Income Tax – Income Tax Treatment Arising from Adoption of FRS 115 – Revenue from Contracts with Customers


IRAS issued an e-Tax Guide on 12 January 2018 pertaining to the  Income Tax Treatment Arising from Adoption of Financial Reporting Standards (“FRS“) 115 – Revenue from Contracts with Customers.

What is FRS 115?

FRS 115 was developed with the objective of removing inconsistencies and weaknesses in previous revenue requirements, establishing a more robust framework for addressing revenue issues, streamlining the volume of accounting guidance, as well as improving comparability and disclosure requirements.

It applies to contracts which an entity has with its customers. Under the Standard, an entity is required to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, by applying the following steps:

  • Step 1: Identify the contract(s) with a customer;
  • Step 2: Identify the performance obligations in the contract;
  • Step 3: Determine the transaction price;
  • Step 4: Allocate the transaction price to the performance obligations in the contract and
  • Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.

Singapore income tax treatment 

1.   For Singapore income tax purposes, the accounting revenue as determined in accordance with FRS 115 would continue to be accepted as the revenue in most cases except where specific tax treatment has been established through case law or provided under the law, (see point 3 below)  or where the accounting treatment deviates significantly from tax principles.

2.   Any upward transitional adjustment that is revenue in nature would be subject to tax and any downward transitional adjustment that is revenue in nature would be deducted from the amount of exempt income or allowed as a deduction (as the case may be), in the year of assessment (“YA”) relating to the basis period in which the FRS 115 is adopted for the first time (hereafter referred to as “initial YA”).

3.  Profits of property developers are recognized for tax purposes when a property development project is substantially completed, i.e. when the Temporary Occupation Permit is granted, regardless of the revenue recognition method adopted for accounting purposes under current accounting standards.  The existing tax treatment for property developers is retained with the adoption of FRS 115.

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