Singapore: Tax treatment of termination payments made under a separation agreement

Singapore: Tax treatment of termination payments

The Board of Review held that a termination payment made under an employment separate agreement was not taxable because it constituted compensation for loss of office and for a non-competition covenant.


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The case is: GCT v. Comptroller of Income Tax [2020] SGITBR 3


In general, payments made to compensate for the loss of an income source are regarded as capital receipts and are not taxable in Singapore.

The taxpayer in this case had served as managing director with a Singapore company that was eventually wound down in August 2018. In the employment contract, there were specific clauses that provided for termination and other payments in the event of the termination of the taxpayer’s employment. The taxpayer asserted that the entire severance payment was compensation for the loss of office and was not taxable.

The Board of Review determined that when the termination clauses stipulating such payments are included in an employment contract, it is not conclusive that such payments are taxable. Whether such payments are considered capital receipts is a question of fact that must be reviewed carefully in the context of the circumstances to the receipt of the payment.

Thus, the Board of Review concluded that under the circumstances of this case, the entire payment was not taxable because it constituted compensation for loss of office and for a non-competition covenant.

Read a July 2020 report [PDF 283 KB] prepared by the KPMG member firm in Singapore

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