Common mistakes in tax reporting of family-owned companies

21 November 2012

The Inland Revenue Authority of Singapore (IRAS) has recently released a report of compliance reviews conducted on family-owned/managed businesses.

The audits revealed that:

  • Out of the 649 audits conducted in 2007, 296 (45.6%) family-owned/managed companies were found to have errors in their tax returns.
  • For the subsequent 150 audits conducted in 2010, 55 (37%) family-owned/managed companies were found to have made mistakes in their tax reporting.

As at March 2012, nearly $2.6 million of private motor vehicles expenses were wrongly claimed by the companies audited by IRAS. More than $1.2 million were discovered to be remuneration paid to directors that did not commensurate with actual services performed. Other wrongful claims of expenses discovered amounted to more than $7.4 million. To date, IRAS has recovered approximately $16.5 million from the audits, with penalties amounting to $3 million imposed on the companies.

Common mistakes observed by the IRAS auditors in their audits of the family-owned/managed companies are as follows:

  • Wrongful claims of deductions of non-deductible expenses such as private motor vehicle expenses including petrol, insurance, repair and maintenance, parking and ERP charges
  • Remuneration claims that do not commensurate with actual services performed
  • Lack of clear distinction between private and domestic expenses
  • Interest expenses attributable to non-income producing assets incorrectly claimed
  • CPF contributions overclaimed
  • Medical expenses over/wrongly claimed
  • Form IR8A omissions, such as commissions paid to directors
  • Income understatements
  • Overstatements of purchases and other expenses
  • Excessive or unsubstantiated claims of consultancy fees, management fees, royalties etc paid to related companies
  • Property trading gains treated as capital gains.

For willful evasion of tax in making income tax returns, penalties as high as twice the amount of tax undercharged may be imposed. Under the IRAS Voluntary Disclosure Programme however, penalties will be waived for qualifying companies who come forward to declare their mistakes within the ‘grace period’ of one year beginning from the statutory filing date of 30 November. Voluntary disclosures made after the ‘grace period’ will be subject to a reduced penalty rate of 5% per annum.

Source: This article was extracted from the Inland Revenue Authority of Singapore (IRAS) website. Visit for more information.