Tax Lesson 1

ACC v Comptroller of Income Tax [2011] 1 SLR 1217

• When interpreting tax laws, it is important to prioritize the purpose of the statute over strict legal interpretation.
• Strict legal construction can be followed when it aligns with the purpose of the statute or if ambiguity remains after purposive interpretation.

Zhao Hui Fang v Commissioner of Stamp Duties [2017] 4 SLR 945

• Clarity in the statute is necessary when ABSD is applicable to transactions involving residential properties by charities.
• Clear language in the statute is important, which is drafted in line with the legislative intent.

Chargeable Income

• The corporate income tax rate in Singapore is 17% of chargeable income, applicable to local and foreign companies.
• Chargeable income is the company's taxable income after tax-allowable expenses for a Year of Assessment (YA).

Section 10(1) of the Income Tax Act 1947 (“ITA”) - Charging Provision

• Income tax is applicable for each year of assessment on the income of any individual accruing in or derived from Singapore, or received in Singapore from outside Singapore.
• This includes gains or profits from trade, business, profession, or vocation.
• It also includes gains or profits from any employment, dividends, interest, discounts, pensions, charge or annuity, rents, royalties, and premiums.

Income vs Capital

• Singapore imposes income tax on gains in the nature of income, not capital gains.
• Determining whether a gain is income or capital involves a fact-specific inquiry.
• Courts consider intent and motive behind transaction.
• Courts examine factors like "badges of trade" to determine if a gain arises from trading.

ZF v Comptroller of Income Tax [2011] 1 SLR 1044

• Temporary dormitories are considered 'plants' for the purposes of Section 19, due to the nature of the business being housing for foreign workers.

Singapore Cement Manufacturing Co (Pte) Ltd v Comptroller of Income Tax [2023] SGHC 57

• Physical assets or structures are divided into functional (capital allowance is granted) and non-functional.

Comptroller of Income Tax v HY [2006] 2 SLR(R) 405

• Focus is on what the taxpayer did to earn gains or profits, then identify the location of those activities.
• Gains are taxed in Singapore if work has to be done in Singapore.

Foreign Sourced Income

• Foreign-sourced income is not taxable in Singapore unless received or deemed received in Singapore:
  • Remitted to, transmitted, or brought into, Singapore.
  • Applied in or towards satisfaction of any debt incurred for a trade or business carried on in Singapore.
  • Applied to purchase any movable property brought into Singapore.
• Focus is on what the taxpayer had done, which earned him the gains of profits in question, and then to identify the location where those activities that he had engaged or work he had done in place

NP and another v Comptroller of Income Tax [2007] 4 SLR(R) 599

• Whether the intention of purchasing the property was for trade or for investment purposes.
• The intent to purchase the property for trade or investment.
• Initially purchased a family home, later sold, an indication that the intention was for investment.

ABD Pte Ltd v Comptroller of Income Tax [2010] 3 SLR 609

• Taxes are collected based on the monies received and not based on characteristic of the reason such monies were collected for (i.e. membership spread over 30 years).

Comptroller of Income Tax v BBO [2014] 2 SLR 609

• Whether the gain was a mere enhancement of value by realising a security or made in an operation of business for profitmaking.
• Shares held for corporate preservation strategy are taxable.

Deductions for expenditures 14 ITA

• An outgoing is deductible if incurred wholly and exclusively for the production of income.

Section 15(1) of the ITA

• It disallows the deduction of expenses not exclusively for acquiring income or any withdrawn capital.

Comptroller of Income Tax v IA [2006] 4 SLR(R) 161

• If the purpose of the loan was for improving efficiency of the business, at the time the loan was entered into, then it is deductible under s14(1).

Deduction of Expenses

• First ascertain the taxpayer's purpose for the loan, whether for revenue or capital purposes at the time the loan was entered into.

JD Ltd v Comptroller of Income Tax [2006] 1 SLR(R) 484

• Indirect link to establish income and monies borrowed for deductibility under s14(1) ITA.

ABD Pte Ltd v Comptroller of Income Tax [2010] 3 SLR 609

• Factors considered whether deductible under s14:
  • (1) Nature of expenditure as one-time opposesd to recurring suggest capital in nature.
  • (2) Expeditures resulted in the building being available to strengthen the core business structure of the club

BFC v Comptroller of Income Tax [2014] 4 SLR 33

• Section 14(1)(a) applies if there's a direct link between taxpayer's income and a loan of a capital nature.

Definition of Capital Expenditure

• Capital expenditure is the cost of creating, acquiring, or enlarging the permanent structure of business.
• Revenue expenditure is the cost of earning that income itself or performing the income-earning operations on the other.

Capital Allowances

• Under Part 6 of the Income Tax Act (ITA), capital allowances are provided for depreciating assets, specifically plant or machinery, which must be acquired for the purpose of a trade, profession, or business.
• Capital allowances for machinery or plant are made under sections 19 and 19A
• Capital allowances can only be claimed on plant or machinery and not buildings.
• Section 19 provides for capital allowances spread over the asset's useful life, while section 19A offers accelerated allowances over three years.

How to apply for capital allowances under Section 19A

• Identify eligible assets and document purchase and use.
• Calculate Under Section 19A, you can claim the full cost of the asset over a shorter period of three years
• File tax return and follow-up documents with Submit to the Tax Authority

Goods and Services Tax

• From 1 Jan 2024 is 9%
• Made in Singapore
• Tax charged on any supply of goods or services made in Singapore if it's a taxable supply by a taxable person in the course or furtherance of any business.

Supply must be made in Singapore

• Difference between zero-rated supply and GST exemption.
• Compulsory registration if > 1MILCompulsory registration (Paragraph 1(1), First Schedule, GSTA)
• A taxable person is a person who is registered or is 'required to be registered' under the GSTA (section 8(2), GSTA)
• Registration:*
• Voluntary registration = Seller only charges GST when revenue crosses threshold; registration for not less than 2 years Paragraph 8, First Schedule, GSTA).

Herbalife International Singapore Pte Ltd v Comptroller of Goods and Services Tax [2023] SGHC 54

• two requirements of s17(3): (1) undertakings had to be independent of, and not ancillary to, the taxable supply. (2) undertaking provided a benefit which went beyond the monetary transaction in question
• the member's profit was in exchange for the supply of the products AND the non-monetary consideration was a contractual apportionment of value

Overseas Vendor Registration

• Taxable are goods and remote services provided remotely.
• For overseas supplier must register for GST: in a calendar year, its global turnover has exceeded SGD 1 million
• Purpose: OVR is designed to ensure that overseas vendors supplying digital services to non-GST registered customers in Singapore are subject to GST.

Reverse Charge regime

• Reverse charge regime applies where the supplier who belongs outside Singapore supplies imported services and distantly taxable goods to a person who belongs in Singapore
• Responsibility: The GST-registered business that imports the services is responsible for accounting for the GST on the imported services and paying it to IRAS.
• Applys to GST registered bussiness which import service for their business use

Share and Asset Sale

• Share sale involves a whole company, asset sale involves specific assets
• broadily the seller always wants a share sale and the investor wants an asset sale

Tax Exemption

• Tax exemption under section 13W of the ITA = Disposal between 1 June 2012 to 31 December 2027 + Legal and Beneficially owned > 20% of the ordinary shares

GST implications

• Generally, A transfer of shares is generally treated as an exempt supply for Singapore GST purposes
• Tax attributes: Unutilised losses, capital allowances and donations that allow companies to set-off income in future years à taxpayers would want to preserve these tax attributes.

Key advantadges of 23 ITZ Carry over (to set-off income generated from future years) of capital allowances (“CA”)

• To prevent profitable companies from buying loss-making ones or those with unutilised CA to lessen their tax bill and section
• Only can deduct from gains/profits derived from the same business + from the year loss was incurred

What is charagble property on Stamp duty implications =

• instruments that effect transfer immovable property OR company maintains a share or branch registered in Singapore +
• Transfers stamp duty at the .20%, generally the cost may be deductible by the buyer as an expense in computing the gains or profits of that trade or business

Restrucing options

• If stamp duty triggered also consider with STamps rules and apply

Deduction under s14(1)(a) ITA

• Only interest expenses attributable to income-producing assets are deductible the Direct Link test = Has the assets purchased and the nature of the income changed.
• Interest expenses and payments also may not be exempted given specific conditions may not apply.

Income tax implications

• Singapore has no capital gains tax