Tax treatment of interest-free loans, subsidised interest loans, waivers on the principal sum, etc. given to employees.
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Tax Treatment of Benefits Relating to Loans (Summary Table)
| Nature | Taxable/Not taxable | |
|---|---|---|
1 | Interest benefits arising from interest-free or subsidised interest loans, e.g. housing loans, vehicle loans, computer loans and personal loans. |
|
| Not taxable if the scheme is available to all employees. Employees must not have substantial shareholdings, or control or influence over the company by virtue of their shareholdings or otherwise. See Computing Interest Benefits (below). | |
| Taxable | |
2 | Interest benefits on loans to company directors | Taxable |
3 | Waiver of principal sum | Amount waived is taxable |
Loans to Company Directors
Benefits that directors derive from loans are taxable. The Income Tax Act regards company directors as employees thus the benefits from interest-free / subsidised loans are taxable as employment benefits.
Computing Interest Benefits
From Year of Assessment (YA) 2024
To compute the value of interest benefits from 1 April 2023, please use a rate that is 1.5%-point above the 3-month compounded ‘Singapore Overnight Rate Average (SORA)’ published by Monetary Authority of Singapore on 1 March and 1 September each year. The relevant interest rates for computing the value of interest benefits are:
| Period | Interest rate |
|---|---|
| January to March 2023 (Average Prime Leading Rate) | 5.5% |
| April to September 2023 | 4.7% |
| October to December 2023 | 5.1% |
| January to March 2024 | 5.1% |
| April to September 2024 | 5.1% |
| October to December 2024 | 5.0% |
Example 1: Computing the value of interest benefit for YA 2025
A company director was provided with an interest-free loan of $120,000 from January 2024 to December 2024. He repaid $10,000 per month to the company. The amount of taxable interest benefit for YA 2025 is $2,802.50.
| Outstanding Loan ($) | Interest rate (%) | Amount of Interest Benefit* ($) | |
|---|---|---|---|
| January | 120,000 - 10,000 = 110,000 | 5.1 | 467.50 |
February | 110,000 - 10,000 = 100,000 | 5.1 | 425.00 |
March | 100,000 - 10,000 = 90,000 | 5.1 | 382.50 |
| April | 90,000 - 10,000 = 80,000 | 5.1 | 340.00 |
| May | 80,000 - 10,000 = 70,000 | 5.1 | 297.50 |
| June | 70,000 - 10,000 = 60,000 | 5.1 | 255.00 |
| July | 60,000 - 10,000 = 50,000 | 5.1 | 212.50 |
| August | 50,000 - 10,000 = 40,000 | 5.1 | 170.00 |
| September | 40,000 - 10,000 = 30,000 | 5.1 | 127.50 |
| October | 30,000 - 10,000 = 20,000 | 5.0 | 83.33 |
| November | 20,000 - 10,000 = 10,000 | 5.0 | 41.67 |
| December | 10,000 - 10,000 = 0 | 5.0 | 0.00 |
| 2,802.50 |
Example 2: Computing the value of interest benefit for YA 2024
A company director was provided with an interest-free loan of $120,000 from January 2023 to December 2023. He repaid $10,000 per month to the company. The amount of taxable interest benefit for YA 2024 is $2,795.
| Outstanding Loan ($) | Interest rate (%) | Amount of Interest Benefit* ($) | |
|---|---|---|---|
| January | 120,000 - 10,000 = 110,000 | 5.5 | 504.17 |
February | 110,000 - 10,000 = 100,000 | 5.5 | 458.33 |
March | 100,000 - 10,000 = 90,000 | 5.5 | 412.50 |
| April | 90,000 - 10,000 = 80,000 | 4.7 | 313.33 |
| May | 80,000 - 10,000 = 70,000 | 4.7 | 274.17 |
| June | 70,000 - 10,000 = 60,000 | 4.7 | 235.00 |
| July | 60,000 - 10,000 = 50,000 | 4.7 | 195.83 |
| August | 50,000 - 10,000 = 40,000 | 4.7 | 156.67 |
| September | 40,000 - 10,000 = 30,000 | 4.7 | 117.50 |
| October | 30,000 - 10,000 = 20,000 | 5.1 | 85.00 |
| November | 20,000 - 10,000 = 10,000 | 5.1 | 42.50 |
| December | 10,000 - 10,000 = 0 | 5.1 | 0.00 |
| 2,795.00 |
Year of Assessment (YA) 2023 and before
For simplicity, IRAS may accept computation based on the amount of loan outstanding as at 31 December of each year multiplied by the average prime lending rate for that year.
Average Prime Lending Rate
| Year | Average Prime Lending Rate (%) |
|---|---|
| 2020 | 5.25 |
| 2021 | 5.25 |
| 2022 | 5.25 |
If the loan were taken for less than one calendar year, the interest benefits would be computed according to the number of months in that year for which the loans remain outstanding.
Example 3: Computing the value of interest benefit for YA 2023 and before
A company director was provided with an interest-free loan of $100,000 from January 2020 to October 2022, the amount of interest benefit for each Year of Assessment (YA) would be as follows:
| Year of Assessment (YA) | Outstanding Loan | Average Prime Lending Rate (%) | Amount of Interest Benefit |
|---|---|---|---|
| 2021 | $100,000 | 5.25 | $100,000 x 5.25% = $5,250 |
2022 | $100,000 | 5.25 | $100,000 x 5.25% = $5,250 |
2023 | $100,000 | 5.25 | $100,000 x 5.25% x 10/12 = $4,375 |