On 26 May 2014, IRAS issued the rewritten e-Tax Guide on “Change to Assess the Income of a Husband and Wife as Separate Individuals”, which replaces the e-Tax Guide first published on 22 June 2004.
The rewritten e-Tax guide incorporates the Budget 2014 tax changes in relation to the phasing out of the spousal transfer scheme from year of assessment (“YA”) 2016 onwards.
The spousal transfer scheme was introduced in YA 2005 to ensure that married couples would not be made worse off, tax wise, following the removal of combined assessment. Under the scheme, a married couple may transfer the excess of qualifying deductions between each other if there is any remaining qualifying deductions that cannot be completely offset against the income of the respective spouse for a particular YA. Qualifying deductions refer to qualifying capital allowances, trade losses and donations.
As an administrative concession, where both spouses have rental income, they may also transfer the rental deficit to each other.
Following the phasing out of the spousal transfer scheme from YA 2016, any qualifying deductions and rental deficits arising from YA 2016 (basis year 2015) onwards would no longer enjoy spousal transfer. As a transitional concession, however, qualifying deductions arising in and before YA 2015 by a taxpayer will be allowed for offset against the income of his or her spouse until YA 2017, subject to existing spousal transfer rules.
The transitional arrangement for spousal transfer is summarised as follows:
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