Tax Lesson 2

Tax Law Cases

• In construing the Income Tax Act, the court prioritizes the purpose underlying the statute over common law principles like strict construction.
  • Strict construction in favor of the taxpayer may apply if it aligns with the statutory purpose or ambiguity persists after purposive interpretation.
  • All written law must be interpreted purposively; other principles apply only when consistent with the law's purpose or ambiguity remains.
• For ABSD (Additional Buyer's Stamp Duty) on residential properties by charities, clear statutory imposition is necessary.
  • The language of the statute should reflect legislative intent as humanly possible.
  • The desirability of treating charitable trusts differently from other organizations is a matter of policy outside the courts' purview.

Chargeable Income and Income Tax Act

• Singapore corporate income tax is 17% of chargeable income for local and foreign companies.
  • Chargeable income refers to taxable income after allowable expenses for a Year of Assessment (YA).
• Corporate income tax is assessed on a preceding year basis (e.g., income in 2023 taxed in 2024).
• Section 10(1) of the Income Tax Act 1947 ("ITA") outlines the charge of income tax.
  • Income tax is payable on income accruing in or derived from Singapore, or received in Singapore from outside Singapore.
  • This includes gains/profits from trade, business, profession, vocation, employment, dividends, interest, discounts, pensions, annuities, rents, royalties, and other income.

Income vs. Capital Gains

• Singapore imposes income tax on gains in income nature, not capital gains, due to no capital gains tax regime.

  • Determining income or capital nature is highly fact-specific.
  • Gains from a taxpayer's trade/business are income, examined using "badges of trade."

• Courts consider intent and motive when determining capital.

• Temporary dormitories for housing foreign workers can be considered 'plants' under Section 19, not buildings.

• Physical assets/structures can be divided into functional (eligible for capital allowance) and non-functional components.

  • Silos can be buildings if they perform both structural and operational functions.
  • Section 19A of the Income Tax Act allows asset differentiation for tax assessment purposes.

• Whether income is Singapore-sourced is a question of fact

  • Focus is on the taxpayer's actions that earned the gains/profits and where those activities occurred.

• Employment income in Singapore is taxed if stock options were granted with a work condition in Singapore.

• Foreign-sourced income is taxable in Singapore only if received or deemed received there per Section 10(25) ITA, including if:

  • Remitted, transmitted, or brought into Singapore
  • Applied to satisfy a debt for a business in Singapore
  • Used to purchase movable property brought into Singapore

• Determine chargeability to tax by focusing on what the taxpayer did to earn the gains/profits and the location of those activities.

• Determine intention to purchase land for trade or investment.

  • Sale of the property quickly, indicates it was for investment (not for trade).

Deductions for Expenditures (Section 14 ITA) and Capital Allowance

• Section 14(1) ITA allows deductions for outgoings and expenses wholly and exclusively incurred in producing income.
• Section 15(1) ITA disallows certain deductions, including those not solely for acquiring income or that are capital in nature.
• Deductible items include loan-related expenses and rent.
• Specific deductions include interest, loan-related expenses, rent for income-acquiring premises, and tool repair/renewal expenses (with conditions).
• Part 6 of the ITA enables capital allowances for depreciating assets (mainly plant/machinery) acquired for trade, profession, or business.
• Capital allowances for plant/machinery are under Sections 19 (spread over its life) and 19A (accelerated over three years).

Capital Allowances for Machinery or Plant and Non-Deductible Expenses

• Capital allowances can be claimed only on plant/machinery, not buildings.
• Section 19A provides allowances for machinery or plant on an accelerated basis, in lieu of allowances under Section 19.
• Nondeductible expenses include monies used for acquiring income or withdrawn as capital.
• Deductions are determined by ascertaining:
  • The purpose of the loan - whether it was for entering into the loan i.e. whether it was for purposes of revenue, or capital.
  • whether there is a relationship between the loan and the main transaction or project it was taken for
• Deduct interest if the loan was used for the benefit of the business.
• The 'direct link' is very important to determine deductibility under s14(1) ITA
• S14(1)(a) only apples if there is a direct link beween the taxpayer's income and a loan to be repaid
• Cost of acquiring land and construction a proprietary club building are captial in nature, and therefore not tax deductable.
• This is on the basis that the costs occured only one time, as oppose to reoccuring
• Resulted in the building structure stregnthening the core buisness of the club
• Capital Expenditure is the cost of aquiring enlarging the existing structure of a buisnee
• Revenue expenditure is used for the operating or running costs of the buisness.
• For 14(1)(a) to apply, as well, a direct link between the taxprayer's income and the laon must be present.

Conditions for a loan

• For interest to be deductible under s14(1) and 14(1)(a) for the ITA, interest expenses must be related to the potaion of borrowed monies There must be a direct apporach between borrowed monies and the income produces on a specfic asset basis under the tax payer is trying to deduct.
• If capital in nature, then non-deductible
  • This may be an exception under s14(1)(a) Deduction formula does not apply to assets made with the purpose of deriving capital

Capital Allowances - Plant and Machinery

• Under Part 6 of the Income Tax Act (ITA), capital allowances are provided for depreciating assets, which applies to plant or machinery. -These assets must be a part of a trade, profression or buisness practice
• These allowances are based on the life cycle of the asset, allowing deductable portions of it each year.
• section 19A, for the other hand, allows for accelarate allowance or plant or chinery
  • Under this section, buisness can claim the full cost of the asset under 3 years

GST (Goods and Services Tax)

• Tax will apply, for Made in Singapore

  • a supply of goods or services must be made (section 10(2) and Second Schedule, GSTA)
  • the supply must be a taxable supply - this means that the supply must not be an exempt supply (section 8(2A), GSTA);
  • the supply must be made by a taxable person - this means that the person making the supply must be registered or required to be registered under the GSTA (section 8(2), GSTA);
  • the supply must be made in Singapore (sections 13 and 15, GSTA); and
  • the supply must be made in the course or furtherance of a business

• The art of scope is, where the supply of goods are services is not caught under the GST and and is therefore not affected by it.

• Compulsory registration required if an amount exceeds over 1 million

• Voluntary Registration = Seller only charges GST when revenue crosses threshold; registration must be for not less than 2 years Herbalife

There requirements or s17(3) that have to be met Undertaking had to be independent of and not ancillary to the taxable supply

• GST is not to be applied the value would the discounted price, however, if the consideration included some of non-monoetary, the taxable supply fill to be valued at open market value pursuant to s17(3) of the Gst act

The two regimes of GST apply to implied sources Under the VVR, GS is chargable on a supply of distantly taxable Goddesses and sources made by a taxable person

Requires to register, or GST applies to non GS customer

• In terms of remote sources can be defined as between a service that is not considered to apply to the location it is being used This included subscriptions, professional service, exams, personal service, advisory services Where if gloabal the turnover exceeded 1 million

The reverse change Regime applies where the supplier billlongs under Singaporean

• Share and Asset Sale are very similar they are Sale of share is the entire company is p purchased and liability come with it Asset sale is the buyer get to pick what asset they would like.

If the trasnfferee is in the buisness for selling, then will be accountable and liable.

If 13W of the ITA Applies of the Disposal between June 1, 2012 to Devender 32, 2027 Atleast 24 months legally and benefally over 10% of odinay shares A transfer of shares are treated and exact supply The purpose to prevent profitabl3 complainer from 3uylng loss marking ones or To prevent complainer from 3uylng losy The minimum is 11 which stands for the substantial the shoreholder of the complaints company must be

• The test on which the ultimate shoreholder must Test and in this can is In this case we must be 4000
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Is the surbstanional shoreholding test = the ultimate shoreholder or this company must

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