Government grants are usually given to taxpayers to help lighten the cost of maintaining your own business. Some of the government grants may be specifically given to taxpayers for purchase of specific equipment / specific expenditures or for general working capital purposes.

While government grants are generally welcomed by taxpayers, it is also one of the common mistakes which taxpayers make with regards to PIC cash payout or enhanced deduction.

When taxpayers claim for PIC cash payout or enhanced deduction, the qualifying amount should be net of these government grants received.  This is often neglected by the taxpayers when they file for PIC cash payout or enhanced deduction.

Let’s take a look at 2 examples to understand how the government grants should be treated for PIC purposes.

Example 1

XYZ Pte Ltd applied and received a government grant of $5,000. This government grant is given specifically with regards to the purchase of server amounting to $10,000

XYZ Pte Ltd decides to claim PIC on this server.

If XYZ decides to claim PIC cash payout, the qualifying cost which can be converted to cash is $5,000 ($10,000 – government grant of $5,000). Hence, the cash payout XYZ will receive is $3,000 ($5,000 x 60%*).

If XYZ Pte Ltd wants to claim PIC enhanced deduction instead, the enhanced deduction will be $15,000 [($10,000 – government grant of $5,000) x 300%].

Example 2

XYZ Pte Ltd sent its employees to attend a training course. The training course costs $2,000 and is subsidised by the WDA. The subsidy by WDA amounts to 80% of the training course, which is $1,600.

XYZ Pte Ltd decides to claim PIC on this training expenditure.

If XYZ wants to claim PIC cash payout, the qualifying cost which can be converted to cash is $400 ($2,000 – WDA subsidy of $1,600). Hence, the cash payout it will received is $240 ($400 x 60%*).

If XYZ wants to claim PIC enhanced deduction instead, the enhanced deduction will be $1,200 [($2,000 – WDA subsidy of $1,600) x 300%].

One common aspect for both examples is that the government grant / subsidy is for a specific assets or expenditure (i.e. server and training course). Hence, the taxpayer will need to net off the government grant / subsidy from the PIC qualifying cost and claim PIC cash payout or enhanced deduction on the net qualifying cost.

If the government grant is for general working capital purposes (i.e. the taxpayer is not restricted to use the government grant on any specific asset or expenditure), the taxpayer can claim PIC cash payout or enhanced deduction on the gross PIC qualifying cost.

*W.e.f 1 August 2016, the PIC Cash payout rate is adjusted to 40%.