8. I completed a two-year-contract of employment and received a lump sum contract gratuity. Then I renewed my contract with my employer for another two years. Do I have to report the entire sum for the first contract's gratuity in this year's tax return? Can I apply to spread it evenly as my income over the two years covered by the first contract?
You must report this lump sum gratuity payment in this year's Tax Return –Individuals. Please include the amount of the contract gratuity in the "Total amount" under item (1), Part 4.1 of the Tax Return –Individuals. However, you may apply to have the lump sum related back to the service period in respect of which the payment was made.
| Example | $ |
| Details of income from Company A during the year 2022/23: | |
| Salary | 372,000 |
| Contract gratuity for the past 2 years (period: 1/7/2020 - 30/6/2022) | 150,000 |
| 522,000 |
| Contract gratuity may be related back to relevant years as follows: | |
| 1/7/2020 - 31/3/2022 | $150,000 / 24 months x 21 months = $131,250 -- as income related back evenly to the years of assessment 2020/21 and 2021/22 (i.e. your income in those years would be re-assessed together with any allowances and deductions which have not been fully utilised.) |
| 1/4/2022 - 30/6/2022 | $150,000 / 24 months x 3 months = $18,750 -- as income for the year of assessment 2022/2 |
If the length of service is more than 3 years, the sum will be related back over a 36-month period ending on the date of entitlement to the payment or the last day of employment, whichever is earlier.
Before you decide to relate back your gratuity, you should check with the Inland Revenue Department or a professional accountant to see if there is any “advantage” for such action.
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