Income Tax – Company Director and His Companies Taken to Task for Companies Act and Income Tax Act Offences


It was reported in IRAS’ website  on 1 October 2018 that the Accounting and Corporate Regulatory Authority (“ACRA”) and the Inland Revenue Authority of Singapore (“IRAS”) recently brought charges against a company director, Eddie Teoh Siah Hai, for offences under the Companies Act and in respect of four of his companies’ offences under the Income Tax Act respectively.

Breaches to the Companies Act

On 27 Aug 2018, Teoh was convicted and fined $16,800 for 14 charges at $1,200 per charge in the State Courts. Teoh pleaded guilty to the charges for offences under sections 175 and 197 of the Companies Act for failing to hold the annual general meeting (AGM), and failing to file annual returns (AR) in relation to 16 companies. A further 32 charges were taken into consideration for sentencing. Teoh will also be disqualified as director of all companies that he has been appointed to and from taking on new appointments.

The holding of AGM and filing of AR are important statutory requirements. The AGM provides a forum for shareholders to be informed of the financial position of the company, and to engage the directors of the company on the matter. Filing annual returns on time enable timely public disclosure of key information such as the health and status of the company. Company directors who fail to hold AGM and/or file Annual Returns may be fined up to $5,000 per charge. In addition, directors who have been convicted of three or more filing related offences under the Companies Act within a period of five years, can be disqualified by ACRA and will not be allowed to be a company director or take part in the management of any local or foreign companies for five years, effective from the date of conviction.

Breaches to the Income Tax Act

Teoh was company director for four companies namely, Britt Worldwide Pte Ltd, BPE-Clyde Pte Ltd, Good Technology Software Pte Ltd and Palmali International Singapore Pte Ltd, which had failed to file their Corporate Income Tax returns for the Year of Assessment (YA) 2017. Good Technology Software Pte Ltd, Palmali International Singapore Pte Ltd and BPE-Clyde Pte Ltd were fined $400 each, while Britt Worldwide Pte Ltd was fined $500.

All companies are required to file their Corporate Income Tax returns by 30 Nov or 15 Dec (if e-filing) each year. This includes companies in a loss position or with no chargeable income. Companies that fail to file their Corporate Tax Income returns may be fined up to $1,000. In addition to the fine, companies that fail to comply for two years or more shall be liable on conviction to a penalty that is twice the tax amount assessed. Company directors may be required to provide information on the company’s income, assets and liabilities. Directors who fail to furnish the requested information face a fine of up to $10,000 and/or imprisonment of up to 12 months.

What does this mean to you?

Companies and company directors are reminded to comply with statutory requirements set out in the Companies Act and the Income Tax Act. The public can come forward and alert ACRA or IRAS if they have reason to suspect that breaches to the Companies Act or Income Tax Act have taken place.

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Singapore GST – GST Treatment for entities adopting Financial Report Standard (“FRS”) 116


The Accounting Standards Council issued FRS 116 on 30 Jun 2016 and SFRS(I) 16 on 29 Dec 2017. FRS 116 / SFRS(I) 16 applies to entities with effect from annual reporting periods beginning on or after 1 Jan 2019. Early application is permitted with application of FRS 115 / SFRS(I) 15 Revenue from Contracts with Customers. 2.2

With the adoption of FRS 116 / SFRS(I) 16 for accounting purposes, the Comptroller of GST (“CGST”) will apply the following tax treatment:

For GST purposes, a lease is treated as:

(a) a supply of goods if the possession of the goods is transferred under an agreement which expressly contemplates that the property (i.e. ownership or title) will pass at some time in the future . For example, goods sold under a hire purchase agreement is regarded as a supply of goods since the property/title to the goods will pass to the hirer/lessee when he pays the last instalment or exercises the option to purchase (for more information on the GST treatment of hire purchase agreements, please refer to the e-Tax guide “GST Treatment of Hire Purchase Agreements and Financing Instruments (Second Edition)”); or

(b) a supply of services if only the possession of the goods is transferred, without any provision for possible future transfer of ownership of the goods

The above treatment will not change even with the requirement for lessees to apply a single lessee accounting model under FRS 116.

Although the lessee is required to recognise the leased goods as his assets, if the lease agreement does not contemplate the transfer of property to the lessee, there is no supply made by the lessee when the lessee returns the goods without any consideration to the lessor at the end of the lease term.

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Income Tax Treatment for entities adopting Financial Report Standard (“FRS”) 116


The Accounting Standards Council issued FRS 116 on 30 Jun 2016 and SFRS(I) 16 on 29 Dec 2017. FRS 116 / SFRS(I) 16 applies to entities with effect from annual reporting periods beginning on or after 1 Jan 2019. Early application is permitted with application of FRS 115 / SFRS(I) 15 Revenue from Contracts with Customers. 2.2

With the adoption of FRS 116 / SFRS(I) 16 for accounting purposes, the Comptroller of Income Tax (“CIT”) will apply the following tax treatment:

Lessor

With the adoption of FRS 116 / SFRS(I) 16 for accounting purposes, where the lease concerned is regarded as an operating lease (“OL”), the lessor can continue to elect to be taxed on income from the OL as determined using the effective rent method under FRS 116 / SFRS(I) 16 (referred to as “FRS 116 / SFRS(I) 16 tax treatment”).

This is subject to the condition that the application of the FRS 116 / SFRS(I) 16 tax treatment is made consistently every year and across for all OLs.  The FRS 116 / SFRS(I) 16 tax treatment is applicable to all leases, including leasing of an asset which is not regarded as a machinery or plant, such as leasing of an office space.


Lessee

A lessee is allowed tax deductions on the contractual lease payments incurred, except under circumstances where a sale is regarded to have taken place.

Where a lease arrangement giving rise to a Right-Of-Use (“ROU”) asset meets the definition of a finance lease under Section 10D(3) of the Income Tax Act (“ITA”) and is to be regarded as a sale agreement, the lessee is eligible to claim interest expense and capital allowances (“CA”) on the relevant asset instead of a deduction on the contractual lease payments.

To determine if a finance lease for tax purposes is to be regarded as a sale agreement, reference should be made to the conditions in paragraphs (a) to (e) of Regulation 4(1) of the Section 10D Regulations.


Withholding tax

Withholding tax obligations would continue to be determined based on the legal characterisation of the payment, and subject to the provisions in Sections 12(6) and (7) of the ITA, notwithstanding the change in the accounting treatment.

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Income Tax – Boss of interior design firm to pay penalty of more than $400,000 for under-declaring income


It was reported on IRAS’ website on 5 October 2018 that Lim Hong Hee, a proprietor of Classic Furniture Design and Renovation Works (“Classic”), an interior design firm, has been convicted for filing incorrect income tax returns for Years of Assessment (YAs) 2006 to 2009 and 2011, which had resulted in $293,977 in taxes undercharged.

IRAS detected anomalies in the declarations made in Lim’s income tax returns during one of its regular audit programmes. Investigations revealed that Lim did not report a total of $1,772,704 of Classic’s trade income in his income tax returns for YAs 2006 to 2009 and 2011. Instead, Lim paid himself a salary from Classic and only declared that employment income to IRAS for the relevant YAs, which was significantly lower than Lim’s actual trade income from Classic. This resulted in $293,977 in taxes undercharged.

Lim used Classic’s trade income for his own household expenses, as well as to purchase properties and shares. This included an investment by Lim of $845,000 in shares between 12 January 2009 and 3 October 2011.

Lim faced a total of five charges of filing incorrect income tax returns for YAs 2006 to 2009 and 2011. He pleaded guilty to two out of the five charges, involving a total of $210,673 in taxes undercharged, with the three other charges being taken into consideration for the purposes of sentencing. The Court sentenced Lim to a total fine of $10,000 ($5,000 per charge) and a penalty of $421,347, which is two times the amount of tax undercharged.

What does this mean to you?

IRAS takes a serious view of non-compliance and tax evasion. There will be severe penalties for those who wilfully evade tax. Taxpayers are ultimately responsible for the information declared in their income tax returns. The authority will not hesitate to bring offenders to court. Penalties for tax evasion can be up to four times the amount of tax evaded. Jail terms may also be imposed.

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Income Tax – Sole-proprietor to pay penalty for omission of income


It was reported on the IRAS’ website on 17 September that Tan Siew Hoon Pauline, the sole-proprietor of Staffing Network which provides recruitment services, pleaded guilty on 30 July 2018 to 5 charges of understating her income without reasonable excuse for Years of Assessment (YAs) 2009 to 2013.

IRAS’ Investigations revealed that Tan had only declared $444,633 in her income tax returns for YAs 2009 to 2013 when the net income earned was $1,748,058.  Further, Tan did not notify the Comptroller of GST when the taxable turnover of Staffing Network had exceeded $1m in Year 2009.

Tan was the sole signatory of Staffing Network’s bank account and she personally managed and prepared the accounts of Staffing Network. She tracked the revenue payments from her customers, made payments for Staffing Network’s operating expenses and banked in customers’ cheques into Staffing Network’s bank account.

The court sentenced Tan to pay a penalty of $344,522, which is 2X the tax undercharged of $172,261, and a fine of $17,500.  One other charge of failing to notify the Comptroller of Goods and Services Tax of her liability to be registered for GST was taken into consideration for sentencing.

What does this mean to you?

IRAS takes a serious view of non-compliance and tax evasion. There will be severe penalties for those who either give incorrect returns or wilfully evade tax. Penalties for tax evasion can be up to four times the amount of tax evaded. Jail terms may also be imposed.

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