Capital, trade, non-trade incomeSOURCE OF INCOME
(SSI/FSI)RESIDENCE OF TAX PAYER
Capital and income receipt: PMA test- Capital: Receipt from
disposal of PMA (retained, used to produce income)- Income: From
disposal of circulating capital (bought and sold- recurring)Capital
and trading income receipt: BOT test (for disposal of asset)(1)
Subject matter of realisation (Nature and/or quantity of the asset)
- Trading: Assets with ready market and acquired in large
quantities - Capital: Assets capable of providing personal
enjoyment/pride of possession, give periodic income or appreciation
of capital value, (2) Period of ownership, (3) Frequency of similar
transactions, (4) Supplementary work (increase saleability through
improvement or marketing), (5) Circumstances of realisation
(Reasons for disposal can indicate whether there was intention to
trade, e.g. Exigencies, previously unforeseeable opportunities,
forced sale), (6) Motive inferred, 7. Other indicators: (a)
Circumstances relating to the acquisition, (b) Special knowledge or
experience (likely to want to make use of expertise to make
commercial advantage), (c) Method and adequacy of financing
(acquisitions financed by debt are likely to be trading- sale to
pay off debt in the short term), (d) Periodic income (if the asset
yields little periodic income, and ought to be known during
acquisition- should have done a feasibility study, it is likely to
be trading), (e) Use (holds more weight than mere intention), (f)
Utilisation of sales proceed (given back as dividends or reinvested
in another capital asset- trading)Trade and non-trade income (Trade
loss and capital allowance treatment)- Income in the normal course
of ones business versus passive income*Check principal activity of
taxpayer to differentiate- is it incidental to carrying on of
persons trade?(a) TBPV (b) Employment (d) Dividends, interest or
discounts (f) Rents, royalties, premiums and any other profits from
property (g) Any gains/ profits of income nature (Not carried out
in ordinary course of business or another business activity, and
there was intention of making a profit- not voluntary payment)A)
Trading income (Issue: Is NR trading in or trading with
Singapore?)1. Criteria from case law- Contract test: Trade income
is sourced in the state where acceptance of the offer occurs to
create a contract (solicitation of orders and negotiation of
trading terms in any state is insufficient), but if all the
essential elements of the contract are negotiated and agreed to in
the state, the signing of contract is a formality - Operations
test: Trade income not sourced in state where the only operations
carried out are of preparatory or auxiliary character2. ITA S12(1)
- The gains or profits of the NR trade/business deemed to be from
Singapore to the extent to which such gains or profits are not
directly attributable to that part of the operations carried on
outside Singapore - IRAS clarifications: Cannot be purchasing
function, warehousing of goods without trading activities held in
Singapore and a representative office that properly confines its
activities to promotional/liaison (collection) work*No 6 month
threshold (compared to treaty)3. Concept of Permanent Establishment
(PE) - If NR has enough presence in Singapore to meet or exceed the
minimum level based on PE definition, NR is considered to have a PE
in that state and is trading in that state- UK-SG treaty:1. General
definition - Any premises, facilities, installation or space at the
disposal of the enterprise, whether owned or rented or available at
the disposal of enterprise or for exclusive use of the enterprise -
Fixed location (certain degree of permanence) - Activities must be
carried on at the fixed place on a regular basis (need not be of
productive nature) - Can be through employees or machines stationed
at the fixed place of business2. Specific inclusions - E.g. A place
of management, a branch, an office, a factory, a workshop, a mine,
an oil or gas well, a quarry or any other place of extraction of
natural resources - A building site or construction, assembly or
installation project (lasts > 6 months) - Carrying on of
supervisory activities in connection to project for > 6 months -
Furnishing of services, including consultancy services, through
employees or persons engaged by the enterprise for a period > 6
months - A dependent agent that has, and habitually exercises,
authority to conclude contracts on behalf of the enterprise3.
Specific exclusions - The use of facilities for storage, display or
delivery of goods - The maintenance of stock solely for the purpose
of processing by another enterprise - The maintenance of a fixed
place of business solely for the purpose of purchasing goods or
collecting information - The maintenance of a fixed place of
business such that overall activity is of a preparatory or
auxiliary nature (not an essential and significant part of the
whole business) - Business activities carried out by independent
agent (acting in the ordinary course of his business: enterprise
has smaller extent of control, agent bears entrepreneurship risk,
agent has a number of principals) - The fact that the company in
contracting state controls/is controlled by NR (subsidiaries) does
not make either company a PE of the other (unless the subsidiary
has the authority and habitually exercises this authority to
conclude trading activities on behalf of holding company)B)
Dividend income: Determined by resident status of the company
paying the dividend (where control and management of the company is
exercised)C) Rent income from immovable property: Location of
propertyD) Income under ITA S12(6),(7): 12(6a): Interest,
commission, fee or payment in connection with any
loan/indebtedness, or arrangement, management/guarantee/service
relating to indebtedness - 12(6b): Income from loans where the
funds are brought into or used in Singapore - 12(7a): Royalty or
any other payment for the right to use any movable property
(intellectual property) - 12(7b): Payment for the right to use
scientific, technical, industrial or commercial knowledge or
information (know-how), or for the rendering of assistance or
service in connection with the application of use of such knowledge
or information (show-how) - 12(7c): Payment for the management or
assistance in the management of any trade, business or profession
(HR management, accounting) - 12(7d): Rent or other payments under
any agreement or arrangement for the use of any movable property
(e.g. equipment rental)- Deemed to be from Singapore if: 1. Payment
is borne, directly or indirectly, by a person resident in Singapore
or PE in Singapore (who the burden of expense falls on, not who
pays it) (take note of exception 1) OR 2. Payment is deductible
against income accruing in or derived from Singapore (deducted
against Singapore payers SSI) OR 3. For S12(6), the funds provided
by the loan are brought into or used in Singapore- Exceptions in
12(6A) and (7A): 1. Payment in respect of any business carried on
outside Singapore through a PE outside Singapore, OR 2. For S12(6),
payment in respect of immovable property outside Singapore-
Exclusions in 12(6A) and (7A), subject to conditions: 1.
Commission, fee or other payment relating to any loan or
indebtedness (exclude interest payment), 2. Guarantee fee relating
to any loan or indebtedness, 3. Show-how payment, 4. Management fee
payment- Conditions: 1. Service (not including guarantee) is
performed outside Singapore, and 2. Service provider or loan
guarantor is a NR personDOUBLE-TAXATION OF FOREIGN-SOURCED
INCOMEDTR is applicable if: (A) The income is FSI (Use deemed
sources rules if not obvious) (B) The FSI has been taxed in the
foreign jurisdiction (If not, consider tax sparing relief) (C) The
FSI is received in SG (Remitted/brought into SG, used to settle a
debt incurred in respect of a business carried on in SG, or used to
purchase movable property which is then brought into SGExemption
method: Given in country of source of income or residence(1)
S13(7A) exemption for individuals (R/NR): All FSI received(2)
S13(8) to (11) exemption for DBS(1) Foreign dividends paid by NR
company, (2) Profits of overseas branch of Singapore resident
company (not including non-trade income), (3) Foreign professional,
consultancy and other service income (income derived from outside
Singapore through a fixed place of operations in a foreign
country)- Conditions: (1) Received in SG by SG resident (2) FT
suffered where FSI was immediately received (may not be source
country- e.g. pass through Malaysia) (3) Headline tax rate in the
foreign jurisdiction is > 15% in that year FSI was received in
SG (not earned) (not actual tax suffered) (4) CIT is satisfied that
exemption is beneficial to Singapore residentCredit method: Relief
given in country of residence- Tax FSI at gross amount (before FT)
and give tax credit for FT suffered(A) Tax treaty relief/Unilateral
tax credit relief- All types of FSI (not limited to DBS like
exemption)- If treaty and domestic tax laws conflict, treaty
provisions prevail to the extent that it provides for a more
favourable tax treatment- Tax treaty cannot impose tax that is not
levied under domestic tax laws- ITA Section 50 credit code:
Conditions: (1) Claimant is a SG resident and (2) Claim made not
later than 2 years after the end of the relevant YA- Tax credit is
computed on source-by-source basis for each FSI receipt, and is
restricted to the lower of actual FT suffered and ST payable- ST
payable=SG effective tax rate (SETR) x FSI (net of deductible
expenses)- ST payable = x Tax paid @ 17%- No
carry-forward/carry-back of foreign tax credit(B) Foreign tax
credit (FTC) pooling (From YA2012, election basis)Conditions: (1)
Must be subject to foreign tax, (2) Headline tax rate in source
country must be > 15% when income is received in Singapore, (3)
Must be subject to income tax in Singapore (not exempt, but can
forgo exemption), (4) Must be eligible for FTC- Pooled foreign tax
credit is restricted to lower of aggregate of actual FT suffered on
all the elected income in the source countries and the aggregate of
ST payable for that YA on all the elected income(C) Issue regarding
foreign dividends for credit method- Foreign dividend received in
Singapore may be subject to one or two levels of foreign tax (DWT
and/or UT)- Approach: Check if foreign dividend has been subject to
DWT and/or UT(1) Tax treaty: Generally provides DTR for DWT, may
provide for UT (subject to conditions)(2) UTCR: Provides DTR for
DWT and will provide DTR for UT on condition that the Singapore
resident co-owns at least 25% shareholding in the foreign company
paying the dividend- Only covers DWT: Include gross dividend in SI
and tax credit for DWT only- Covers both: Regross dividend to
include UT, include regrossed dividend in SI and claim tax credit
for both DWT and UT- No DWT and does not cover UT: No tax
credit*Foreign branch profit may be subject to UT and/or
withholding tax. If subject to both UT and WHT, gross up and claim
tax credit on both UT and WHT (no conditions like for
dividends)Deduction method: FSI is taxed at the net amount (after
FT) instead of gross amount - Not statutory allowed (since foreign
tax expense is originally not deductible under S15) but may be
given as a concession where credit method cannot be used - E.g.
When tax payer is not in a tax paying situation, such an election
will not be beneficial as no tax liability to set off the foreign
tax credit (instead, tax at net amount to result in higher amount
of unabsorbed items for c/f and c/b)Tax sparing relief: May be
provided under a tax treaty - Allowed by the country of residence
(the tax deemed suffered in country of source when originally no FT
suffered- no double taxation)- Claim on source-by-source basis-
Equal to the lower of ST payable and FT spared/deemed
sufferedTackling DTR questions(1) Is that particular FSI received
in Singapore?(2) What type of DTR does the FSI qualify for?- If
does not qualify, consider tax sparing relief(3) If qualify for
more than one type, which one gives the better outcome?- Compute
and compare final tax liabilities (if applicable)(4) Finish up tax
computations and conclude- ITA S(2): Residence for a company is
decided by where the company is controlled and managed.
GENERAL RULE FOR TAXATION OF SSI/FSI AND EXEMPTIONS (S13)
- SSI taxed on accrual basis while FSI taxed on receipt basis(a)
SSI for individuals- One-tier dividends from Singapore companies
for R and NR (S13(1))- Interest income from approved banks or
licensed financial company in Singapore for R and NR (S13)-
Investment income (e.g. distribution from unit trust) (ITA S13)-
Employment income from short-term employment for NR (S13(6))(b) SSI
for companies- One-tier dividends from Singapore companies for R
and NR- Interest income from approved banks for NR companies (do
not have PE in Singapore and does not carry on business in
Singapore)- S12(6) or (7) payments to promote
economic/technological development (Ministerial approval)
(S13(4))(c) FSI for individuals- All FSI received for R and NR
except through partnership (S13(7A))(d) FSI for companies-
Dividends, branch profit and service income for R (ITA 13(8) to
(11))*- FSI for NR that do not carry on business in Singapore (does
not have a source of trade income in SG) (IRAS e-tax guide- *need
to fulfil condition)
Deductions and allowances
1. General deduction formula S14(1): (1) Expenses incurred in
production of taxable income (not non-taxable/tax-exempt), (2)
Wholly incurred to produce income, (3) Exclusively: Business motive
to incur expense, (4) Liability to pay has incurred, (5) Relevant
source of income must exist during that period, (6) Claimant must
have incurred the expense, (7) Wider nexus test looks at purpose
for incurring expense (for conducting business on a profitable
basis) and (8) Deduction is on a source-by-source basis2.
Prohibition of expense deduction S15: (1) Domestic/private expense,
(2) Sum recoverable under insurance or indemnity contract
(Calculate overall loss), (3) Singapore tax and FT on FSI, (4)
S-plate/E-plate private car expenses/car rental in Singapore
(Commercial vehicles, car rental outside Singapore, foreign
registered car expenses and public transport expenses qualify), (5)
Certain input GST and output GST, (6) Capital expenditure (with
exception) (Indicators: Initial expense (new/first time),
one-off/non-recurring expense- e.g. annual subscription recurring
while entrance fee one-off), (7) Capital employed in improvement
(vs repairs)Interest expense: Loan must be used for to produce
taxable income (not non-taxable/tax-exempt) such as financing
capital asset used to acquire taxable income, Borrowing cost other
than interest: Cost is incurred to substitute interest or reduce
interest (e.g guarantee fee, conversion fee)Repairs: Revenue
expenses (replacement of a subsidiary part of an asset to restore
it to its original working condition) -Initial repairs
(revenue/capital) depends on (1) Condition of asset purchased
(commercially usable condition), (2) Price paid compared to price
payable if in commercially usable condition, and (3) Generally
accepted accounting treatmentRenewals: Capital expenses
(replacement of the whole/substantially whole asset) -Cost of
replacement item is deductible to extent that it does not have
improvement -Should not be a P/M under s19 CA -(Subsidiary part vs
whole asset: Identify functional asset with regard to taxpayers
business)Bad debts and recovery of bad debts: (1) For trade debt
and not non-trade (e.g. staff loan), (2) Claimants business not
ceased, (3) Previously included as claimants trading receipt (have
a corresponding sales hence transferred trade debt not deductible),
(4) IrrecoverableEmployer contribution: - Approved local fund
(CPF)/fund constituted overseas, - Employees engaged in production
of the employers income, - Obligatory contributions (employment
contract/constitution of fund) - Excess CPF contribution/voluntary
contribution not deductiblePayment to related employees
(Remuneration paid to employees related to employer): -
Reasonableness test (commercial justification) - Excessive payment
is not deductible - Covers payments made by way of compensation for
injuries or death etcMedical expense restriction: Deduction of
medical expense restricted to 1% (or 2%) of total employee
remuneration in the basis periodAllowance paid to employee:
Contractual, hence employee not required to account for expenditure
(less restrictions compared to remuneration)Exchange differences:
Deductible if the underlying transaction is revenue in nature (No
need to consider whether realised or unrealised)3. Further
deduction S14B/14RS14B Trade fairs - Expenses relating to approved
trade fairs/exhibitions or trade missions or to maintain overseas
trade office (Includes employee air-fare and accommodation) -
Qualify for 200% deduction (100% further deduction) if amount does
not exceed $100,000S14R Training expense - Qualifying training
expenditure - In-house training programmes must be accredited
(non-accredited exp cap $10,000/YA) - External training (no
restriction) - Qualifying expenses include salary/fees of trainers,
rental of premises, materials, refreshment - PIC scheme (13-15) has
100% base and 300% enhanced deduction ($1.2 million cap for 3
years) - PIC+ for qualifying SMEs has $1.4 million cap ($600K/yr
from 15)4. Special deduction S14Q (Renovation or refurbishment) -
For qualifying expenditure in connection with renovation or
refurbishment of business premises for carry on of trade - Not for
P/M - Qualifying: General lighting, general electric installations,
fixed partitions, false ceilings, cornices, floorings, wall
coverings, doors, gates, windows, window grilles, kitchen fitting,
sanitary fittings - Non-qualifying: Designer fees, professional
fees, antiques, works of fine art, expenses relation to structural
changes where approval is required - From YA2013, $300,000 cap per
3 years. Before YA2013, $150,000 cap - Deducted over 3 consecutive
years (divide by 3) and cannot be deferred - Comparing renewal and
S14Q, S14Q has a new asset while S14(1c) is replacement5. Capital
AllowancesS19/19A Wear and Tear Allowances for P&M - Qualifying
CE: Installation, delivery, exchange loss, incidental cost relating
to installation, P&M for use in a trade - Plant test: (1) PMA
test: Asset retained in persons trade as means of producing income,
(2) Business Apparatus test: In nature of apparatus to carry on
persons trade (not just be part of the premises that houses the
trade)- check commercial necessity of asset to decide if
plant/premises, (3) Premises test: Asset must not be in nature of a
building or part of a building (inextricably/undistinguishably
connected to building)(A) Normal allowance: 20% IA (Incurred basis,
cannot be deferred), AA claim over tax life (In-use basis, can be
deferred), (B) Accelerated Allowance (3 year): No IA, AA (1/3 of CE
incurred in BP, claim can be deferred), (C) Accelerated Allowance
(low value assets): 100% claim, subject to cost of each asset
($5,000) and total in one YA ($30,000) Claim excess under (A) or
(B), (D) Accelerated Allowance (prescribed assets): For computers
and prescribed automated equipment, 100% claim on incurred basis,
qualifies for PIC (300% enhanced allowance) *No enhanced allowance
if PIC automated equipment is purchased for the purpose of being
leased out/disposed of within one year *TWDV: Tax written down
value = Cost CA claimed previouslyS19B Writing Down Allowances for
IPR - CE incurred by company on IPR for purposes of trade, business
or profession - Claimed over 5 years on a SL basis (x20% per YA) -
Acquisition of IPR qualify for 300% enhanced WDA under PIC ($1.2m x
300% x 20% per YA)Industrial Building Allowances (IBA) - In use for
a qualifying trade (manufacturing) only - IA (25% on incurred
basis), AA (3% in-use basis) - Has balancing adjustment - Only for
CE incurred before 23/2/2010Land Intensive Allowances (LIA) - CE on
construction/renovation of a building/structure - The
building/structure is/will be on industrial land or airport of port
land - The use of the building/structure promotes the intensified
use of land - Prescribed industries: Pharmaceuticals,
petrochemicals, petroleum, specialties, other chemicals,
semiconductor-water fabrication, aerospace, marine and off-shore
engineering, solar cell manufacturing and logistics - Qualifying
expenditure: Costs of feasibility study, design fees, planning
approval costs, piling, construction and renovation costs,
demolition costs of existing non-industrial building/structure,
legal/professional fees, stamp duty (does not include interest
(already in S14) and land cost) - Only for CE incurred on/after
23/2/2010 (planning/conservation permission applied on/after that
date) and requires application and approval by EDB - IA (25% on
incurred basis), AA (5% in-use basis) - No balancing adjustment for
LIABalancing Adjustments - P&M ceases to belong to trader,
ceases to be permanently use for trade, or trade is permanently
discontinued- Sale proceed (SP) TWDV- If < 0, balancing
allowance (BA) is deductible in hands of seller- If > 0,
balancing charge (BC) is taxable in hands of buyer (But cannot be
more than total CA previously allowed) - For the buyer, sales
proceed is cost and can claim CA *Dont claim CA in year of
disposalTransfers between parties - S24 election: Buyer and seller
must be related parties, asset must be used in production of
taxable income before and after transfer, asset must not previously
be leased by seller to buyer and the transfer should not be
tax-motivated - Purpose: Mitigate (or postpone) taxes for the Group
as a whole Results in more allowance for buyer and no BA/BC for
seller - S24 will not apply to transfer of industrial building
on/after 23/2/2010 - Seller deemed to have sold asset based on
TWDV, hence no BA/BC - Buyer deemed to have purchased asset based
on TWDV and continues to claim CA based on TWDV and remaining
useful life S24 beneficial when buyer is in loss position (need
allowance), seller selling above TWDV (avoid BC) and is in
profitable position6. Approved donations - Approved donations:
Donation of money (cash only) to the govt or approved institution
of a public character in SG - 250% tax deduction - Company: PAY
basis - Individual: PAY basis (donation out of business assets) or
PCY basis (donation out of personal assets)7. Trade losses - Trade
losses occur when gross taxable trade receipts is greater than the
tax deductible trade expenses (adjusted trade loss)
Taxation of company distributions (Dividends)
No integration: Company is separate legal entity from
shareholders (owners) Income of company and dividends are separate
sources of income so shareholders taxed independently of
companyFull integration: Income of company and dividends are same
source of income so consolidation of taxation of shareholders and
company(1) Classical two-tier system (no integration)- Company
income taxed twice
(2) Full imputation system- Company income effectively taxed
once (shareholders tax)- Shareholders obtain imputed credit (tax
refund) of the corporate tax paid
(3) One-tier corporate tax system (shareholder tax exemption)-
Company income is $1,000, gross dividend of $700 paid to
shareholders- Company income only taxed once (corporate tax)
EMPLOYMENT INCOME
Comparing employment versus TBPV(1) Extent of control (2) Extent
of investment in capital assets and engagement of helpers (3)
Extent of financial rewards and risksSource of employment income
(Singapore) - Income earned in respect of employment exercised in
Singapore- Where the duties of the employment are discharged or
performed- Duties performed overseas if it is part and incidental
to a Singapore employment (not separate overseas employment-
foreign sourced)General employment income definition- Amount paid
in respect of employment whether in money or otherwise- Must be a
reward for duties/services rendered in the course of the
employment, whether in the past, present or future - Need not be
borne/paid by employer (e.g. tips) - Need not be contractual (e.g.
bonus)Taxable employment income: Employee had a taxable personal
benefit (1) Cannot be capital (differentiate and
separate)Inducement payment: Payment received before commencement
of employment, to induce individual to take up employment- Capital
if compensation for loss of substantial personal
rights/advantages/status (loss of PMA/Giving up a source of
income)- Taxable if reward for future employment services
(recoverable/conditional on future employment or length of
service)- Factors to distinguish: (1) How substantial are rights
given up? (2) If sum for remuneration in the future, taxable. If is
additional inducement payment, capital. (3) Whether payment is
payable outright (4) If payment is recoverable from employee if he
does not serve required period, taxableRestrictive covenant
payment: Payment in consideration of employees undertaking of (1)
Not to set up business in competition with employer (2) Not to take
up employment with a competitor after leaving employment- Since
give up future source of income/PMA, it is capital and not
taxableCompensation for loss of the office: To compensate for
premature termination of expectation of continued employment in
foreseeable future- Not taxable: Compensation for loss of source of
income (e.g. Retrenchment benefit) - Taxable: Reward for past
employment servicesSalary in lieu of notice of termination: Direct
substitution for salary that would have been earned by the employee
if proper notice had been given by the employer (e.g did not give 3
month required notice) - Taxable(2) Allowances or
reimbursementsAllowance: Generally taxable - Exception: For
subsistence, travelling, conveyance or entertainment - Conditions:
Must be expended for business and the expense (to company) must not
have been prohibited under S15Reimbursement: Based on actual
expenses incurred by employee- Business expense (no personal
benefit) is not taxable - Personal expense is taxable (e.g. housing
reimbursement) *S15 prohibitions are irrelevant(3) Taxable
benefits-in-kind/perquisites (BIK)Interest-free/subsidised loan -
Situation 1: Employer takes loan at provides loan to the employee
at interest-free/subsidised rate - If employee has (1) no control
and (2) does not hold substantial shareholdings, and (3) the scheme
is open to all staff on the same terms,
the interest benefit is not taxable - Situation 2: Employee
obtains loan from bank and employer pays interest for employee, OR
reimburses whole/part of the interest - Employee taxed on the
interest subsidy Employee life insurance premium: Depends on who
the beneficiary of the insurance is (who insurance payout goes to)
E.g. Keyman insuranceClub membership fees: 1. Corporate membership:
Entrance fee not taxable, subscription fee taxable on portion
attributable to private usage2. Individual membership: Entrance fee
taxable, subscription fee taxable on portion that attributable to
private usageEmployers CPF contribution: Excess of statutory
contribution is taxableHome leave passage: Concession: 20% of cost
taxable for 1 return trip per adult (employee and spouse) per year,
and 2 return trips per unmarried children per year (excess is 100%
taxable)- Concession applies to: Employees who are not Singapore
citizen or PR, and trips made to employees home country*Relocation
passage is not home leave passage (not a reward/benefit)Housing and
housing benefits: 1. Residence or serviced apartment- Taxable
amount is annual value less total rent paid by employee (if any)-
If AV not available, market rent paid by employer (including rent
for furniture and fittings), less total rent paid by employee2.
Furniture and fittings (in residence or serviced apartment)- Fully
furnished: Taxable amount of furnishing is 50% of AV of property-
Partially furnished (only fittings such as fans): Taxable amount is
40%*In addition to taxable amount of fully furnished residence3.
Utilities and housekeeping costs: Taxable amount is actual amount
paid4. Hotel accommodation: Taxable amount is actual cost incurred
by employer less amount paid by employee 5. Housing allowance: Full
amount of allowance is taxable (not covered by exception)Car
benefits: 1. Provision for use of car *Car cost includes COE cost-
Employee paid petrol, TA = x + 0.45/km x private km- Employer paid
petrol, TA = x + 0.55/km x private km2. Repayment/reimbursement for
expenses relating to employees own car- Taxable amount = x expenses
reimbursed by employer- Private purposes: Mileage claims for travel
between home and office during office hours, mileage claims to see
a doctor, car park charges for parking car in carpark while
employee is working - Biz purposes: Mileage claims for travel
between home and office when working beyond official working hours,
mileage claims for travel between office and clients office
including carpark charges for parking at clients officeEmployee
share/stock options1. Shares with no restriction on sale- TA = Open
market price/last done or closing price price employee paid-
Accrues to employee on date of exercise of rights2. Shares with
restriction on sale of shares- Accrues to employee on date
restriction ceases to apply*When employee ends employment before
exercising, deemed to have obtained the gains when employment
ceasedMedical and dental benefits: Not taxable on condition that
benefits are made available to all staffs (Extended to employees
spouse and children)Childcare/education - Tax exempt: Childcare
benefit is structured as a payment of childcare allowance, subsidy
or reimbursement to employee OR employer runs licensed childcare
centre and provides childcare facilities- Allowance: Only amount
expended by employee will be exempt (4) Bonus: Always taxable
(revenue) (1) Contractual bonus: Employee is entitled in year
specified in the contract (the year the service is rendered) and
may be subject to conditions (e.g. cannot resign in a certain
year)(2) Non-contractual bonus: Employee entitled when the bonus is
paid(5) Directors fee: Always taxable (revenue) (1) Approved in
arrear: Entitled when the fee is approved (2) Approved in advance:
When the service is rendered (if resign before service, not
entitled)Determine residency of employee(A) Qualitative test:
Considered to be resident if normally residing in Singapore in
preceding year (If absent, consider if temporary, reasonable,
period, purpose of absence and intention to return)(B) Quantitative
test: Physical presence: Physically present in SG for > 183 days
in preceding year - Employment: Exercise employment in SG for
>183 days in preceding year *Does not apply to non-executive
directors(C) 2-year concession: Exercises employment/physically
present in SG for continuous period of 183 days, straddling across
2 consecutive calendar years - Considered to be resident for both
YAs(D) 3-year concession: Exercises employment/physically present
in SG for continuous period, straddling across at least 3
consecutive years (can be more than 3 years) - Considered to be
resident for all relevant YAsTaxation for residents (if taxed as
resident) (A) Personal reliefs: Deducted against AI to arrive at
CI, unabsorbed personal reliefs cannot be carried forward - E.g.
Earned income relief, handicapped spouse relief(B) Tax rebates: Set
off against tax liability and unabsorbed rebates can be carried
forward - E.g. Personal income tax rebate, parenthood rebates(C)
Tax rates for resident (Progressive tax rate) - For CI $20,000 or
less, there is no tax liability and highest marginal tax rate is
20%Taxation for non-residents (if taxed as non-resident)- Flat rate
of 20% for both employment income and other income received- Except
for tax exempt income/royalty/interest (reduced rates)- Given
non-resident employee reliefs for their employment income(A) S13(6)
relief: Tax-exempt subject to conditions: (1) NR exercises
employment in SG for < 60 days in preceding year (2) Employment
is ST and does not straddle across 3 consecutive calendar years -
Exclusions: NR non-executive directors, public entertainers and
professionals (lawyers)(B) S40B relief: Taxable but claim relief -
Condition: NR exercises employment in Singapore for > 60 days
but < 183 days in preceding year- Taxed at higher of: (1)
Non-resident basis of flat rate of 15% (2) Resident basis
(progressive tax with personal reliefs)
UNABSORBED LOSS ITEMS
ORDER- Unabsorbed CA, trade losses and approved donations1.
Carry-forward (default): CA subject to biz continuity test and
shareholdings test while TL/AD subject to shareholdings test (C/B
too)*CF of unabsorbed CA vs Deferred CA claim: - Unabsorbed CA
carry the risk of being permanently disregarded in the event of
failure of the shareholdings test (no risk for deferred CA claim)2.
Carry-back (elected): Only current year loss items for CA and TL-
Amount carried back lowest of: (1) Current year unabsorbed loss,
(2) AI of preceding year, and (3) Cap of $100,000- Tax discharged
in previous YA = New tax tax previously assessed(A) Business
continuity test: Continues to carry on the trade in respect of the
profits the allowance falls to be made (look at YA, not relevant
dates)(B) Shareholdings test - The ultimate shareholders and their
shareholdings must be substantially (50% of more) the same as at
the two relevant dates (i.e. the shareholdings (direct/indirect) of
the shareholders that appear at both of the relevant comparison
dates must be 50% or more) - If less than 50%, there is substantial
change in the shareholdings composition *Does not matter if
indirect shares are held by FIC/individual- Relevant comparison
dates for CA: 31 December of YA the allowances arose and 1 January
of the YA the allowances are to be utilised (e.g. 1 Jan 2015 if
utilised in YA2015)- Relevant comparison dates for TL/AD: 31
December of the calendar year the loss was incurred/donation was
made and 1 January of the YA in which the loss or donation is to be
utilised- Purpose: Prevent profitable companies from buying over
loss companies to take advantage of the latters unabsorbed loss
items- Waiver: If successful, affected unabsorbed loss items can
only be set off against income from the same trade. CIT has to be
satisfied that the change in ultimate shareholders is not tax
motivated (consider nationalisation, privatisation, listing in
stock exchange and commercial reasons for the large change)3. Group
relief (elected): (a) Transferor company and claimant must be
Singapore-incorporated, (b) Members of the same group on the last
day of the basis period (Ordinary shareholding test), (c) Have the
same accounting year end, (d) Election must be made by both
parties- Only current year (cannot be brought-forward losses)-
Amount to be transferred is the lower of the AI of the claimant and
the qualifying deduction of the transferor- Can have more than one
claimant and/or transferor- settle one transferor fully before the
otherOrdinary shareholding test: (a) At least 75% of issued
ordinary shares in one company are held, directly or indirectly, by
the other OR (b) At least 75% of in each of the 2 companies are
hel, by a third SIC (holding company) *Always try both. May not
meet (a) but may meet (b)- Only ordinary shares (not treasury
share/share that carries the right only to fixed dividend) Cannot
be FIC or individual - Check on last day of BPChoosing between
GR/Carry-forward/Carry-back1. Calculate amount to be brought
forward from prior YAs2. Optional: Any transfer election which will
change CA for the companies3. Satisfaction of GR criteria?4.
Determine which companies are potential transferors and claimants
5. Satisfaction of c/b criteria? (Will thus satisfy c/f too)6.
Decide on amount to be transferred under GR and carried back (to
maximise partial exemption of $300,000 before CI)7. Determine
amount to be carried forward to future YAs.
Net profit/loss before tax per P/L a/c- Add: Non-deductible
expenses in P/L, Taxable income not in P/L, Expenses incurred on
non-trade income- Less: Non-trade income in P/L, Non-taxable/tax
exempt income in P/L, Revenue expense capitalized (not in P/L)-
Less: Special S14Q/Further S14B, S14R deductionsAdjusted trade
profit/loss- Less: Capital allowances (FIFO)- Less/add: BA/BC- Add:
Non-trade incomeStatutory income- Less: Trade losses (FIFO)- Less:
Approved donations (FIFO)Assessable income- Less: GR (items
transferred in)- Less: Carry back reliefChargeable income before
exemption- Less: Partial exemptionChargeable income after
exemptionTax on CI @ 17%- Less: Foreign tax credit- Less: Corporate
income tax rebate (30%)Net tax payable
