI? You do not need to submit the PIC Cash Payout Application Form together with your company s ECI. If you are claiming the enhanced tax deductions or allowances under PIC, the claim should be made in the tax computation for the relevant YA. (Note: ECI has to be submitted within 3 months from the company s financial year-end) 22. Can I submit a facsimile copy of the Cash Payout Application Form to IRAS? No, only the hard copy of the original form, signed by the authorised person and sent to IRAS, will be accepted. The authorised persons who can sign the form are sole-proprietor for soleproprietorships; precedent partner for partnerships; and company director or principal officer or a person authorised by the company for companies. If the form is signed by any other person, please submit a letter of authority with the form. For sole-proprietorships Page 8 of 11

9 23. When can I submit my claim for cash payout if I am a sole-proprietor with multiple soleproprietorships? A sole-proprietor is only required to submit one PIC Cash Payout Application Form for the multiple sole-proprietorships that have incurred qualifying expenditure. Please submit the claim form and the relevant annexes after the financial period of all the businesses have ended. From YA 2013, businesses can apply for cash payout on a quarterly or combined consecutive quarters basis. The PIC Cash Payout Application Form can be submitted after the end of any financial quarter(s) in the business financial year, but not later than the income tax return filing due date of the relevant YA (15 Apr for sole-proprietorship and partnership). 24. If I have more than one sole-proprietorship, how many claim forms must I submit? You only need to submit one claim form for all your sole-proprietorships as the cash payout is capped at the sole-proprietor level. However separate annexes for claims relating to each individual sole-proprietorship will need to be submitted together with the claim form. 25. I am not required to file certified statement of accounts for income tax purposes for both my sole-proprietorship and partnership as both businesses have revenue of less than $500,000 each. Do I have to submit certified statement of accounts if I wish to apply for the cash payout? For the purpose of claiming cash payout, you will be required to submit certified statement of accounts by the income tax filing due date of 15 Apr. This is regardless of whether the revenue of the business is less than $500,000. However, from YA 2013, sole-proprietorships and partnerships opting for cash payout no longer need to submit certified statements of accounts together with their income tax returns. 26. If a sole-proprietorship is owned by a company (not an individual) and the PIC qualifying expenditure was incurred by the sole-proprietorship, which entity should fulfil the 3-localemployee condition in order to qualify for PIC cash payout? The company or the soleproprietorship? The sole-proprietorship business has to fulfil the 3-local-employee condition in order to qualify for the PIC cash payout. This is because the sole-proprietorship incurred the PIC qualifying expenditure and as such, it would need to fulfil the 3-local-employee condition in order to qualify for PIC cash payout. For instructions on how to complete the PIC cash payout application form for this scenario, please refer to slide 3 of our User Guide. A3. Receiving the cash payout 27. Will the cash payout be used to offset my tax arrears? Yes. The cash payout will be used to offset any tax arrears (such as Individual/Corporate/GST/ Property tax) of the business before any remaining amount is paid to the business. 28. When will I receive the cash payout? You will receive the cash payout within 3 months from the date IRAS receives the completed PIC Cash Payout Application form and the relevant documents. Page 9 of 11

10 29. How will the payment of the cash payout be made? The cash payout is paid to the business which incurred the qualifying expenditure. You can expect the cash payout to be credited into your existing GIRO account (according to IRAS records) or receive a cheque otherwise. If you have received the payment via cheque, please deposit it into your bank account within 3 months from the date of the cheque. 30. My business uses different bank accounts for GIRO payment of income tax and GST. In which bank account will cash payout be credited to? The cash payout will be credited to your Income tax GIRO account. 31. What will happen in the event that the GIRO crediting is not successful (e.g. bank account is closed)? We will send you a cheque for the cash payout within a week of the unsuccessful GIRO payment. 32. I have misplaced the cheque for the payment of cash payout. What should I do? Please send an to picredit@iras.gov.sg or call our helpline at (for companies) / (+65) (for Self-employed / partnership) for assistance. A4. Recovery of the cash payout 33. Under what circumstances do I have to repay the cash payout? You are required to own the automation equipment and/or IPRs for which the cash payout has been made, for at least 1 year from the date of acquisition of the automation equipment; or acquisition of the IPR; or filing of the IPR (whichever is applicable). Under certain circumstances, if you dispose of your automation equipment within one year, you do not have to repay the cash payout. For more details, please refer to Question 30 of our FAQs on Productivity and Innovation Credit (Acquisition or Leasing of PIC IT and Automation Equipment). If you lease/dispose of your acquired IPRs within two to five years, you will need to repay the cash payout proportionately. Cash payout will also be recovered if your design project submitted to DSg is not approved. You will have to inform IRAS within 30 days from the date you lease/dispose the automation equipment and/or IPRs. You will also be required to repay the cash payout within 30 days of IRAS Productivity & Innovation Credit Cash Payout Recovery notice. 34. How do I inform IRAS if I dispose of an equipment/ipr in respect of which a cash payout was claimed within the 1 year holding period? You should complete the Disposal of Qualifying Assets Form and provide the details of the equipment/ipr disposed. The completed form should be submitted to IRAS within 30 days from the date of disposal of the equipment/ipr. Page 10 of 11

11 35. How is the recovery of cash payout on disposed IPRs computed? For acquired IPRs disposed within a year from the date of acquisition of the IPR, the full amount of cash payout claimed will be recovered. For IPRs disposed within 2 to 5 years from the date of acquisition of the IPR, the amount of cash payout to be recovered will be apportioned as follows: Amount to recovered = [(5 - No. of complete years which the IPR was held) / 5] x cash payout 36. Is there a penalty for disposing a piece of equipment for which cash payout was claimed within the holding period? Besides the recovery of cash payout, no penalty will be imposed if you inform IRAS of the disposal within 30 days from the date the equipment is disposed. However, penalties will be imposed for late notification, non-compliance or fraud. Page 11 of 11