5. I am a member of a Mandatory Provident Fund Scheme (“MPFS”). What is the tax treatment of the accrued benefits that I would receive or be deemed to have received from the MPFS upon my termination of employment?
There are different scenarios. See below for the appropriate tax treatment:
Relevant portion |
Reason for withdrawal |
Whether Taxable |
---|---|---|
Employee's mandatory contributions |
Employment terminated under any circumstances |
Always fully exempt |
Employee's Voluntary contributions |
Employment terminated under any circumstances |
Always fully exempt |
Employer's mandatory contributions |
Employment terminated under any circumstances |
Always fully exempt |
Employer's voluntary contributions |
(1) Retirement, death or incapacity (lost of working ability due to injury/illness) |
Exempt Exempt If the sum does not exceed the Proportionate Benefit, it is fully exempt. If exceeded, the amount exceeding the PB is taxable. |
Proportionate Benefit = Accrued benefits# x No. of months of service*
120
# The part relating to employer's voluntary contributions
* Only completed months of service will be counted
Example
If after serving 7 years 6 1/2 months an employee left his employment, and from the MPFS he received accrued benefits representing his employer's contributions of $100,000, the amount that will be exempt from Salaries Tax should be:
PB = $100,000 x 90 complete months
120
= $75,000
For more details on the taxation matters relating to MPFS, please read the MPF Circular Letter No.1 issued by the Inland Revenue Department.