Chapter 1 - Basic Concept

30% of tax payable (after foreign tax credit Individual /

Given to all companies from YA 2013 to YA 2017 include:
if any), cap at $20,000 per YA
- Registered Biz Trust, company / body
(YA 2013 to YA 2015, Max cap = $30,000)
- NR companies (not applicable to NR subject to final withholding tax)
of person
- Companies receive income taxed at concessionary rate.
CIT Rebate Person
Tax exempt up to $300,000 New Start-Up Exemption
The tax year in which
Basic Year of income tax is calculated &
CI Exemption (%) Exemption ($) Concept charged in current year
Assessment
First $ 100,000 100% 100,000
Next $ 200,000 50% 100,000
$ 300,000 200,000 The period which income is
Qualifying Condition: (Full Exemption) Basis Period earned, on a preceding
1. Applicable for first 3 consecutive YA after incorporation. year basis
2. A SG incorporated company
3. A tax resident in SG for that YA Change in
4. Have less than 20 shareholders Year-End Individual - YA & BP =
Terms of Income
- all shareholders are individuals 1/1/15 - 31/12/15
- at least 1 individual shareholders holding at least 10% of
shares of the company Statutory Income (SI) Sole proprietor, partnership
5. Companies which incorporated after 25 Feb 2013 must NOT - The total income from each & company - Biz financial
be Property developer & investment holding company
source (S10 (1) (a) - (g) (net year
of tax deductible expenses &
Across 2
Partial Exemption capital allowances) for the
basis period of any year of tax years  Prepare 2 separate
assessment. computations - time-
apportion the adjusted
Within profit
Assessable Income (AI) same tax  Old: 30 Sep 2015
Exemption & CIT Rebate (Maximise) - The amt remaining
year New: 31 Dec 2015
after deducting losses &
Full Partial donations from SI.
CI before Exemption 592,159 544,659  Old: 30 Sep 2015
Exemption (Max) 200,000 152,500 Chargeable Income (AI) New: 31 Dec 2016
CI after Exemption 392,159 392,159 - The Ultimate income subject Must not be tax -motivated
 > Or < 12 months
to SG income tax, tax rate  IRAS can change 3 years of
Tax @ 17% 66,667 66,667
applied. BP (last, this & next yr)
CIT Rebate @ 30% (Max) 20,000 20,000
 CI for ind = after deduction
of personal reliefs
 CI for comp = after deduction
of exemptions
 Chapter 1 - Basic Concept
1) Residency Status Qualitative Test
Charge of Income Tax 2) Scope of Tax
Basic A person resides in SG in the
S10. - (1) (a) gain / profit from Only income is taxed Concept Individual SG citizen year preceding the YA except for
any trade, business, (S2 of ITA) temporary absences
PR
profession or vocation Income (Taxable) Capital (Not T) Quantitative Test (183 days)
Companies
1. Fruit Tree (S2 of ITA) Foreigner
S10. - (1) (b) gain / profit from - Interest - Money A person who is physically
any employment - Rental - Property present or who exercises an
Residency status depends on If FAILED
- Dividends - Shares
S10. - (1) (d) dividends, the location where effective Quantitative employment (other than as a
2. Circulating Capital Fixed capital
interest / discounts management & control abides Test director of a company) in SG for
- working capital - capital
 Directors 183 days or more during the
contribution / NCA
S10. - (1) (e) any pension, - Board meetings  where? - Foreigners
3 Common Law year preceding the YA.
charge or annuity  if HQ is Foreign co = NR - Employed
 SG branch = NR
Guidelines from Common Law  100% owned SG subsidiary = 3-year Administrative
S10. - (1) (f) rents, royalties, 1) Receipts of a recurrent nature = revenue Concession
R
premiums & other profits receipts When DTA exits btw 2  Physically present /working in
arising from property 2) Compensation received for the Dual Residency countries, apply tie- SG for 3 consecutive years
destruction of the recipient’s profit-making Status breaker rules to  Granted residence status for
S10. - (1) (g) gains/profits of apparatus = capital receipt. determine a person all 3 YAs
an income nature not falling Eg: Teacher - can’t teach, Singer - can’t sing resident country. Refer
within any of the preceding 3) Money received in lieu of trading receipts OECD Article Pare 2 &3.
paragraph. = revenue receipt
4) Money received for restriction on income OECD Article Para 2 - (Individual)
earning activities of a person = capital (a)Where is the permanent home where personal &
3) Territorial System of Taxation receipts economic relations are closer?
5) Receipts for the sales of assets of (b) Where is the centre of vital interests? - Where are
Income under S10 (1) (a) - (g) is business = capital receipts your asset / money? 2-year Administrative
chargeable to tax if it is (c) Where is his habitual abode? - Where do you usually Concession
 Accrued in Singapore stay?  Entered SG from 1 Jan 2007
Derived from Singapore Accrued In VS Derived From (d) Which nationality/ citizen are you of?  Stay / work in SG for a
Received in the territory of SG - focus on what the taxpayer has done to OECD Article Para 3 - (Company) continuous period of at least
(from outside SG) earn the profits - Location of place of effective management 183 days
- Location where board meetings is held  Qualify as tax resident for
- Location which CEO, ED usually carry on their activities both YA
Singapore Sourced vs. Foreign Sourced
- Location where senior day-to-day mgmt is carried on
- the place where the contract of sale is negotiated and concluded;
- Location of HQ
- the place where title to the goods passes or services are rendered;
- Country laws that govern the legal status of the person
- the place where the establishment to which the income can be attributed is
- Location where the accounting record is kept
located;
- the place where the sale proceeds are collected;
- the place where the cost of operations is incurred/charged; Must be in sequence
- the place where the invoice, if any, is raised.
 Chapter 1 - Basic Concept
Badges of Trade
- factors determine
whether trade exist
- Trading in SG = T in SG
1) Motive
- Intension to trade establish at
time of acquisition.
- What is your intention?
- eg. Buy shares  to earn
dividend / profit?
Other indicators
of Trade
- The nature and volume of item transacted give an indication of whether the item is for trading or
2) Subject Matter of for personal enjoyment
Realisation - Personal enjoyment = capital investment
3) Length of Period of - How long do you own the shares/ property?
Ownership - Short period of ownership = trading
- 6mths (consider long for shares but short for property)
4) Frequency of - How often do you buy/sell shares / property?
Transaction - High (repetition) = trade; Low = non-trading
5) Supplementary Work - Enhancements made to assets to make the item more marketable.
- eg. Get interior design to renovate and sell the property at higher price.
Done
- Intention is to sell and make profit = trade
6) Circumstances - Reasons for selling
Responsible for - Unforeseen circumstances (i.e. sudden emergency for ready money, opportunity calling /
compulsory acquisition) that lead to sale = no intention to TRADE.
Realization - eg: share (new announcement, unfavourable outlook), property (Fengsui no good)
- When surplus fund is used, it is more indicative of Investment intention than he funds are from
7) Mode of Financing borrowing.
- Surplus fund = likelihood you are not trading, as you are willing to take risk
- Borrowing = likelihood you are trading because debt is cheaper than equity
8) Types & Level of - Types of financing (short-term / long term financing)
Gearing - Short-term = trade
- Level of gearing (% of gearing)
9) Taxpayer’s Financial
- The ability to hold investments indicate taxpayers’ intention
Position
10) Contemporaneous - Includes M& A, directors ’resolution, annual reports, emails to show intention.
Documentary Evidence
- Where feasibility study is done = indicate investment intention
11) Feasibility Studies
Done
- The way companies keep their accounts indicate intention.
12) Accounting Entries - eg: Indicate long term but classified as current assets in accounts = not inline
 Chapter 2 - Deduction & Donation

Deduction Tax on Profit  Revenue (Taxable?) Expenditure (Deductible?)

- Test of enduring benefit s recurrence

General Deduction Rule
1) The expenses is revenue
in nature
- Capital expenditure - expenses spent once and for all, with a view to bring into existence an asset or an advantage for the enduring
benefit of a trade
- eg: Installation cost to a non-current asset; entrance / membership fees to club; registration of Trademarks; Legal fee to new
tenancy agreement
- Income (revenue) expenditure - expenses that is going to recur every year
- eg: repairs and maintenance for non-current asset; subscription fees to club, costs to protect trademarks, legal fees for renewal of
tenancy agreement

 Deduction allowed - S14 (1) of ITA

2) The expenses satisfy S14 - Wholly and exclusively (100%)
deduction rule - Incurred during that period (incurred - includes sums actually paid and accrued liabilities)
- For the production / generation of income

3) The expenses is not  Deduction not allowed - S15 (1) of ITA

prohibited by S15 - Not wholly and exclusively (100%) incurred for production of income
- Rules - eg: Private car expenses for business purposes Ready to sell products / provide services

Commencement Day - The day when the business opens its doors to receive its first customer and for tax purposes, revenue expenditure incurred (subject
to the provision in S14 & S15) is deductible from that day of commencement.
Expenses incurred prior commencing  Supposed Not D

(2) Concession for Enterprise Development

Wef YA 2004, a business which conducts business

activities is treated as having commenced business (i.e.
deemed commencement day) on the first day of the
accounting year in which it earns its first dollar of
business receipt. As a result, all revenue expenditure
(subject to the provision of S14 & S15) incurred in that
financial year would be deductible.

(3) Enhancement Wef YA 2012

All revenue expenditure (subject to S14 & S15) incurred in the
accounting year immediately preceding the commencement date are
granted a deduction.

(4) If the business able to prove that it has commenced business

before accounting year in which the first dollar is earned, it would be
able to deduct the revenue expenditure (not prohibited by S15) from
the actual date of commencement.
 Chapter 2 - Deduction & Donation

Common Expenses

Type DEDUCTIBLE NON-DEDUCTIBLE

1 Interest S14(1)(a)(i)  Satisfy 3 general deduction guidelines (wholly and exclusively, incurred during  Interest expenses relating to non-
Expenses the period, foe generation of income) income producing assets
 Incurred on capital employed in acquiring income
 Re-financing Interest on re-financed loan incurred to  If taxpayer can prove that the re-financing is for genuine commercial reasons.
repay another loan, it is not D.  eg.: to achieve overall reduction in cost of finance, re-financing is necessary due
to taxpayers ‘financial position, the previous loan had expired.
2 Borrowing Cost S14(1)(a)(ii) Borrowing cost - anything other than  If it is incurred as a substitute for interest expenses or to reduce interest costs.
interest. (Wef YA 2008)
3 Repairs & S14(1)(c) Repair cost - the restoration of an asset  Repair cost used in generation of income  Repair cost incurred upon
Renewal back to its original working state. purchase of second-hand asset
before it is used
Renewal - the replacement of whole  Asset with a short life span and is used for the purpose of acquiring income (eg.:
asset which is generally capital in nature Hotel - pillow, towel)
- capital expenditure - Not D, BUT D if  Assets used in the generation of S10(1)(f) rental income
4 Bad and S14(1)(d)  Trade related bad debts (trade debts written off)  General provision of bad debts
Doubtful Debts  Specific doubtful debts (eg.: specific provisions or allowances)
 FRS 39, impairment gains or losses on trade debts under FV model  charged to
P/L, it is D & T  if revenue in nature & trade related
5 Employer’s S14(1)(e), Employer CPF contribution  Employer’ statutory CPF contribution @ 17%  Voluntary CPF contribution
contribution (f), (i) - From 1 Jan 2015 for individual aged < 50 yrs, earning < $1,500 per mth
Medisave Contribution - Voluntary  Medisave Contribution to employee  Contribution for employee who
(always voluntary) - Max D = $1,500 per year per employee holds a professional visits pass or a
 Medisave Contribution to self-employed person (SEP) work pass
- eg: insurance agent, taxi driver)
- from 1 Jan 2011, Max D = $1,500 per SEP per calendar year
- within the CPF Annual Limit of SEP & Medisave Contribution Ceiling
Overseas Contribution - Contribution to  Contributions which are obligatory by reason of
overseas pension fund (i.e. pension or - any contract of employment OR
provident fund constituted outside SG) - any provision in the rules or constitution of the fund or society
6 Payments to S14(2)  Payments - eg. compensation for  Deductible to the extent which is reasonable by the Comptroller’s opinion having
Related Parties injuries / death, salaries wages paid to regard to the services performed by that employee
 Related parties - husband, wife, child
of employer, partner, director etc
 Chapter 2 - Deduction & Donation

Common Expenses

Type DEDUCTIBLE NON-DEDUCTIBLE

7 Motor Vehicles S14(3) / (4) Expenses - revenue in nature and incurred for business purposes  Private cars
& S15  Commercial vehicles (i.e. vans / lorries with G-plate / Y-plate)  Hired cars (for use) (rented cars)
(1)(K)  Foreign car (Wef YA 2014)
 Q-plated car registered before 1 April 1998
 Foreign car (up to YA 2013)
(Deduction is restricted to the proportion of $35,000 over the cost of the car)
8 Medical S14(5)-(8)  Deduction allowed up to 1% of the total remuneration
Expenses  Deduction allowed up to 2% of the total remuneration if employer implemented
any of the following plans and meets the respective qualifying conditions
(a) Portable Medical Benefits Schemes (PMBS) -WEF YA2004
(b) Transferable Medical Insurance Scheme (TMIS) - WEF YA 2004
(c ) Provision of Medical Shield Plans - WEF YA 2008
(d) Ad-hoc contributions to the Medisave accounts - WEF YA 2008
9 Insurance  Deductible if premium incurred is for business purposes Premium not D if the beneficiary of
Premium  eg.: Fire insurance (business purposes), Workman Compensation, policies where the policies is the company unless
beneficiary is the employees or his family members the contribution for deduction of
premium on a keyman insurance
policy is satisfied.
10 Insurance S15(1)(e)  D if actual loss exceeds the insurance compensation (i.e. loss is not fully Amount recoverable form insurance
Compensation recoverable under insurance) company is prohibited from a
 Amount irrecoverable  is deductible provided it is of revenue nature deductible
Chapter 2 - Deduction & Donation
Productivity and Innovation Credit (PIC)
Qualifying Activities
Maximum cap
Qualifying SME for PIC+
Scheme
- introduce to enhance existing tax measures that encourage business to invest in productivity and innovation.
- Will lapse in YA 2018
Qualifying activities form YA 2011 to YA 2018
(1) Acquisition or leasing of prescribed automation equipment (“qualifying equipment”) Asset  claim “allowance”
(2) Acquisition of intellectual property rights (ÏPR”) (Unabsorbed)
(3) Registration for certain IPRs
(4) Research and development ( “R&D”) Expenses  claim “deduction”
(5) Training (losses)
(6) Design
Qualifying Expenditure:-
- Net of government grants and / or subsidies
- Subject to a maximum cap or combined cap per activity under the PIC Scheme & PIC+ Scheme respectively
PIC Scheme PIC+ Scheme
Max cap per YA $400,000 per YA $600,000 per YA
Combined Cap
YA 2011 to YA 2012 $800,000 N.A.
YA 2013 to YA 2015 $1,200,000 $1,400,000
YA 2016 to YA 2018 $1,200,000 $1,800,000
- Combined cap is applicable only if the taxpayer carries on a trade or business in the basis period for all qualifying YAs
for which a combined cap applies.
- eg: if a taxpayer commences in YA 2017, the PIC Scheme combined cap of $1,200,000 is not applicable and the cap for
YA 2017 is $800,000)
PIC+ Scheme is applicable to ONLY qualifying SMEs in the relevant years
Qualifying SME = sole-proprietorships, partnerships and companies
(1) Which are carrying on a trade or business and whose
(2) Revenue is not more than $100 million
 Refers to income that arises from ordinary activities of a business and is the business main source of income,
excluding separate source income such as interest.
 “Revenue” is determined based on the revenue derived during the relevant basis period for the YA which need
not be a 12-month period.
OR
Employment size is not more than 200 employees
 Employee includes a director of a company, part-time employee and an individual deployed to work for an entity
under a centralised hiring arrangement.
 Employment size is determined as at last day of the relevant basis period.
Note: Criterion 2 will be applied at the group level if the business is part of a group.
Chapter 2 - Deduction & Donation

Productivity and Innovation Credit (PIC) Deduction expenses, Allowance  asset

Benefits of PIC Scheme and PIC+ Scheme
Benefit1 - Enhanced deduction / allowances Benefit 2 - Cash Conversion
Benefit & Max In addition to the usual deduction or allowance claim An eligible business can make an irrevocable election to convert qualifying expenditure into cash (i.e.
cap (base of 100%) for the respective qualifying activity, cash payout)
enhanced deduction or allowances of 300% of qualifying
expenditure (up to the max cap) will be granted. Max cap for cash conversion
- Minimum expenditure of $400 for each conversion subject to maximum cap per YA for ALL 6 PIC
Qualifying expenditure 100% base deduction qualifying activities.
(up to max cap) 300% enhanced deduction
In excess of max cap 100% base deduction Max Cap Conversion Rate
YA 2011 to YA 2012 Combined Cap $200,000 30% (annual election)
YA 2013 to YA 2015 $100,000 per YA 60% (quarterly election)
(no combined cap)
YA 2016 to YA 2018 $100,000 per YA 60% (quarterly election)
(no combined cap)
Unutilised Same treatment Once the qualifying expenditure up to the max cap for PIC is converted into cash, the same amount
deduction / Unutilised enhanced deduction = unutilised trade loss shall no longer be available for enhanced deduction / allowance.
allowance Unutilised enhanced allowance = unutilised allowances
Tax Treatment - Cash payout received is NOT taxable
Eligible - Sole-proprietorships, partnerships, companies (including registered business trusts) that have:
Business a) Incurred qualifying expenditure and are entitled to PIC during the basis period for the qualifying YA
b) Active business operation in Singapore
c) At least 3 local employees (SG citizen or SPR with CPF contributions) excluding sole-proprietors,
partners under contract for service and shareholders who are directors of the company.
Note : 3 local employees condition:
YA 2013 to YA 2015 CPF contribution on the last month of the quarter or combined
consecutive quarters to which the cash payout options relates.
YA 2016 to YA 2018 CPR contributions on all three months in the quarter or last three
months of the combined consecutive quarters to which the cash
payout options relates.
 Chapter 2 - Deduction & Donation
SPECIAL DEDUCTION - Expenditure that does not meet the general deduction rules but as an incentive, are allowed to a deduction.
S14A
Costs for Protecting Intellectual Property
1) Patent
 Registration cost incurred by any person
carrying on a trade or business  D
 Period : From 1 Jun 2003 to last day of BP
for YA 2020
 Condition: The legal and economic
ownership of the patent belongs to the
business entity in SG.
2) PIC - S14A
 Deduction of costs incurred for qualifying
IP registration costs are allowed
 Eg: trademarks designs and plant varieties
(Intellectual Property Rights)
 Step to claim PIC benefits for costs
incurred to Register Qualifying IPRs
 1) From the expenditure incurred for
registering qualifying IPRs, identity the
qualifying expenditure for claiming PIC
benefits up to the max cap.
 2) Claim PIC Benefit - enhanced deduction
/ cash conversion
S14H S14P
Expenditure on Building Deduction for treasury Shares transferred
Modifications for Benefit of under Employee Equity-Based
Disabled Employees Remuneration Scheme
 S14H(1) of ITA - Special  Company incurred expenditure to
deduction granted for acquire treasury shares and transferred
expenditure incurred on to employees under a stock option /
building modification share award scheme.
(capital in nature) for  S14P(1) & (7) - deduction is granted on
disabled employees. the expenditure incurred in the YA
 S14H(2) of ITA - No when the treasury shares are
capital / industrial transferred. (i.e. when the employees
building allowance is acquires the legal and beneficial
allowed if deduction is interest)
granted under S14H
 S14H(3) of ITA - Max Share Award (FOC) - grant date / exercise
Deduction = $100,000 date to employee,
(cumulative) per taxpayer  Amount = cost of acquiring the treasury
shares
Share Option - exercise date
 S14P(2) - Amount = cost of acquiring
the treasury shares (amt received from
employee)
 S14P(5)-(6) - where amt received > Cost
 excess will be credited to a “S14P
A/C “to set off future costs under this
Section.
S14Q
Deduction for Renovation or Refurbishment (R&R) Expenditure
 R&R stared on 16 Feb 2008 => First YA: 2009
 No deduction is granted in capital allowances or repairs &
renewal if deduction is granted under S14Q
Qualifying Expenditure (QE)
 R&R expenditure must NOT affect the structure of the business
premises, prior approval from Commissioner of Building Control
is required
 Excluded QE:-
- designer fees/professional fee
- antique
- type of fine art including painting, drawing, print, calligraphy,
mosaic, sculpture, pottery or art installation
 QE incurred prior to the commencement of business  deemed
to be incurred on the first day the business commenced.
Max QE Cap
 Max Cap = $150,000 for every relevant 3-year period (up to YA
2012).
 Wef YA2013, Max Cap = $300,000 for every 3-year period.
S14Q Deduction claim
 claimed over 3 consecutive year
 no deferment allowed
 must be claimed in the year incurred (1st year of claim must be
the year QE is incurred)
 QE incurred in YA 2010 & 2011 - can be claimed over 1 year
Unabsorbed S14Q Deduction
 S14Q deduction claim against Adj profit
 Wef YA 2013, unabsorbed deduction can be transferred under
group relief, carried back or carried forward
 Up to YA 2012, Unabsorbed deduction can only be c/b & c/f
 Chapter 2 - Deduction & Donation

Special Deduction Further deduction Further deduction Further deduction Capital Allowance Capital Allowance
PIC Act. Acquisition of IPR
S14A - Costs for S14R - Deduction for Qualifying Training S14S - Deduction For S14DA - Enhanced deduction for qualifying IT & Automation Equipment / Leased Assets Intellectual Property Rights (IPR)
Protecting Intellectual Expenditure (pg 79} Qualifying Design Expenditure expenditure on research and development
Property (page 65) (pg 83}
Qualifying 1. Official fee made to Training expenditure incurred for To enjoy enhanced deduction  Existing deduction prior PIC introduce IT & Automation Equipment What is IPRs?
Expenditure the Registry of (a) employee OR on qualifying design  S14D - Expenditure on R&D 1. Equipment in the “ Prescribe List of PIC IT &  S19B(11) of ITA, IPR means the right
Patent, Registry of (b) certain classes of individuals (WEF YA2012) expenditure incurred to  S14E - Further deduction for expenditure on Automation Equipment” to do or authorise the doing of
Trademarks or - real estate agent, representatives of financial conduct approved design R&D project  From YA2014- YA 2018 : the purchase cost, anything
Registry of Plant advisers / capital market service license holders, projects  Application must  Budget 2014 : S14E will extend till 31 Mar 2020 (5 development cost icurred for website is qualify  Eg.: patent, copyright, trademark,
Varieties in SG or insurance agents, hirers of taxi be made to Design Singapore year) for PIC registered design, geopgraphical
elsewhere. (c) Training of individual deployed under a Council (“DSg”)  Budget 2014 : S14DA(1) will extend till YA2025 (10  Eg: one-time registration of domain name indication, layout design of
Eg. Application, centralised hiring arrangement from YA14. years) 2. Equipment approved for PIC on a case-by-case integrated circuit, trade secret, grant
registration for In-house Qualified Designer  PIC tag on S14DA - for R&D activities carried on basis of protection of a plant variety
trademark, design; Expenditure allowed a D under S14 {S14R(2)} - design activities done by a both in SG and outside SG.
search & examination In-house Training - Before YA 2012 “qualified designer” who is an Leased Assets  S19B(11)
report on the Qualifying programmes: individual with a design- Location of R&D Activities  Enhance deduction is granted on leasing  The capital expenditure does
application for a 1. Accredited Workforce Skills Qualification related tertiary academic R&D activities conducted in Singapore expenditure incurred on qualifying equipment notinclude legal fees, registration
patent; grant of a (WSQ) training courses by a WSQ In-house qualification of at least a  R&D expenditure is related to existing trade / and fees, stamp duty ad other costs
patent. training provider; diploma that is approved by business  Lease payments for software, regardless whether related to the acquisition of any
2. Structured Institute of Technical Education such person as the Minister  WEF YA2009, deduction can still be claimed for the software is installed on qualifying equipment. intellectual property rights.
2. Professional fees - (ITE) course by an Approved Training Centre may appoint; R&D expenditure incurred not related to their  However, enhance deduction only for lessee.  S19B(3)
incurred in relation to (ATC) Expenditure includes: - existing trade or business, provided that the  Software licensing - enhance D  payments  If capital expenditure
the registration of 3. On-the-job training by a Certified On-the-job -Remuneration cost of expenditure is incurred for. where lessee or end-user receive the rights to use
qualifying IPR, Training Centre (COJTC) qualified design professional the software
including fees paid to Qualifying Expenditure includes:- excluding director fees R&D activities conducted in SG
agent. - any salary and other remuneration paid to in-  Either directly by a taxpayer or by an R&D Lessee
Eg: applying for house trainers for the delivery of training Contracts with Approved organisation in SG  Operating & Finance Lease
patent, trademark, courses (based on the hours spent delivering Design Service Provider  Can claim 300% enhance deduction on lease
design; preparation the courses) - any person who provides R&D activities conducted outside Singapore payment (rental expense)
of specification/docs; External Training design consultancy services for  The expenditure must be related to trade or  Finance Lease treated as Sale Agreement
giving advice on the Qualifying training expenditure paid to an any trade or business, and business
validity of patent. external training service provider (directly / who is approved by the
reimbursement) Minister or such person as he Type of R&D QE
may appoint  In-house R&D - R&D activities undertaken directly
Qualifying Expenditure includes:- by the person
 Course / training fee Expenditure includes:-
 External R&D Organization:-
 Registration or enrolment fee Fees that relate to the
Any person who provides R&D activities on
 Examination fee remuneration cost of qualified
another person’s behalf
 Tuition fee design professional engaged
1) in Singapore
 Aptitude test fees by the external approved
2) outside SG related to that trade / business
 Hotel accommodation, travelling and design service provider.
 There must be an undertakings by the
transportation expenditure incurred for the - for PIC, the remuneration
person that any benefit which may arise
external trainer. cost is deemed to be 60% of
from the conduct of the R&D shall accrue to
QE for both type of training the total fees payable to the
the person;
 Rental of external training facilities approved design service
 The claim is made by the person in such
 Expenditure for meals and refreshments provider.
manner and subject to such conditions as
provided during the courses. the Comptroller may require.
 Expenditure for training materials and
stationery used for such courses. Section 14D
 Provide tax deduction on R&D expenses
(excluding capital expenditure) incurred by a
 Chapter 2 - Deduction & Donation

S14A - Costs for S14R - Deduction for Qualifying Training S14S - Deduction For S14DA - Enhanced deduction for qualifying IT & Automation Equipment Leased Assets
Protecting Intellectual Expenditure (pg 79} Qualifying Design expenditure on research and development
Property (page 65) Expenditure (pg 83}
person carrying on a trade or business in
manufacturing or provision of service.
Section 14DA
 In-house R&D - expenditure includes:-
1. Staff cost - any salary, wages and other benefits
for researches (excluding director fee) including
expenses incurred for training or certifying the
employee to carry out the R&D
2. Consumables - any materials or items used in the
R&D which, upon such use, are consumed or
transformed in such a manner that they are no
longer useable in their original form, but does not
include utilities.
3. Any other item of expenditure on qualifying R&D
activities which the Minister for Finance may
prescribe by regulations

 External R&D Organization - expenditure

includes:-
Higher of the
- Actual amt incurred by the R&D org relating to
Staff cost, consumables and any other
expenditure prescribe by Minister of Finance
(item 1-3) OR

- 60% of the payment (fee) to R&D org which is

deemed as the qualifying R&D expenditure.

Cash  Eligible business can  Eligible business can convert QE into cash  Eligible business can convert  Eligible business can convert QE into cash payout IT & Automation Equipment
Conversion convert QE into cash payout QE into cash payout  Min $400 per conversion  Eligible business can convert QE into cash
payout  Min $400 per conversion  Min $400 per conversion  Max $100,000 per YA for all activities payout
 Min $400 per  Max $100,000 per YA for all activities  Max $100,000 per YA for all  Convert to cash @ 60%  Min $400 per conversion
conversion  Convert to cash @ 60% activities  Cash payout - Not taxable  Max $100,000 per YA for all activities
 Max $100,000 per YA  Cash payout - Not taxable  Convert to cash @ 60%  Convert to cash @ 60%
for all activities  Cash payout - Not taxable Cash conversion is on a Per Dollar Basis  Cash payout - Not taxable
 Convert to cash @ Cash conversion is on a Per Dollar Basis  Once an amt of qualifying expenditure is converted
60%  Once an amt of qualifying expenditure is Cash conversion is on a Per into cash, the same amount shall no longer be Cash conversion is on a Per Equipment Basis
 Cash payout - Not converted into cash, the same amount shall Dollar Basis available for tax deduction  The full amount of capital expenditure incurred
taxable no longer be available for tax deduction  Once an amt of qualifying  However, where the expenditure incurred for any for a qualifying equipment must be converted
 However, where the expenditure incurred for expenditure is converted R&D exceed the max cap for cash conversion, into cash (i.e. No partial conversion of ONE
Cash conversion is on any training exceed the max cap for cash into cash, the same amount enhanced deductions can still be claimed on the qualifying equipment into cash)
a Per Application conversion, enhanced deductions can still be shall no longer be available balance of the qualifying costs for PIC.  If QE > max. cap ($100K), the balance is forfeited
Basis claimed on the balance of the qualifying costs for tax deduction and not eligible for any CA cliam.
 The total registration for PIC.  However, where the  HP
costs incurred in a expenditure incurred for any  3-local employees requirement
single application must Q : Pg82 training exceed the max cap  Cap on conversion is based on the period in
be convert to cash for cash conversion, which HP agreement is signed
 If total registration enhanced deductions can  Cash payout rate applied based on YA in
cost > max cap of still be claimed on the which HP is signed
$100K, the balance is balance of the qualifying  Period of Disbursement based on the period
forfeited. costs for PIC. which capital repayment is made , up to max
conversion cap
 Chapter 2 - Deduction & Donation

Leased Assets
Lessee
 Operating & Finance Lease
 Cash conversion is on Per Dollar basis
 Once an amt of qualifying expenditure is
converted into cash, the same amount shall no
longer be available for tax deduction
 However, where the expenditure incurred for
leasing of equipment exceed the max cap for
cash conversion, enhanced deductions can still
be claimed on the balance of the qualifying
costs for PIC.

 Finance Lease Treated as Sale Agreement

 Cash conversion is on Per Equipment basis as if
under hire purchase terms.

Enhanced  Up to Max Cap (100%  Up to Max Cap (100% base + 300% enhanced)  Up to Max Cap (100% base + IT & Automation Equipment
deductions base + 300%  In excess of max cap (100% base) 300% enhanced) QE (max cap) Local R&D  Up to Max Cap (100% base + 300% enhanced)
Oversea R&D
enhanced)  In excess of max cap (100% - S14D 100% 100%  In excess of max cap (100% base)
 In excess of max cap base) -S14DA 50% -  Untilised enhanced allowances has the same
(100% base)  Taxpayers must make an -S14DA (PIC) 250% 300% treatment as unutilized capital allowance
 The outcome of the application to “Dsg” before 400% 400%  HP : enchance allowance claim= proportion of
application in enhanced deduction can be In excess of max cap capital repayment during the YA over full
registering the claimed. - S14D 100% 100% qualifying cost
qualifying IPRs will not -S14DA 50% -
affect the grant of the -S14E (N1) Max cap of - Leased Assets
enhanced deductions. 200% in total Lessee
 Operating & Finance Lease
 Can claim 300% enhance deduction on lease
payment (rental expense)
 Finance Lease treated as Sale Agreement
 Can claim 300% enhance deduction on lease
asset (capital portion)

Lessor
 Not entitled to claim enhanced allowance on
qualifying equipment for trading
 However, if qualifying equipment is purchase for
own use in its trade / biz, can claim CA 
 One-year ownership condition is met
 QE must not lease out within 1 year from the
date of purchase.

Max cap PIC Scheme PIC+ Scheme

Max cap /YA - $400,000 / YA Max cap /YA - $600,000 / YA
Combined cap: Combined cap:
YA13 - YA15 -$1,200,000 YA13 - YA15 -$1,400,000
YA16 - YA18 - $1,200,000 YA16 - Ya18 - $1,800,000
 Chapter 2 - Deduction & Donation

Minimum  1 complete year  1 complete year

Ownership If not met:- If not met:-
Period  Base D - Deemed  Base D - Deemed income = Lower of
income = Lower of sale price of IPR or deduction granted
sale price of IPR or previously
Q: pg 69 deduction granted  Enhance D - deduction granted
previously previously = deemed income
 Enhance D -  Cash payout - claw back of cash
deduction granted payout.
previously = deemed
income
 Cash payout - claw
back of cash payout.

Waiver of Claw back Provisions (refer B1,Page 126)

1. Cost (Acquired) – Cost (Disposed) ≥PIC max cap
2. Waived by IRAS on case by case basis – if IRAS is satisfied that there are commercial reasons led to the disposal
Chapter 2 - Deduction & Donation
Chapter 2 - Deduction & Donation
Chapter 2 - Deduction & Donation
Chapter 2 - Deduction & Donation
Chapter 2 - Deduction & Donation
Chapter 2 - Deduction & Donation
 Chapter 2 - Deduction & Donation

 Expenditure that is deductible under general deduction rules AND granted further deduction
 Expenses qualify for further deduction are:
 to be credited to a “Further Deduction Account” and
Further Deduction:  to be set-off against chargeable income (i.e. exempt income)
 Any unutilised balance (excess of charg. income)  can be c/f for utilisation against subsequent years’ chargeable income with no conditions attached.
Merged Scheme : S14B - Further deduction for S14B(2) S14B(4) S14K - Further or Double Deduction For
S14B & S14K Expenses Relating to Overseas Investment Development
Approved Trade Fairs, Expenditure
Exhibition or Trade Mission
or to Maintenance of
Overseas Trade Office
 To assist biz to  Further D granted to Expenses Allowed Expenses Disallowed  Approved company R in SG and carry Expenses Disallowed Under S14K(3)
internationalise & approved company R in SG /  According to S14B(3) of SITA, the a) Any expenses which are not on business in SG is granted: a) Travelling, accommodation and
expand overseas having a PE In SG for the max amt allowed under S14B may allowed as deduction under a) Further D  if expenditure allowed subsistence expense or allowances
 Expenses on any primary purpose of: be specified by the Minister / S14. under S14 for more than 2 employees taking
study carried out to a) Promoting the trading of person appointed. b) Travelling, accommodation & b) Double D  if expenditure is not part in an approved investment
identify investment goods or the provision of a) Expenses in establishing, subsistence expenses or allowed under S14 project overseas;
overseas. services OR maintaining, participating in an allowances for more than the Expenses Allowed under S14K(1) b) Any expenses for the maintenance
b) The provision of services in approved trade fair, exhibition, approved no. of employees  According to S14K(2) of SITA, , the of an approved overseas project
 Further D up to connection with the use of mission, trade promotion activity; taking part in the approved max amt allowed under S14B may be development office-
$100,000 per YA any right under a master b) Expenses in maintaining approved trade fair, exhibition, mission, specified by the Minister / person i. Which are incurred for the
 Period : Incurred franchise or master overseas trade office. promotion activity, approve appointed. establishment of that office
btw 1 Apr 2012 & intellectual property where c) Market development expenditure marketing project. a) Any investment development ii. Remuneration, travelling,
31 Mar 2016 (both the company or firm is the for carrying out of following c) Any expenses relating to an expenditure to carry out an accommodation and subsistence
dates inclusive) holder of the franchise or approved marketing project: approved overseas trade approved investment project expenses or allowances for more
 The investment licence. i. Approved expenses directly office. overseas; than 3 employees of that office;
project need not be attributable to market research /  Investment development iii. Which are specifically excluded
an approved obtaining market information, expenditure”- means expenses as a condition of approval for
project. feasibility study. directly attributable to the carrying that office under his section;
 Exp.cap is based on ii. Advertisements placed in out of - iv. Which are incurred after the end
the amts claimable approved media. - any study to identify investment of the first 6 mths of the
under S14B & S14K iii. Approved promotion campaigns overseas; and establishment which has, during
expenses. - any feasibility or due diligence the first 6 mths of the
iv. Approved expenses incurred in study on any approved investment establishment of that office,
design of packaging, certification overseas income chargeable to tax in the
of goods & services carried out b) Any expense for the maintenance of country in which that office is
by an approved person. an approved overseas project establish.
development office.
 Overseas project development
office” - any office establish for the
purpose of identifying, initiating &
developing any approved
investment overseas.
 Chapter 3 - Capital Allowances

Toll Manufacturing
Capital Allowances rd
 Outsouced production to 3 party
 Deductions that a taxpayer can claim on the wear and tear of Plant and Machinery (non-current asset) bought and use in the business.  Material, machine all belong to me
 CA is given in place of depreciation and other capital expenditure which are not deductible for income tax purposes.  I claim CA
 Tax payer incurred capital expenditure on P&M for use in his trade / bsuiness.
Timing of “Incurred” Who can claim CA?
Machinery = anything
Before commencement  A person who carries on a trade / business on expenditure incurred on the provision of “plant and
with moving parts
machinery” for use in the trade or business
(eg: projector, TV, motor
Deemed as incurred on  A person incurs expenditure on plant and machinery which is used by a subcontractor (i.e. Toll
commencement day. vehicle)
manufacturer) in an outstanding arrangement provided the P&M is used for the purpose of that
(S19(1B) person’s business so as to enable that person to carry on its business and produce income.
 No CA claim
Plant = apparatus which a person carries on a trade, business or profession as  Asset specifically prohibited under the Income Tax Act (eg.: “S” plate private passenger car)
opposed to the premises from which the trade, business or profession is carried on.  Expenditure incurred on equipment (eg. Computers) bought solely for donation purposes.
3 Tests:-
1. Stock-in-trade test (Intention to resell = inventories) (for use = Plant) How much is the Qualifying Cost? (Cost Price)
 An item which forms parts of the stock-in-trade, I,e, purchased for - Puchase price + any other cost incurred to bring the asset into a workable condition
resale, cannot be considered to be plant. Qualifying Expenditure for CA claim
2. Business use test = Plant (CA) 1. Purchase price
 Determine whether the asset functions as an apparatus used by the 2. Delivery charges (eg: freight charges & import charges)
taxpayer in carrying on the activities of the business. 3. Cost of erection or installation of the plant and machinery (eg.: professional fees)
 To consider the nature of taxpayer’s business and purpose or function of 4. Legal fees relating to the acquisition of asset
5. Exchange loss arising from the purchase of the asset
the item serve in the taxpayer’s business.
3. Business premises test Not plant (no CA) Specific Rules for Motor Vehicle S19(3)-(5)
 An item used for the purposes of carrying on the business activities of Type of Vehicle Tax Treatment
the taxpayer does not qualify as plant if the business uses it as the Commercial Vehicle QC = Item 1 to 5 as above
premises (or part of the premises) or place where the business is  Vans / lorries
conducted.  G-plate or Y-plate
Private Cars No CA claim
 Eg: bought a yatch and convert into a restaurant, can claim CA?  Is it
 Under “ Passenger (Private)” class
for business use or business premises? Ans: Biz premises  E-plate or S-plate (SB,SC,SD,SF,SG,SJ,SK)
Company Cars 1. QC = $35,000
 Cars registered in the name of companies which 2. No CA claim
No longer use P&M are business service passenger vehicles (BSVPVs)
QC 1. Registered before 1 April 1998 (Q-plate)
Claim CA (Cash vs HP) <CA> 2. Registered on or after 1 April 1998 ** FZ-plate = private hired car  use for my business
TWDV BA - Claim
All new company cars using COEs issued from 1 = Deductible
Proceeds BC - Taxable, BC restricted April 1998 will pay the same amount of vehicle
BA / BC to CA claimed taxes as provate cars and will bear S-plate
registration numbers.
 Chapter 3 - Capital Allowances

Methods of Capital Allowances Claim

1. S19 Claim (IA & AA)
2. S19A(1) - 3 years claim
3. S19A(1B) - 2 years claim (for YA2010 & 2011 only) S19A refers to accelerated CA
4. S19A(2)-(10) - 1 year claim claims (Note 2-5)
5. S19A(10A) - 1 year claim (P&M ≤ $5,000, cap at $35,000 per YA)

Plant & Machinery Hire Purchase (CA claim = capital repayment)

S19(1) S19(1) Initial Allowance (IA)  20% of capital repayments in each BP
 20% of QC, one-time allowance
 No deferment allowed, must be claim in the first year
QE incurred, the YA which QE incurred
 If IA not claimed, AA will be computed based on full
cost, 100% cost over the prescribed working life
S19(2) S19(2) Annual Allowance (AA)  (Total QC of asset – Total IA claimable) / No. of years
 80% of QC / No. of prescribed working life of useful life
 Can defer  Simplfied = (80% x QC ) / No. of years
 Prescribe working life - 6th Schedule of ITA (STW pg
178 - 179)
 Machine - 6,8,10 years
S19A(1) S19A(1) - 3 Years Claim  Capital repayments incurred / 3 years
 QC / 3 years
 Can defer
 For all P&M
S19A(1B) S19A(1B) - 2 Years Claim  1st year - 75% X Capital repayment
 Only for QC incurred in YA2010 & YA2011  2nd year - 25% X Capital repayment
 1st year - 75% X QC  For HP agreement entered into in YA2010 & YA2011
 2nd year - 25% X QC (regardless whether the installment paid after the
 Can defer, not need to be consecutive YAs)

S19A(2)-(10) S19A(2)-(10) - 1 Year Claim  Capital repayments

(refer B1-  S19A(2) - computers / automated equipment
pg110 - 111)  S19A(3) - (9) - specialised equipment eg. Robots,
equipment to ctrl pollution
 S19A(10) - website
S19A(10A) S19A(10A) - 1 Year Claim (P$M ≤ $5,000)  Capital repayments
 P&M ≤ $5K
 Max = $30K
 Excess amount can be claimed under S19/S19A in the
next YA
Chapter 3 - Capital Allowances

P6 Book 1 – Page 110 - 111

Chapter 3 - Capital Allowances

Example for S19A (10A) – 1 year claim (P&M < $5,000)

P6 Book 1 Page 112

Chapter 3 - Capital Allowances
Example for Hire Purchase (P6 Book 1 Page 114)
Chapter 3 - Capital Allowances

Balancing Adjustments
Plant & Machinery Motor Vehicle
 S20 of ITA, BA must be made when  As per S19(3)-(5),QC restricted to $35,000, the proceeds is restricted to the
 Sale of P&M proportion of $35,000 over the cost of motor venichle:-
 P&M permanent;y ceases to be used due to:-
o discontinance of trade, profession or business
o discontinuance of use of P&M but trade still continue
 Balancing adjustment = difference btw tax written down value (TWDV) & proceeds
 Balancing Allowance (BA) = TWDV > Proceeds
 Balancing Charge (BC) = TWDV < Proceeds, BUT BC restricted to CA claimed
[S20(4) of ITA]
 Chapter 3 - Capital Allowances

Leased Assets  an arrangement where the lessor leased the asset to the lessee.

1) Operating Lease
 Refers to any lease other than a finance lease.
 Eg: Pure rental of equipment

Tax Treatment
 Lessor
 tax on leased income (rental income)
 can claim capital allowance on leased asset against lease income followed by other income
 Lessee
 Can claim lease payment (rental expense) deduction
2) Finance Lease
 A lease where the obsolescence, risks & reward incidental to ownership of the equipment is
substantially transferred from lessor to the lessee.
 Not treated as a sale agreement
 Lessor is effectively renting the asset to lessee.

Tax Treatment
 Lessor
 tax on leased income (rental income)
 can claim capital allowance on leased asset against lease income only
 Lessee
 Can claim lease payment (rental expense) deduction
3) Finance Lease Treated as Sale Agreement
 Leasee is treated as having purchase the asset on hire purchase
 A finance lease is treated as a sale agreement for tax purpose if:

Tax Treatment
 Lessor
 Tax on lease interest income
 No capital allowance claim
 Lessee
 Can claim lease interest as deduction
 Can claim capital allowance on leased asset if purchased under hire purchase terms.
Chapter 3 - Capital Allowances

Section 24 - Sale of P&M between Related Parties When is S24 applicable?

 As per S24(1) of ITA, S24 will apply where a sale of P&M had taken place between
related parties. Seller and buyer can consider “related” if
 The buyer has control over the seller
 The seller has control over the buyer
 Some other person control BOTH the buyer and the seller

Effect of S24
 The buyer is deemed to have stepped into the shoes of the seller
and continues to claim CA as if no sale had taken place.
 Seller  No BA/BC need to be calculated
 Buyer  will take over the asset at TWDV and claim CA as if the
asset was owned by him since the day of purchase (i.e. claim
under the same section (method) as the seller by taking the
TWDV over the remaining tax useful life.

Condition for S24

S24 may be elcted by related parties if the following conditions are
fulfilled :- (Anti-Tax Avoidance)
1. The sale is not one in which S33 applies [S24(1)]
2. The P&M must be used by the seller before the sale and the
buyer after the sale in the production of income [S24(4)]
3. The P&M is not leased by the seller to the buyer before the sale
[S24(4)] ( no leasing arrangement before)
Chapter 3 - Capital Allowances
 Chapter 3 - Capital Allowances
Land Intensification Allowance (LIA)
Cessation of LIA
 Change of qualifying activities
 must inform EDB, can re-apply
 The building ceases permanently to be used for approved qualifying activities
 must notify EDB, no more AA will be granted from that YA
 The building is sold / transferred
 no more AA granted, no balance adjustment
 The building transferred to an amalgamted company (business combination) under a
qualifying amalgamation under S34C of ITA
 must notify EDB
 AA will be granted to the new company if the new company meet LIA condition
Type of Land
 The LIA building must be built on land that is zoned as:- (the building must be standing at the correct piece of land)
 Business 1 or Business 2 (excluding Business1 and 2 White zones)
 Under the Urban Redevelopment Authority (URA) Master Plan as at the date the development application is made to the URA
 Budget 2014 – LIA extended to qualifying activities on airport and port land
Usage
 Qualifying Activities [Full list refer to Book 1 Page 146]
 Land transport, Aerospace, Marine and Offshore engineering
 At least 80% of the total floor area of the approved LIA building must be used by a single user for carrying out the qualifying
activities as its principals activity

Meet relevant GPR
 The building must meet prevailing GPR (Gross Plot Ratio) benchmark at the date of application made to URA for
relevant industry sectors range from 0.33 to 2.45 as at 1 August 2013
 The benchmark will be reviwed every 3 years.
 QC = capital expenditure incurred up to the date of completion of the construction or
renovation/extension of the approved LIA building
For Purchase / Extsiting building
 QC = additional capital expenditure incurred to renovate or extend the existing
building or structure to increase the building’s GPR and the new GPR meets/
exceeds the GPR benchmark.
 If BEFORE the renovation or etension works, the existing building: met / not met GPR
IA = 25% X QC
 Ganted in the YA the capital expenditure is incurred (during the contstruction or
renovation / extension stage)
AA = 5% X QC (15 years)
 The construction /renovation/exetension works have been completed.
 The completed building meets the relevant GPR benchmark.
 At least 80% of the total floor area is used by a single user for qualifying activity
 If < 80% of total floor area  No AA for the YA relating to that basis period.
If the completed building fails to meet the GPR benchmark, IA & AA will be
recovered through re-assessment of preceding tax years.
Unabsorbed LIA
 Transfer to Claimant companies udner Group Relief System
 Carried back
 Carried forward to set off against future income
 Chapter 3 - Capital Allowances
Intellectual Property Rights (IPR)
What is IPRs?
 S19B(11) of ITA, IPR means the right to do or authorise the doing of anything
 Eg.: patent, copyright, trademark, registered design, geopgraphical indication, layout design of integrated circuit,
trade secret, grant of protection of a plant variety

Qualifying Cost
 Excludes costs relating to acquisition of IPR
 S19B (11) the capital expenditure does not include legal fees, registration fees, stamp duty and other costs
related to the acquisition of any intellectual property rights.
 S19B(3)  If capital expenditure is incurred before the commencement of the trade/biz, it shall be treated as if it
had been incurred by it on the first day it commences that trade or business.

Method to claim Written Down Allowance (WDA)

Method 1 - S19B(1) [5-years claim] Method 2 - S19B(2C) [2-years claim]

 WDA = QC / 5 years
 Budget 2014 : WDA extended for 5 years to YA 2020
 If capital exp. Is to acquire any IPRs for use in the
trade/biz AND
 Incurred by a company carrying on a trade or
business on or after 1 Nov 2003
 WDA = QC / 2 years
 Budget 2014 : WDA for Media & Digital companies
will be extended for 3 years for cap. Exp. Incurred up
to last day of the BP to YA 2018
 If capital exp. Is approved IPR (by EDB) pertaining to
films, TV programmes, digital animations / games /
other media and digital entertainment contents AND
 Incurred by an approved media and digital
entertainment company carrying on a trade or biz
 Not applicable for PIC