Tag: Income Tax Act

Income Tax (Amendment) Act 2013 [No. 19/2013] passed by Parliament

On By taxsgIn Corporate Tax, Economic Expansion Incentives (Relief from Income Tax) Act, Income Tax Act, Latest Tax News, Legislative Updates

2 December 2013

The Income Tax (Amendment) Act 2013, passed by Parliament on 21 October 2013 and assented to by the President on 5 November 2013, was published in the Government Gazette, Electronic Edition, on 28 November 2013.

The Act amends the Income Tax Act (Cap. 134, 2008 revised edition) and makes a consequential amendment to the Economic Expansion Incentives (Relief from Income Tax) Act (Cap. 86, 2005 revised edition). Some of the amendments to the Income Tax Act include:

  • Sec 2 (Interpretation) — Subsection (1) is amended by introducing a definition for the term “information subject to legal privilege” which is used in the amended sec 65B (Power of Comptroller to obtain information) and new sec 105L (Provision of information to Comptroller).
  • Sec 6 (Official secrecy) — Subsection (3) is amended to enable documents and information to be disclosed in a prosecution for an offence under the Act, and not just for an offence that relates to income tax.
  • Sec 10 (Charge of income tax) — A new subsection (2)(ca) provides that with effect from year of assessment 2015, the taxable benefit of any place of residence provided by an employer to his employee will be the annual value of that place less the rent paid by the employee.
  • Sec 10C (Excess provident fund contributions, etc., deemed to be income) — New subsections (5A) and (5B) provide for the increase in the maximum amount of employer contribution to an employee’s Medisave account that is not treated as income of the employee to S$1,500 per employer per year beginning with 2013. The cap of S$1,500 applies on a per contributor, per recipient basis.
  • Sec 13 (Exempt income) — A new subsection (1)(jd) is inserted to increase the maximum amount of voluntary cash contribution by a prescribed person to the Medisave account of a self-employed individual that may be exempt from tax to S$1,500 per prescribed person per year beginning with 2013. In addition, subsection (1)(zd) is amended to clarify that it only applies to deposits held in Singapore and the term “approved bank” in subsection (16) is redefined so as to remove the need for the Minister for Finance to approve such banks on a case-by-case basis.
  • Sec 14 (Deductions allowed) — Subsection (4) is amended to disapply the limitation under subsections (3) and (3A) on the deduction that may be allowed for motor car expenses, to a foreign registered car used exclusively outside Singapore, with effect from year of assessment 2014.  In addition, new subsections (1)(fb) and (1)(fc) are inserted to increase the maximum deduction allowable to:

(i)      an employer for his contribution to the Medisave account of an employee to S$1,500 per employee per year beginning with 2013; and

(ii)    a prescribed person for his voluntary contribution to the Medisave account of a self-employed individual to S$1,500 per individual per year beginning with 2013, respectively.

  • Sec 14J (Further deduction for expenditure on research and development of new financial activities) is repealed.
  • A new sec 14W (Deduction for expenditure on licensing intellectual property rights) provides for an enhanced deduction for expenditure in the form of licence fees incurred on licensing by a taxpayer from another person of any intellectual property rights other than trademark or software user rights.
  • Sec 19 (Initial and annual allowances for machinery or plant) — Subsection (4) is amended to disapply the limitation under subsection (3) on the amount of allowances that may be given for capital expenditure on a motor car, to a foreign registered car used exclusively outside Singapore which is acquired in the basis period for the year of assessment 2014 or after.
  • Sec 21 (Replacement of machinery or plant) — Sec 21 allows a taxpayer to set off a balancing charge from the disposal of an item of machinery or plant against the cost of a new item. Subsection (5) is amended to limit the cost of the new foreign registered car used exclusively outside Singapore, which is acquired in the basis period for the year of assessment 2014 or after, to S$35,000.
  • Sec 37I (Cash payout under Productivity and Innovation Credit Scheme) — This section is amended to enable a tax deduction under the new sec 14W (Deduction for expenditure on licensing intellectual property rights) to be converted at the election of taxpayer into a cash payout under that section. Only expenditure that qualifies for a deduction under sec 14R, 14S and 14T may be converted into a cash payout.
  • A new sec 37IA (Productivity and Innovation Credit bonus) provides for the payment of a Productivity and Innovation Credit (PIC) bonus, based on certain expenditures which improve productivity or help innovation and are incurred in the combined basis periods for the years of assessment 2013 to 2015.
  • A new sec 37IB (Modification of sections 37I and 37IA in their application to partnership) clarifies how sec 37I and 37IA are to apply if the person qualifying for the cash payout or PIC bonus is a partnership.
  • Sec 43 (Rate of tax upon companies and others) — Subsection (5) is amended to provide that a non-resident individual or firm must make an irrevocable option for his net professional or vocational income to be taxed at 20% (instead of the gross amount of such income being taxed at 15%) by the 15th day of the second month following the month in which the payment of the income is liable to be made to the individual or firm. In addition, new subsections (11) to (13) clarify what does not constitute a “qualifying company”.
  • Sec 43O (Concessionary rate of tax for cyber trading) is repealed following the withdrawal of the Approved Cyber Trader scheme from 25 February 2013.
  • A new sec 92D (Remission of tax of companies for years of assessment 2013, 2014 and 2015) provides for a tax rebate of 30% on the tax payable (excluding final withholding tax levied on income under sec 43(3), (3A) and (3B)) by companies for the years of assessment 2013 to 2015. This is subject to a cap of S$30,000 for each year of assessment.

For the full details, please refer to the Singapore Statutes Online.

Source: Government Gazette

Goods and Services Tax (Amendment) Bill [No. 17/2013] introduced in Parliament

On By taxsgIn Goods and Services Tax Act, Income Tax Act, Latest Tax News, Legislative Updates, Property Tax Act, Stamp Duties Act

24 October 2013

The Goods and Services Tax (Amendment) Bill was introduced in Parliament on 21 October 2013. This Bill seeks to amend sections 6, 25, 27, 33, 37B and 79 of the Goods and Services Tax Act (Cap. 117A, 2005 Ed.) and insert a new section 83E.

In addition, the Bill also makes related amendments to the following:

  • Sections 6 and 57(6A) of the Income Tax Act (Cap. 134, 2008 Ed.)
  • Section 38(11) of the Property Tax Act (Cap. 254, 2005 Ed.)
  • Section 70(7B) of the Stamp Duties Act (Cap. 312, 2006 Ed.)

Full details of the amendments can be found in the “Explanatory Statement” of the Bill. A copy of the Bill is available on the Parliament of Singapore website at http://www.parliament.gov.sg/publications/bills-introduced.

Source: Government Gazette

Income Tax (Deduction for Qualifying Training Expenditure) (Prescribed Classes of Individuals) Rules 2013 [S 599/2013]

On By taxsgIn Corporate Tax, Income Tax Act, Individual Tax, Latest Tax News, Legislative Updates

30 September 2013

The Income Tax (Deduction for Qualifying Training Expenditure) (Prescribed Classes of Individuals) Rules 2013 has been published following the Budget 2012 announcement to extend enhanced training support to self-employed persons.

The Rules contain the schedule that sets out the classes of individuals prescribed for the purposes of the definition of “employee” in section 14R(6) of the Income Tax Act, and shall have effect for the year of assessment 2012 and subsequent years of assessment. The classes of individuals are:

  1. Salespersons registered under the Estate Agents Act.
  2. Representatives within the meaning of the Financial Advisers Act who satisfy the requirements of section 23B(1)(a) or (b) of that Act, or who are exempted under that Act from those requirements.
  3. Representatives within the meaning of the Securities and Futures Act who satisfy the requirements of section 99B(1)(a), (b), (c) or (d) of that Act, or who are exempted under that Act from those requirements.
  4. Insurance agents of insurers licensed under the Insurance Act who satisfy the requirements of section 35M of that Act.
  5. Hirers of taxis from taxi service operators licensed under the Road Traffic Act.

The Rules were made on 12 September 2013 and first published in the Government Gazette, Electronic Edition, on 18 September 2013.

Source: Inland Revenue Authority of Singapore and Government Gazette

Income Tax (Amendment) Bill [No. 14/2013] introduced in Parliament

On By taxsgIn Corporate Tax, Economic Expansion Incentives (Relief from Income Tax) Act, Income Tax Act, Individual Tax, Latest Tax News, Legislative Updates

23 September 2013

The Income Tax (Amendment) Bill was introduced in Parliament on 16 September 2013. This Bill seeks to implement the tax changes in the 2013 Budget Statement and to make certain other amendments to the Income Tax Act (Cap. 134).

The Bill also makes a consequential amendment to the Economic Expansion Incentives (Relief from Income Tax) Act (Cap. 86).

Further details of the amendments to the various sections of the Income Tax Act and Economic Expansion Incentives (Relief from Income Tax) Act can be found in the “Explanatory Statement” of the Income Tax (Amendment) Bill.

Source: Government Gazette

High Court – BFH v Comptroller of Income Tax – [2013] SGHC 161

On By taxsgIn Case Updates

28 August 2013

Revenue Law – Income Taxation

BFH (“the Appellant”) operates and provides mobile telecommunications systems and services in Singapore. The telecommunications industry is regulated by the Info-communications Development Authority (“IDA”), which licenses the operation of telecommunications systems and services and oversees the use of electromagnetic spectrum rights.

In 2001, the Appellant paid about $100 million (“Relevant Expenditure”) to IDA for a 20-year grant of both a 3G Facilities-Based Operator (FBO) Licence and a right to use the electromagnetic spectrum at a frequency of 2100 Megahertz (“3G Spectrum Rights”). The issue in this appeal is the deductibility of this Relevant Expenditure for income tax purposes. The Comptroller of Income Tax (“the Comptroller”) did not permit the deduction in the ascertainment of the Appellant’s income on the basis that it constituted capital expenditure, which was disallowed under s 15(1)(c) of the Income Tax Act (Cap 134, 2008 Rev Ed) (“the Act”). The Appellant disagreed and appealed to the Income Tax Board of Review (“ITBR”), which dismissed the Appellant’s appeal in its decision on 3 January 2013 (“the ITBR Decision”). The present appeal is against the ITBR Decision.

The ITBR held that the Relevant Expenditure was a capital expense since it procured for the Appellant 20 years of the 3G Spectrum Rights. This enabled the Appellant to install 3G systems and provide 3G services to existing and new customers. In so doing, the Relevant Expenditure opened up a new field of trade and thus enlarged the core structure of the Appellant’s business. Additionally, the Relevant Expenditure was a one-time payment, suggesting that it was capital in nature.

The respective arguments in the present appeal

The Appellant submits that the ITBR Decision did not give due regard to the purpose of the Relevant Expenditure and instead based its decision on the duration and manner of payment. Essentially, the Appellant argues that the Relevant Expenditure was revenue in nature (and thus deductible) because its purpose was to acquire additional spectrum rights to protect its customer base and maintain its ability to continue providing quality service. Besides, the Relevant Expenditure was merely for regulatory permission and conferred no proprietary rights or structural enhancement. That the Relevant Expenditure was paid as a lump sum does not determine whether it is revenue or capital in nature.

In reply, the Comptroller maintains that the Relevant Payment was capital in nature and therefore not deductible because the consequence of the Relevant Expenditure was a substantive enhancement of the Appellant’s core business structure and enabled the launch of a new line of trade in 3G services, which previously could not be provided by the Appellant. The Appellant’s capitalisation of the Relevant Expenditure as a “non-current asset” in its balance sheet also reflected its assessment that there would be future economic benefits flowing from the asset. The cases cited by the Appellant on payments made to preserve a business or avoid a catastrophic event were different from the present situation as the Appellant was not facing any crisis. The fact that the Relevant Expenditure was a one-time non-refundable lump sum payment of $100m with a 20-year duration suggested it was a capital expenditure. This conclusion is supported by the tax treatment of similar payments for 3G licences in other Commonwealth jurisdictions.

Deductibility under the Act

In ascertaining the net taxable income of a person for any period, the gross income during that period is taken as a baseline. Against this are deductions for outgoings and expenses allowed by the Act, subject to the overriding condition that such outgoings or expenses are not the subject of statutory prohibition.

Notwithstanding this, s 15 of the Act cites certain categories of expenses or payments in respect of which deductions are not allowed, the most pertinent of which, as described in s 15(1)(c), is “any capital withdrawn or any sum employed or intended to be employed as capital except as provided in section 14(1)(h)”. Section 14(1)(h) allows for deduction of capital expenditure as prescribed in subsidiary legislation “where the income is derived from the working of a mine or other source of mineral deposits of a wasting nature”.

The net effect of these provisions is that the Appellant may only deduct the Relevant Expenditure if it is revenue in nature, as neither s 14(1)(h) nor the other exceptions in the Act are applicable. The key question therefore, is whether the Relevant Expenditure should be characterised as capital or revenue in nature.

Case law on the capital-revenue distinction

Both parties accept that the applicable law on the capital-revenue distinction for income tax purposes is as stated in the High Court decision of ABD Pte Ltd v Comptroller of Income Tax [2010] 3 SLR 609 (“ABD v CIT”). In that case, Andrew Phang JA reviewed the various tests to aid the court in ascertaining whether or not a specific expenditure is capital or revenue in nature.

The general principle is that the court must look closely at the purpose of the expenditure and ascertain whether or not such expenditure created a new asset, strengthened an existing asset or opened new fields of trading not hitherto available to the taxpayer, in which case such expenditure would be capital in nature. In particular, the court should consider the following guidelines:

(i) The manner of the expenditure: a one-time expenditure, as opposed to recurrent expenditures, would suggest that the expenditure is capital in nature; and

(ii) The consequence of the expenditure: if the expenditure strengthens or adds to the taxpayer’s existing core business structure, it is more likely to be capital in nature. However, where the expenditure is for “assets” which comprise the cost of earning an income, such expenditure is more likely revenue in nature.

Key issue: whether the Relevant Expenditure was capital or revenue in nature

To recap, the Appellant is a mobile telecommunications provider. What the Appellant was acquiring through the Relevant Expenditure was an intangible right for 20 years to use the 3G Spectrum, as well as a licence to develop and operate a 3G telecommunication network. The question is – whether this expenditure created a new asset, strengthened an existing asset, or opened new fields of trading hitherto not available to the Appellant.

The fact that the Relevant Expenditure constituted a lump sum, one-time payment of $100m instead of recurrent annual payments, is indicative, but not determinative of its capital nature.

In order for an expense to be properly characterised as capital in nature, it should create an asset or advantage of a permanent character. The rights conferred upon the Appellant by the Relevant Expenditure, being valid for 20 years, are of a permanent character. The advantage of being able to use the 3G spectrum to develop and operate a 3G telecommunication network strengthened and enhanced the Appellant’s existing telecommunication systems. From a business perspective therefore, the Relevant Expenditure enlarged the Appellant’s current profit-making operations and provided additional avenues for growth.

It is irrelevant that the other two local telcos acquired the same rights as the Appellant such that the Appellant gained no competitive advantage by virtue of the Relevant Expenditure. The focus of the capital-revenue distinction is the effect of the expenditure on the taxpayer in terms of its assets or business, and not the relative effects of similar expenditure on different taxpayers.

Consistency with tax treatment of cellular licence fees in other jurisdictions

The judge also compared and deliberated on the manner in which the United Kingdom, Australia and Malaysia dealt with similar expenditure. The commonality in these jurisdictions (with tax laws similar to Singapore) is that, but for statutory intervention, such expenditure would not have been deductible as revenue expenditure nor would it have qualified for depreciation allowance. Under the existing statutory scheme in Singapore, no depreciation allowance is permitted for the Relevant Expenditure. Neither has there been any amendment to the Act to sanction the Relevant Expenditure as a revenue expense.

Conclusion

In view of the above considerations, the judge decided that the Relevant Expenditure was capital in nature and thus not deductible under s 14(1) of the Act. The appeal was dismissed.

The above judgement was delivered on 22 August 2013.