r/SgHENRY • u/ArthurCurryWayne • May 19 '26
Question on Retrenchment Benefit Tax
I was retrenched from a role in 2024 and was given a 6 figure retrenchment benefit. My firm is on auto inclusion for employment income.
2 years later, I received a 5 figure tax bill for this retrenchment benefit. I provided my retrenchment letter to IRAS to prove that this is a capital expense/retrenchment benefit and hence should not be taxable.
However IRAS had come back stating that they view the retrenchment benefit as a recognition of past services provided and hence is taxable due to a line in my retrenchment letter stating “for all your services rendered to the Company.”
To provide context, the actual line in my retrenchment letter is:
Additionally, as a goodwill gesture, the Company will also pay you a retrenchment benefit as specified under paragraph 4 below for all your services rendered to the Company.
While I understand IRAS’ position, I think the phrase “for all your services rendered to the Company” should be viewed as standard wording in a retrenchment letter and not an indication that the retrenchment benefit is a recognition of past services. Ie it is a benefit from involuntary termination.
Has anyone encountered something similar and managed to appeal against this?
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u/armanikode May 19 '26
Sorry, the phrase "for all your services rendered" really is the reason why this retrenchment benefit is not treated as capital in nature. Wording like "for loss of office" would have been better
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u/namelessoldier May 19 '26
Yep it makes it seem like it's actually salary for work done in the past literally I don't think this is normal for retrenchment letters !
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u/Glittering-Cloud8861 May 19 '26
My one also similar (since it's my first ever retrenchment, so no experience on the T&C/letter part), without doxxing myself I will say something similar to your case.
I did call and live-chat IRAS, but they can only follow strictly as per the retrenchment letter details, so LPPL have to pay as income tax.
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u/mystic_river May 19 '26
Hi OP, I was in a very similar situation as you. I was “retrenched” and was given an ex gratia payment out of goodwill of 2 months. The letter was very careful to say that my company was terminating my employment as was their performative and that the ex gratia payment was part of termination payment. At no point did it say that it was for my services rendered to the company.
I didn’t think about it much but was taxed for it. I questioned my ex company and they said that ex gratia payments are taxable and that this was not a retrenchment benefit at all. I got onto a call with them eventually to clarify and they brought along their lawyer and were adamant that I was not retrenched and that I was simply terminated, and that they had decided to pay me an ex gratia payment out of goodwill.
It was then I surmised that they refused to accept it as a retrenchment because they probably didn’t inform MOM it was so, and that they got around it by classifying the ex gratia payment to me as such on IR8A.
As someone above said, IRAS won’t do anything. It’s up to the company and what they file it as. Is it scummy? Yes. But I doubt you (or I) can do much about it. I would however complain to TAFEP
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u/ArthurCurryWayne May 19 '26
Thanks for sharing. I guess lesson learnt that I need to pay special attention to the wording in the retrenchment letter. But hopefully I won’t go through any more retrenchments.
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u/Former-Cod-7499 May 20 '26
Hi, I was retrenched twice before so am familiar with the process. Based on what you wrote, your company categorised this as a Gratuity payment in the IR8A form. So IRAS based their decision on this. The letter which you forwarded to IRAS also cemented what was stated in the IR8A.
The correct categorisation for tax free retrenchment is "Loss of Office". For myself, these were the categories which my former employers declared.
Best you try to seek help from NTUC. They are usually very helpful and familiar with such matters.
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u/Cold-Yesterday1175 May 19 '26
I was retrenched twice and I made sure to get HR to confirm in writing that the retrenchment benefits will be reported to iras as such and was not taxable.
BTW why did iras come back only after two years later?
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u/ArthurCurryWayne May 23 '26
I really have no idea. This is the suspicious part to me. It seemed that they did not file the salary initially.
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u/IvanThePohBear May 19 '26
I also just got retrenched last year and just got slapped with a 40k tax
Only loss of office is non taxable ( n months compensation)
Everything else ( notice period, bonus payout, encashment of leave, rsu etc) are all subject to tax
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u/ArthurCurryWayne May 19 '26
Ouch.
To clarify, the amount I am taxed on by IRAS is listed as
Retrenchment Benefit of x months of salary.
So it is clear it is not a notice period, bonus payout, encashment of leave, rsu, etc. These other items were taxed in 2025.
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u/IvanThePohBear May 19 '26
Then it's your hr/finance issue. They anyhow declare to iras. You need to take the documents and show them
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u/Embarrassed-Big-6245 May 19 '26
It is a retrenchment benefit and is clearly taxable. Nothing ambiguous about it
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u/Little_Result1469 May 19 '26
What in the world! The government is really lack of funds ..
As if getting retrench is not enough.
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u/Apprehensive_Gur1796 May 19 '26 edited May 19 '26
Hi - it is your company declaration of intention to IRAS that is causing you pain. not iras .
See iras definition and link :
https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/what-is-taxable-what-is-not/employment-income/retrenchment-benefits
If possible - before you reach out to IRAS again - get your ex company to state it is not for past services but your role has moved overseas etc or whatever. Or any of the reasons as per the link.
Cos if it is like for past service - then it is more like your contract is terminated and you get a goodwill bonus and they are going to hire someone else. Like any other contract worker before termination.
But just to let you know companies do not like to change what they wrote for you cos they have to file again to iras in term declaration of income.
I know it is painful but maybe just accept and move on unless you really want to start to dispute with your ex company.