Amendment to Income Tax, GST and Stamp Duties Legislation


Dear Valued Clients and Friends

The following Acts that were passed by the Parliament on 22 November 2011 had been assented to by the President on 8th December 2011:

  • Income Tax (Amendment) Act 2011
  • Goods & Services Tax (Amendment) Act 2011
  • Stamp Duties (Amendment) Act 2011

They were all first published electronically via egazette on 20 December 2011.

We trust that the above information is useful to you.

As always, we are pleased to assist you or your company in resolving any potential tax issues.  Please contact us at jack.wong@whm-consulting.com if you would like to discuss any of your/ your company’s concern on tax issues.

Best regards
Jack HM Wong
Founder and Lead Business & Tax Advisor
WHM Consulting Pte Ltd
E-mail: jack.wong@whm-consulting.com

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A Growing Trend in IRAS’ Audit and Investigation: What Should Taxpayers Do?


 

Dear Valued Clients and Friends

2011 will be coming to an end in a fortnight’s time.  As most of our clients will be closing their financial year end this month, we believe that it may be worth to reiterate the growing trend in the Inland Revenue Authority of Singapore’s (IRAS’)’ audit and investigation activities.

By now, most (if not all) companies should have already filed their income tax return and computation for the Year of Assessment  (“YA“) 2011.   On 21 December 2011, I will be conducting the final run in this year for the Institute of Certified Public Accountants of Singapore (“ICPAS“) on the subject regarding common pitfalls of the Singapore income tax compliance process and the aim of this course is to highlight certain common risks associated with incorrect preparation of income tax returns and computations by some companies and at the same time, emphasize the importance of maintaining proper records and documents in the event of IRAS’ investigation.  This is one of the more popular tax courses in ICPAS and the good news is that you are still in time to sign up for this course.  Simply go to our Page “Upcoming Seminars and Workshops” for details.

Some of you are aware that in 2009, IRAS issued an e-Tax Guide concerning the Voluntary Disclosure Programme (“VDP”).  The purpose is to help some taxpayers who might be ignorant or negligent in terms of their tax reporting obligations by encouraging to come forward in a timely manner to disclose errors and/or omissions made in their tax returns. Penalties due to incorrect tax returns may be reduced on a discretionary basis by IRAS.  It should also be noted that this programme applies to both income tax (including withholding tax) and Goods and Services Tax but  does not apply to tax evasion cases,which is a criminal offence punishable under the law.

According to IRAS, the following will become the area of focus in compliance:

  • Classification of income and expenses by companies enjoying tax incentives
  • Related-party transactions and allocation of development cost by real estate developers
  • Income declaration by companies whose principal activities are that of tutoring services or tuition agencies.

As part of its efforts in educating the public and encouraging more taxpayers to participate in the VDP, IRAS has also taken active steps in publishing landmark cases on its website to highlight the manner in which certain taxpayers had attempted to evade taxes and the penalties imposed on such taxpayers after successful prosecution by IRAS.

We trust that the above information is useful to you.

As always, we are pleased to assist you or your company in resolving any potential tax issues.  Please contact us at jack.wong@whm-consulting.com if you would like to discuss any of your/ your company’s concern on tax issues.

Best regards
Jack HM Wong
Founder and Lead Business & Tax Advisor
WHM Consulting Pte Ltd
E-mail: jack.wong@whm-consulting.com

Additional Buyer’s Stamp Duty on Residential Property Effective from 8 December 2011


Dear Valued Clients and Readers

On 7 December 2011, the Government has announced the implementation of additional buyer’s stamp duty (“ABSD“) to be paid by certain profiles of people who buy or acquire residential properties (including residential land).  The new measure will take effect from 8 December 2011.

Who are the Affected Buyers?

a) Foreigners, companies, partnership and societies

b) Singapore Permanent Residents (“PR“) who already own 1 or more residential properties, whether owned wholly, partially, or jointly with others

c) Singapore Citizens (“SC“) who already own 2 or more residential properties, whether owned wholly, partially, or jointly with others

The new ABSD is payable by affected buyers at fixed rates on the actual price paid or market value of the property whichever is the higher.  The ABSD rate will be 10% for (a), and 3% for (b) and (c), on the total price or market value of the property.

Please note that Buyer’s stamp duty (“BSD“) will continue to be payable by all property buyers at unchanged rates.

When is the Effective Date of Implementation of ABSD?

ABSD will apply to Contracts or Agreements (whichever is earlier), or Documents of Transfer*, dated on or after 8 December 2011.

Where an Option To Purchase has been granted on or before 7 December 2011 and exercised on or before 28 December 2011, ABSD will be remitted upon application.

*Where Contracts or Agreements are not applicable

Summary of BSD and ABSD

page5image3128
Transaction
On and before 7 Dec 2011
page5image8064

On or after 8 Dec 2011
BSD* rates on the total purchase price or market value (whichever is higher)
BSD* rates on the total purchase price or market value (whichever is higher)

page5image16016

ABSD† rates on the total purchase price or market value (whichever is higher)
Foreigners and non- individuals (corporate entities) buying any residential property
1% on first $180,0002% on next $180,0003% for the remainder
1% on first $180,0002% on next $180,0003% for the remainder

page5image26392page5image26936

+10%

page5image30120

PRs owning one and buying the second and subsequent residential property

page5image32376page5image32648

+3%

page5image35536

SCs owning two and buying the third and subsequent residential property

page5image37768page5image38040

+3%
PRs buying the first residential property
1% on first $180,0002% on next $180,0003% for the remainder
page5image46648

1% on first $180,0002% on next $180,0003% for the remainder

page5image49472page5image49744page5image50448

page5image51680

NIL

page5image52944

SCs buying the first and/ or second residential property

Inland Revenue Authority of Singapore has issued the relevant E-Tax Guide on ABSD here.

We trust that the above information is useful to you.

As always, we are pleased to assist you or your company in resolving any potential tax issues.  Please contact us at jack.wong@whm-consulting.com if you would like to discuss any of your/ your company’s concern on tax issues.

Best regards
Jack HM Wong
Founder and Lead Business & Tax Advisor
WHM Consulting Pte Ltd
E-mail: jack.wong@whm-consulting.com

Revised E-tax Guide on Section 10(25) of the Income Tax Act


Dear Valued Clients and Readers

On 6 December 2011, the Inland Revenue Authority of Singapore has issued the revised E-tax Guide on Section 10(25) of the Income Tax Act.

For Singapore tax purposes, income tax is imposed on both Singapore-sourced income and foreign-sourced income received in Singapore under Section 10(1).  Section 10(25) provides certain guidance as to when foreign-sourced income is considered received in Singapore and hence is subject to income tax in Singapore.

  • any amount from any income derived from outside Singapore which is remitted to, transmitted or brought into Singapore;
  • any amount from any income derived from outside Singapore which is applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Singapore;
  • any amount from any income derived from outside Singapore which is applied to purchase any movable property which is brought into Singapore.

The purpose of issuing the revised E-tax Guide by IRAS is to clarify that foreign income is considered received in Singapore when it is applied to discharge any indebtedness or liabilities incurred for the purpose of any trade or business carried on in Singapore.

The revised E-tax guide can be found here.

We trust that the above information is useful to you.

As always, we are pleased to assist you or your company in resolving any potential tax issues.  Please contact us at jack.wong@whm-consulting.com if you would like to discuss any of your/ your company’s concern on tax issues.

Best regards
Jack HM Wong
Founder and Lead Business & Tax Advisor
WHM Consulting Pte Ltd
E-mail: jack.wong@whm-consulting.com

Consultation on Capital Allowances for Assets Used by Persons Other than the Taxpayer in a manufacturing outsourcing arrangement


Dear Valued Clients and Readers

Following the Income Tax Board of Review’s decision in the case of ATG vs. CIT [2011] SGITBR, the Inland Revenue Authority of Singapore (“IRAS“) will apply the proposed guidelines below to determine whether capital allowances (“CA“) can be allowed if the plant and machinery (“P&M“) is used by a subcontractor in a manufacturing outsourcing arrangement between the taxpayer and the subcontractor.

Based on our understanding, the proposed guidelines provide that where a taxpayer outsources part of his manufacturing process to another person and provides his assets for use by the person (for instance, a subcontractor) in an outsourcing arrangement, CA can be allowed to the taxpayer in respect of the qualifying P&M if the three conditions below are satisfied.

(i)         The taxpayer incurs the capital expenditure on the plant and machinery (P&M); and

(ii)        The P&M is used for the purpose of the taxpayer’s trade, i.e. to manufacture goods for the taxpayer; and

(iii)       The taxpayer maintains the P&M and bears the cost of maintenance, repairs and depreciation.

In respect of condition (i), IRAS states that  CA can only be given to a company that incurred the expenditure for the relevant P&M. For the purpose of claiming the CA, the P&M should be reflected as the taxpayer’s assets in his balance sheet.

WHM Consulting – In our view, this condition is considered reasonable.  In any case, under the prevailing Financial Reporting Standards in Singapore, an outright purchase of an asset by the company or an asset that is subject to a finance lease arrangement where the company in question is the lessee, will be required to be capitalized in the company’s balance sheet. 

In respect of condition (ii), IRAS states that in cases where the P&M is used by a third party in a manufacturing outsourcing arrangement, CA will be given if it can be shown that the P&M is used for the purpose of the taxpayer’s trade (regardless of whether the arrangement is a toll or buy-sell arrangement). The taxpayer should be able to justify the commercial reasons of the outsourcing arrangement and how the taxpayer benefits from the arrangement. For example, in a typical buy-sell subcontracting arrangement, title of the goods passes to the taxpayer for resale after its subcontractor has processed the goods, using the taxpayer’s P&M. The arrangement resulted in cost savings for the taxpayer as the subcontractor would have charged a higher price for the goods if he had to acquire the same P&M. This would clearly show the business purpose of the arrangement.  However,  IRAS also states that there may be instances where the P&M is used largely for the purpose of the subcontractor’s trade instead of the taxpayer’s, for which CA may arguably be denied. For example, if the subcontractor has the right to exploit the P&M for his own business while manufacturing goods for the taxpayer. IRAS is prepared to treat this condition as being satisfied if the taxpayer can show that the arrangement results in reasonable incremental benefits for the taxpayer’s trade e.g. greater cost reductions, compared to the case where the subcontractor is not allowed to exploit the assets for his trade.  In such instances, CA can be allowed to the taxpayer if the other two conditions are met.

WHM Consulting – While IRAS demands a cost-and-benefit explanation by taxpayer before CA can be granted, it is our view that in practice, it is unclear as to what kind of documentary evidence IRAS will accept.  In providing cost and benefit analysis, in particular in the situation where the P&M is largely used by the subcontractor’s trade instead of taxpayer’s, the taxpayer may need to tap on certain business information of the subcontractor.  Unless both taxpayer and the subcontractor are related parties, it is our view that the subcontractor may be reluctant to share certain business information with taxpayer to enable the latter to provide a satisfactory explanation of the cost-and-benefit analysis to IRAS.   

As regards condition (iii),  IRAS expects the asset owner to be ultimately responsible for the maintenance of the P&M as any prudent asset owner would maintain oversight of the use of his assets.  As the owner is responsible for the maintenance of the P&M, IRAS does not expect the subcontractor to charge depreciation costs to the taxpayer either via fees or through embedding the depreciation charge in the fees or price of the goods sold to the asset owner.

WHM Consulting – In our view, this condition is consistent with condition (i).  If taxpayer is the entity capitalizing the asset in its balance sheet, then accounting depreciation should be accounted for by taxpayer and subcontractor should not charge a fee taking into account the depreciation cost of the assets using in the arrangement. 

IRAS is currently soliciting feedback from Accredited Tax Advisors and Professionals of Singapore Institute of Accredited Tax Professionals (“SIATP“) and it is hoped that the proposed guidelines will be fine-tuned to provide clearer application of the rules to taxpayers and tax advisors.

As always, we are pleased to assist you or your company in resolving any potential tax issues.  Please contact us at jack.wong@whm-consulting.com if you would like to discuss any of your/ your company’s concern on tax issues.

Best regards
Jack HM Wong
Founder and Lead Business & Tax Advisor
WHM Consulting Pte Ltd
E-mail: jack.wong@whm-consulting.com

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