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Mr Tan was retrenched by ABC Pte Ltd. He was given a retrenchment package which was paid to him the following year. The retrenchment package consists of the following components:
a. How will Mr Tan be taxed on his retrenchment package?
b. When will Mr Tan be taxed on his retrenchment package?
The taxable components (i.e. payment in lieu of notice and gratuity) will be taxed in the Year of Assessment Mr Tan was retrenched and not when he was given the package (i.e. not taxed in the following year).
Payments for retrenchment benefits are taxed in the year that the employee is legally entitled to the retrenchment benefits and not based on the date of payment. It is usually taxed in the year the employee is retrenched.
For example, you were retrenched in 2021 but only received the retrenchment benefits in 2022. The retrenchment benefits received in 2022 will be taxed in the Year of Assessment 2022 (i.e. income for 2021).
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Last updated on 29 January 2022