Question on tax on retrenchment benefit
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.
For additional context, the company folded and retrenched everybody in SG.
While my salary was under Auto-inclusion scheme, this retrenchment benefit wasn’t included in the auto inclusion scheme in 2024 when I was retrenched and hence was only picked up in 2026c this tax year.
Has anyone encountered something similar and managed to appeal against this?