When a Singapore company pays a director’s personal expenses, such as school fees, a family holiday or the rent on a private home, the cost is not a deductible business expense. The company must decide what the payment really was: money the director owes back, part of the director’s remuneration, or a distribution against a properly declared dividend. Each choice has different income tax, CPF, Companies Act and reporting consequences. GST on private expenses cannot be claimed. If the payments were booked as company expenses in past years, the returns should be corrected, ideally through voluntary disclosure.
Raffles Corporate Services works with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice. This article is general information only and is not legal advice.
This guide is for owner-directors, finance managers and bookkeepers who have found personal bills paid by the company and need to deal with them properly.
Why can’t the company simply deduct the expense?
Section 15(1)(a) of the Income Tax Act 1947 disallows any deduction for domestic or private expenses, and section 15(1)(b) disallows any expense not wholly and exclusively incurred to produce the company’s income. A director’s child’s tuition, a family insurance policy or a personal renovation fails both tests, even if the company’s bank account paid for it.
So the question is not “can we deduct it?” but “what was this payment, and who should be taxed on it?” Leaving the item in “sundry expenses” understates the company’s profit and, if IRAS finds it, usually leads to the expense being added back, plus penalties. It may also mean the director has escaped tax on a benefit.
Our article on company credit card spending covers day-to-day card controls. This guide deals with the wider clean-up: bills paid directly to suppliers, bank transfers and reimbursements, and what to do once you have found them.
What are the three ways to treat the payment?
| Treatment | Company’s tax position | Director’s tax position | CPF | Main conditions and risks |
|---|---|---|---|---|
| 1. Amount owed by the director (debit to the director’s current account) | No expense, no deduction | Not income when repaid; an interest-free balance may give a taxable interest benefit | None | Section 162 Companies Act restrictions on loans to directors; the balance must actually be repaid |
| 2. Part of the director’s remuneration | Generally deductible as an employment cost if genuinely remuneration, approved and reported | Taxable employment income, reported on Form IR8A or Appendix 8A | Depends on whether cash was paid to the director (see below) | Needs proper approval of the director’s remuneration; must be reported by 1 March of the following year |
| 3. Set off against a declared dividend | Not deductible (a distribution of profit) | One-tier dividend, not taxed in the shareholder’s hands | None | Only out of profits; must be declared before or when the set-off is made; all shareholders of that class must be treated according to their entitlement |
The treatment has to match the facts and the paperwork. You cannot pick whichever option gives the lowest tax after IRAS has started asking questions.
Option 1: the director owes the money back
This is the right answer where everyone understood that the director would repay. The entry is a debit to the director’s current account (an amount receivable by the company) instead of an expense.
Two follow-on issues arise. First, section 162 of the Companies Act 1967 restricts a company from making loans to its directors, with an exception for exempt private companies and certain other limited cases. Paying a director’s bills on terms that the director will repay can fall within these restrictions. Our guide to section 162 and loans to directors explains when a company may do this.
Second, IRAS treats directors as employees for income tax purposes. According to IRAS guidance on benefits relating to loans, the concession for interest-free staff loans does not apply to employees with a substantial shareholding or control over the company. An owner-director with a large interest-free debit balance may therefore have a taxable interest benefit to report in Appendix 8A. From 1 April 2023, IRAS computes it using the 3-month compounded SORA plus a 1.5 percentage point spread, pro-rated for the months the balance was outstanding.
Option 2: the payment is remuneration
If the company intended to bear the cost as part of the director’s package, it is employment income. The director pays personal income tax on it, and the company reports it on Form IR8A, with benefits-in-kind listed in Appendix 8A. Examples from IRAS’s explanatory notes include insurance premiums on a personal policy where the employee is the policyholder and educational expenses paid by the employer. Our Appendix 8A guide explains how each benefit is valued.
The director’s remuneration must be approved in the way the company’s constitution requires. A payment that no one approved, and that was hidden in expenses, is hard to defend as remuneration later.
Option 3: set off against a dividend
Where the director is also a shareholder and the company has profits, the company may declare a dividend and set the personal payments off against the director’s entitlement. The company gets no deduction, but one-tier dividends are not taxed in the shareholder’s hands. The dividend must be properly declared and minuted, and every shareholder of that class must receive their share. The company must also have profits available for distribution.
Is CPF payable on personal expenses paid by the company?
CPF applies only where the director is an employee receiving wages; directors’ fees approved by shareholders do not attract compulsory CPF. For a salaried director, the CPF Board draws a line between cash and benefits in kind:
- Cash reimbursements to the director for personal items, such as a gym membership or childcare fees, are generally wages and attract CPF, whether paid in advance or reimbursed.
- Payments made directly to a service provider, where no cash reaches the employee, are a benefit in kind and are not wages for CPF, according to the CPF Board’s guidance on benefits in kind.
Both are still taxable for income tax. Only the CPF answer differs.
Can the company claim GST on these expenses?
No. Input tax can be claimed only on goods and services supplied to the company for its business, supported by a valid tax invoice. A private expense fails the business purpose test in IRAS’s conditions for claiming input tax, and an invoice addressed to the director personally is not a supply to the company at all.
Separately, regulations 26 and 27 of the GST (General) Regulations block input tax on certain expenses even where there is a business link, including club subscriptions, medical and accident insurance and medical expenses (subject to exceptions), benefits for family members of staff, and motor car expenses. Recovering the cost from the director does not make the GST claimable. If a GST-registered company has claimed input tax on personal bills, it should correct this through a voluntary disclosure, as explained in our guide to correcting past GST errors.
How do you fix personal expenses booked in past years?
- Extract the items. Review the general ledger, bank statements and card statements for each open year. Tag every payment that benefited a director or their family personally.
- Find the evidence. For each item, check the invoice addressee, any approval, emails or board papers that show what was intended.
- Choose the treatment. Decide, item by item, between the director’s current account, remuneration and dividend set-off, based on what was actually agreed at the time.
- Restate the accounts. Reclassify the amounts out of expenses. Consider whether prior-year financial statements need correcting.
- Correct the corporate tax position. Disclose the over-claimed deductions to IRAS for each affected Year of Assessment. A disclosure made before IRAS starts an audit may qualify for reduced penalties under the IRAS Voluntary Disclosure Programme.
- Correct GST. Reverse any input tax claimed on the personal items through the GST voluntary disclosure process.
- Correct employment reporting. If items are treated as remuneration, amend the director’s Form IR8A or Appendix 8A, and pay any CPF due on cash reimbursements.
- Put a policy in place. Write down what the company will and will not pay, who approves exceptions and how the current account is settled.
Documents checklist
- Invoices and receipts for each personal item, showing the addressee
- Bank and card statements showing the payments
- Director’s current account ledger and any repayment records
- Board or shareholder resolutions on director remuneration and any dividend declared
- Prior Form C-S or Form C, tax computations and GST returns for the affected periods
- Forms IR8A and Appendix 8A filed for the director
- CPF submission records, if the director is on payroll
A worked example
Example (hypothetical): A GST-registered trading company has one director who owns 100% of its shares. During a year-end review, the accountant finds that over two financial years the company paid S$18,000 of the director’s children’s school fees directly to the school, S$6,000 for a family holiday on the company card, and reimbursed S$2,400 of the director’s personal gym fees in cash. All of it was booked as “staff welfare”, and GST of S$495 was claimed on the holiday package.
The director confirms the school fees were meant as part of the director’s package, the holiday was to be repaid, and the gym fees were reimbursed as a perk. The company:
- treats the school fees as remuneration, records shareholder approval, and reports them as educational expenses in Appendix 8A (no CPF, because the company paid the school directly);
- moves the holiday to the director’s current account, which the director repays, and confirms the company is an exempt private company for section 162 purposes;
- treats the gym reimbursements as cash wages, reports them on Form IR8A and pays the CPF due;
- reverses the S$495 of input tax through a GST voluntary disclosure; and
- discloses the over-claimed deductions to IRAS for the affected Years of Assessment.
Frequently asked questions
Is it illegal for a company to pay a director’s personal bills?
Not in itself. The problems arise from how it is approved, recorded and taxed. A non-exempt private company also needs to consider the section 162 restrictions if the director is expected to repay.
What if the director has lent money to the company?
Personal bills can be set off against an existing credit balance the company owes the director. The set-off should be recorded in the current account, and the payment is then a repayment of the director’s loan rather than an expense.
Can a mixed bill be partly claimed?
Yes, the business portion may be deductible and, if the usual conditions are met, its GST claimable. Keep a clear record of how you split the bill.
Which option gives the lowest overall tax?
It depends on the director’s personal tax rate, the company’s profits and whether a dividend is possible. The treatment must reflect what was actually agreed, so compare options before the payments are made, not afterwards.
How far back should we correct?
Review every year in which the payments were claimed as expenses and the assessment can still be revised. Your tax adviser can confirm the periods IRAS can reopen and how to present the disclosure.
Need help sorting out a director’s personal expenses?
Raffles Corporate Services can review your ledgers, reclassify personal items, reconcile the director’s current account, prepare corrected tax computations, IR8A and Appendix 8A filings, and help prepare voluntary disclosures to IRAS for income tax and GST. Contact us at [email protected] or on WhatsApp at +65 8501 7133. This article is general information, not tax advice.
Kevin Yeo, Raffles Corporate Services