Tax Lesson 3

Tax Law Cases

• In construing tax legislation, paramount consideration should be given to the purpose or object underlying the statute, instead of relying solely on common law principles of interpretation such as the strict construction rule.
• While courts should not exclusively reference the common law principle of strict construction in favor of the taxpayer, it might be applied when such application coincides with the purpose underlying the statutory provision, or when ambiguity persists after purposive interpretation has been properly attempted.
• All written law (penal or otherwise) must be interpreted purposively.

ABSD on Residential Properties by Charities

• There is nothing in principle for or against having ABSD applied to transactions over residential properties by charities.
• Whether or not a charity, and in particular a charitable trust, is to be liable for tax of any sort is a matter of policy for the relevant Ministries and agencies, so there needs to be clear imposition under the relevant statutory instrument.
• The preferred course would be to ensure the language of the statute itself is clear, and that it has been drafted to reflect the legislative intent as best as humanly possible.

Chargeable Income

• The Corporate Income Tax (CIT) rate in Singapore is 17% of chargeable income for both local and foreign companies.
• Chargeable income represents a company's taxable income after deducting tax-allowable expenses for a Year of Assessment (YA).
• Fictitious Scenario a company earning income in the financial year 2023 will be taxed in YA 2024.

Section 10(1) of the Income Tax Act (ITA)

• Section 10(1) of the ITA outlines the charge of income tax, specifying that income tax is payable for each YA on the income of any person accruing in or derived from Singapore, or received in Singapore from outside Singapore.
• This includes gains or profits from any trade, business, profession, or vocation, gains or profits from any employment, dividends, interest or discounts, any pension, charge or annuity, rents, royalties, premiums, profits from property, and any other income nature not falling within the preceding paragraphs.

Income vs Capital Gains

• Singapore imposes income tax on gains in the nature of income, but not capital gains, as there is no capital gains tax regime.
• Determining whether a gain is income or capital is a fact-specific inquiry.
• A gain arising in the course of a taxpayer's trade or business is generally considered income, with courts examining factors like the "badges of trade" to make this determination.
• Example: Mr. Tan regularly buys and sells antiques. If he sells an antique for a profit, this is likely income because it’s part of his trading business.

Intent and Motive

• Courts consider intent and motive when determining capital gains.
• Courts are interested in discovering details about the transaction, for example whether a transaction was entered into to obtain a profit or as an investment for long term wealth accumulation.
• The "intent test" evaluates whether that gain had an intention to generate a profit.
• The "motive test" examines the taxpayer's underlying reason for executing the transaction.
• Example: A person buys a property, intending to sell for a profit quickly.

Permanent Structures vs Plants

• Temporary dormitories are considered ‘plants’ for the purposes of Section 19 because the business (housing of foreign workers) that they are used for.
• Silos within cement factories can be divided into assets which are functional, on which capital allowance is granted for purposes of Section 19A, and non-functional assets.

Capital Allowance

• Physical assets/structures can be divided into functional, for which capital allowance is granted for the purposes of 19A and non-functional.
• The silo performed both structural and operational functions: transportation, control, filtration, and batching were functional (i.e., machinery) assets for which capital allowance was granted; preservation and protection were structural (i.e., building) and therefore did not qualify for capital allowance.
• Section 19A of the Income Tax Act does not preclude an asset from being differentiated into its constituent components for the purposes of tax assessment.

Singapore Sourced Income

• Accruing or derived from Singapore income is taxed regardless of where it is received.
• Sourced in Singapore is a question of fact to focus on what the taxpayer had done which earned gains or profits, and the location those activities or work took place.
• Fictitious scenario: A consultant working in Singapore provides advisory services to a client based overseas can be considered Singapore-sourced income, so is subject to income tax and must comply with all Singapore Tax Laws.

Singapore Sourced Employee Income

• Regarding employment income and whether gains are 'Singapore sourced,' the phrase 'by reason of employment' does not mention 'employment in Singapore' or any particular country.
• The approach in determining accrual of gains is to examine the activities or work the taxpayer enaged in which granted stock options.
• Fictitious example: Stock options granted in the UK but a condition that work in Singapore is required for options to be excercisable. Thus, the taxpayer's gains are taxed in Singapore.

Received or Deemed Received Income

• Foreign-sourced income is not taxable in Singapore unless received or deemed received.
• Income is deemed received if remitted to, transmitted, or brought into Singapore, applied towards satisfying a debt incurred in respect of a trade or business carried on in Singapore, or applied to purchase any movable property brought into Singapore.
• Fictitious Example: Mr. Lim, a Singapore resident, earns income from overseas investments. He transfers this income to his Singapore bank account, which is considered received in Singapore and is therefore subject to Singapore income tax.

Intent of Purchasing Property

• It is important to consider whether the intention of purchasing property was for trade/business or investment purposes.
• Fictitious Scenario: Mr. Tan purchased a property initially for the purpose of a family home, however as his family situation changed he quickly sold this property. Based off those facts Tan's underlying intent for purchasing the property was for investment as opposed to holding onto property long term.

Deduction of Company Expenditures

• According to Section 14(1) of the ITA expenditure for the production of income is deductible, and subject to prohibitions under S15(1) ITA.
• Deductible expenditure includes loan related expenses, and rent.
• Non-deductible expenditure includes:
• Moneys used for the purpose of acquiring income/capital
• Any disbursement or expense not being money wholly and exclusively laid out expended for the purpose of acquiring the income.

Borrowing and Loan Expenses

• Firstly, ascertain the purpose of the taxpayer. Specifically, whether it was for the purpose of revenue or for the purpose of capital at the time the loan was entered into. In order to ascertain such a purpose the approach includes the steps outlined below.
• Ascertain whether or not a relationship exists between the loan and the main transaction or project for which the loan was taken If no/insufficient linkage, the loan must by virtue be to add to the capital structure of the taxpayer.
• If the linkage is sufficient, then determine whether the main transaction is of a capital or of a revenue nature: If it is of a capital nature -->The Loan is therefore also a capital nature. If on the other hand, the main transaction is of a revenue nature, then the loan also of a revenue nature.
• Fictitious Scenario: The Loan expenses were revenue in nature. This happened because the loan was obtained to improve the efficiency of the business --> Deductible Under S14(1) ITA.
• Important Side Note: Comment: JD lays down a Strict Approach: There must be a direct link between the borrowed monies and the income produced on a specific asset basis to be deductible Under 14(1)ITA.

Capital or Revenue Expenditure

• Capital Expenditure* = the cost of creating, acquiring or enlarging the permanent structure of business which the income is to be the produce of fruit
• Revenue Expenditure* = the cost of earning that income itself or performing the income-earning operations on the either.
• As a general principle, all borrowing costs incurred on an loan that is capital in nature constitutes capital expenditure and unless the exception under S14(1)(a)applies, and would not be deductible by reason of the prohibition on deduction in s15(1)(c).

Machinery and Plant

• Tangible assets can qualify for allowances which falls under plant or machinery. Allowances are made subject to S19, and S19A.
• allowances can only be claimed on PLANT or MACHINERY, not BUILDING.
• Under Section 19A these allowances made are made in lieu of the allowances under Section 19.

GST Chargeable Requirements 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: Meaning the supply must be of an exempt supply (section 8(2A), GSTA)
• The supply must be made by a taxable person: A person who is undertaking the supply, such person, must be registered under GSTA (section 8(2),GSTA)
• The supply must also be made in Singapore (sections 13 and 15, GSTA)
• The supply must be made in the course or furtherance of a business

Difference between Zero rated Supply and GST Exemption

• Scope supply:* It simply means that supply is Not Caught, thereby not subject To GST
• Exemption: However, in the case of a zero rated supply, one would need to charge GST, at zero percent.

Overseas Vendor Registration

• VR Registration Threshold:*
• The Overseas Supplier must be registered for GST if:
• in a Calendar year,* Its Global Turnover has SGD ~ 1MIL, and the value of Remote Servies & Distantly Taxable Goods make to Non-GST Registered customs belonging in SG has> SGD 100,000 (IE: Retrospective Basis)
• Therefore the resitration has to be summited within 30 Days after the end of quarter in which this threshold is reached. Purpose OVR: Designed to ensure overseas vendors Supply Digital, the Non-GST Registered customers in SG --> Are Subject To GST.

Stamp Duty

• Note that there can be tax implications when: There is a transfer of shares is, the instrument or agreement Effecting the share transfer is subjective to, duty at the rate of 0.2% on the higher of: the market value of shares transferred or (1)-A the consideration,

19B Writing Down Allowances

• Note: The company has responsiblities to make an election to choose, either a 5.10.or 15 Year timeline:
• The right to do or authorize' the doing of anything which would, but for that right, be of any: Copyright, Trademark, Design, Indicaiotn Integrated cuicuit etc.

Withholding Tax

Generally: Withholding tax is imposed on the certain prescribed payments that are paid to Non-Singapore tax resdients, in SG. Unless there is a 'exemption or concessions '

Corporate Amalgamation

• The is advantageous for s34C if it is elected as so. This is so that with regards to transfers, within a company group, at the cost tax WDV (what a company used its assets at and how it as recorded for tax purposes) --> There is neither is a gain or Loss.

To reiterate, a Prequisite Under S34c(2) has too

• A statutory short from amalgamation (I.e: the amalgamation only applies between; A SG incorporated parent company, and it wholly owned SG Subsidiary. PEr Suantto Section 215d(1) of the companies Acts. The is otherwise known as vertical integration. Otherwise or two or more wholly owned Subsdiaries
• That Corporations being incorporated in or OUTSIDE OF SG
• PEr Suantto * Section 215 d(2)* - Of the Companies Act '1.e A horizontal Amalagamaiton.'
• Important Disclaimer:* Always refer to the original text and consult with a qualified professional for accurate and specific advice.