One of the main reason is that it gives SMEs cash back on their qualifying purchases. For SMEs, liquidity forms a major part for business continuity.
In this and the next blog posts, I will explain in more details on:
- How does the cash payout works;
- Maximum cash back for each business year;
- Steps to apply for the cash payout;
- Qualifying conditions; and
- Impact to your company’s tax payable
How does cash payout work
As mentioned briefly in my previous article, when your company has incurred expenses on PIC qualifying items (e.g. bought a laptop, rental of multifunctional copier machine or send your employee to training), you can elect to convert these expenses into cash.
FGH Pte Ltd rents a multi-functional copier for S$5,000 per annum.
It can choose to elect to convert the full S$5,000 into cash payout of S$3,000 under the PIC cash payout option. (S$5,000 x 60%*).
What is the maximum amount my company can receive for each business year?
The maximum qualifying expenditure that companies can elect to claim cash payout on is S$100,000. This means that the maximum cash you can get from electing the cash payout is S$60,000 (S$100,000 x 60%*) for each business year.
As mentioned previously, the capping for each qualifying activity is S$400,000 or S$1,200,000 for a combined period of 3 business years.
Companies can still elect to claim PIC enhanced deduction on the remaining qualifying activities of up to S$1,100,000 (combined capping).
*W.e.f 1 August 2016, the PIC cash payout rate is adjusted to 40%