Category: Deductions

IRAS issues e-Tax Guide, “Income tax: Total asset method for interest adjustment”

On By taxsgIn Corporate Tax, Deductions, Latest Tax News

23 December 2016

On 16 December 2016, the Inland Revenue Authority of Singapore (IRAS) issued the e-Tax Guide, “Income tax: Total asset method for interest adjustment”.

The e-Tax Guide sets out the application of the total asset method (TAM) of attributing common interest expense to income producing and non-income producing assets and is relevant to taxpayers who claim deductions of interest expense and borrowing costs akin to interest, incurred on loans or borrowings, under section 14(1)(a) of the Income Tax Act (ITA).

Interest expense and borrowing costs incurred on loans specifically taken up to finance income-producing assets or assets that are employed in acquiring income are deductible against the income produced. If the asset does not produce income, the interest expense and borrowing costs are not tax deductible.

If a taxpayer cannot identify and track the use of an interest-bearing loan to specific assets financed by the loan and not all the assets are income producing, the TAM may be adopted to attribute the common interest expense to the assets.

The formula in the TAM attributes an amount of common interest expense incurred to each asset in the total asset base as at the financial year end, other than the assets financed by specific interest bearing loans.

IRAS has stated that taxpayers will need to provide their interest restriction computations in their tax computations but they need not submit any supporting documents with their Income Tax Return. However, sufficient documentation must be maintained for submission to the CIT if called upon to do.

Taxpayers who use the TAM are to align their methodology from the date of the e-Tax Guide (i.e. 16 December 2016).

For full details, please refer the e-Tax Guide on the IRAS website.

Source: This article was extracted from the Inland Revenue Authority of Singapore’s (IRAS) website. Visit http://www.iras.gov.sg/ for more information.

Businesses to receive a 250% tax deduction on wages for voluntary work at IPCs

On By taxsgIn Corporate Tax, Deductions, Latest Tax News

5 July 2016

Under the Business and IPC Partnership Scheme (BIPS), a total of 250% tax deduction on wages and related expenses will be given to businesses wef 1 July 2016 to 31 December 2018 for voluntary services that their employees provide to Institutions of a Public Character (IPCs). An IPC is an organisation approved by the Commissioner of Charities to receive tax-deductible donations.

These volunteer services will however be subject to the agreement of IPCs, and will include:

  • professional services in various areas, such as legal, human resources, and accounting; or
  • general voluntary services for IPCs.

Companies, sole-proprietors, partnerships, registered business trusts, clubs and trade associations that are deemed to be carrying on a business can qualify for the scheme.

The qualifying expenditure includes:

  • basic wages, excluding employers’ contributions to CPF, bonus, benefits-in-kind, allowances and other components of wage costs.
  • incidental expenses incurred directly in connection with the services provided to IPCs.

Additionally,

  • only wages for the time spent volunteering during working hours and for the time spent at the IPC’s premise will qualify for BIPS.
  • for volunteering events provided outside the IPC’s premise, only wages for time spent at the volunteering event will qualify for BIPS. Wages for time spent preparing for the volunteering event, as well as wages for time spent travelling to and fro for the voluntary event will not qualify for BIPS.
  • as per existing tax treatment for business expenses, any unutilised tax deductions from BIPS form part of business loss and can be carried forward, carried back, and transferred under the Group Relief system, subject to existing rules.

The qualifying expenditure will be subject to a yearly cap of $250,000 per business and $50,000 per IPC. Any unutilised cap cannot be carried forward to the following year.

As the actual expenditure needs to be endorsed by the IPC before filing of the tax returns, both the IPC and business are to agree on the types of services and/or secondment to be provided, duration, and estimated qualifying expenditure before commencement of the service.

Anyone found claiming fraudulent BIPS tax deductions will be subject to penalties of up to 400% of the amount of tax undercharged and a fine not exceeding $50,000 or to imprisonment or both.

BIPS, introduced in Budget 2016 is part of the Singapore Government’s efforts to promote philanthropy by encouraging employee volunteerism through businesses.

Further details and FAQs for those in participating in the BIPS can be found on the Ministry of Finance (MOF) and Charity Portal websites.

Source: MOF, IRAS

IRAS updates online content on tax treatment of reinstatement costs

On By taxsgIn Deductions

16 June 2015

Under section 15(1)(c) of the Income Tax Act (ITA), reinstatement costs (expenses incurred to reinstate premises to its original condition prior to vacating it at the end of the tenancy agreement) are not deductible as they are considered to be capital expenditure.

Following the Inland Revenue Authority of Singapore (IRAS)’s review of the tax treatment of reinstatement costs, deduction is now allowed under section 14(1) of the ITA where the costs incurred meet the following conditions:

  • Costs claimed do not relate to provisions made under FRS 16 (i.e. expense has been incurred)
  • Costs claimed are contractually provided for in the tenancy agreement and hence considered to be part of the costs of renting the property for use in the business in the first place, and
  • The premises are not vacated due to cessation of business.

The update was made on 11 June 2015.

For further details, please refer to the IRAS website.

Source: IRAS

Maintaining of training records for PIC claim

On By taxsgIn Corporate Tax, Deductions, Latest Tax News

22 July 2014

The IRAS has updated its FAQs on the Productivity and Innovation Credit (PIC) scheme to provide greater clarity on the documents required to support any claim for PIC on expenses incurred on training of employees.

In the updated FAQ, IRAS has provided the following list as examples of the records and documents that businesses must maintain with respect to their training expenditure for which they claim PIC:

(A)  For In-house training not certified by WDA or ITE:

    1. Name of course/ training
    2. Exact date(s), duration and venue of course/ training
    3. Full name, designation and qualification of trainer(s)
    4. Full name, identification number (e.g. NRIC), designation and employment period of trainee(s)
    5. Course objectives, course outline and a copy of the course handout or training manual
    6. Basis and computation of how the training cost was arrived at
    7. Itemised breakdown of qualifying expenditure with supporting documents (e.g. timesheet maintained by the trainer(s))

(B)  For In-house training certified by WDA or ITE:

    1. Items 1. to 7. under (A)
    2. A copy of the certification letter issued by the relevant agencies (WDA or ITE)

(C)  For External training

    1. Items 1. to 5. under (A)
    2. A copy of invoice
    3. Evidence of payment (e.g. bank statement)

The above documents must only be submitted to the IRAS upon request by IRAS.

Source: Inland Revenue Authority of Singapore

IRAS updates website content on “PIC IT and Automation Equipment List”

On By taxsgIn Capital Allowances, Corporate Tax, Deductions, Latest Tax News

2 June 2014

On 30 May 2014, the Inland Revenue Authority of Singapore (“IRAS”) updated its website content on “PIC IT and Automation Equipment List”.

Bi-directional Mass Flow Metering system (“MFM”) installed on bunker tankers and approved for use by the Maritime and Port Authority of Singapore (“MPA”) has been added to the list of information technology (“IT”) and automation equipment qualifying for enhanced deduction/allowances under the Productivity and Innovation Credit (“PIC”) scheme. With effect from year of assessment 2015, expenditure incurred on bi-directional MFM will qualify for PIC. However, it will not qualify for 100% accelerated write-off for capital allowances under sec 19A(2) of the Income Tax Act.

For the full list, please refer to the IRAS website.

Source: Inland Revenue Authority of Singapore