ACCT 223 Taxation

AY2021-2022 Term 2 Test Answers

Question 1
$ $
Net income before tax 723,019
Less: Non-trade income
Interest (36,500)
Dividends (102,700)
Net rental (90,000)
Loss on disposal of equipment B200 24,000 (205,200)
517,819
Add: Non-deductible expenses
Depreciation 252,681
Provision for warranties and repairs 53,300
Loan to subsidiary company written off 20,000
Lease of BMW saloon car (SMG 2655A) for 36,400
business use
Office renovation 88,500
Repair costs for company car due to traffic 11,000
accident
Exchange loss on the liquidation of foreign 14,500
investment
Donations 46,600
Motor van and lorry drivers' parking fines 1,050
New office tables (30 units) 50,400
Staff medical expenses 27,800
Allowable staff medical expenses (13,000) 589,231
1,107,050
Less: Special/Double deductions
s14A Patenting cost (16,000)
s14D Research & development (268,500)
s14N Renovation and refurbishment (29,500) (314,000)

Adjusted 10(1)(a) income 793,050

Less: Capital allowances (608,867)

184,183
Other income:
Interest: Citibank 23,750
Interest from subsidiary 22,700
Net rental 90,000
Statutory income 320,633

Total employee remuneration (TER) Amount

Staff salaries & wages $756,000
Director salaries $180,000
Statutory CPF $138,000
Sales staff commission $81,000
R&D staff salaries and statutory CPF $145,000
TER $1,300,000
Allowable medical expenses (1%) $13,000
Staff medical expenses $27,800
Disallowed medical expenses $14,800

R&D expenditures Amount

R&D staff salaries and statutory CPF $145,000

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 Consumables $34,000
Total qualifying expenditure under s14D $179,000

Industrial building $
IBA: 3% of $3,400,000 102,000

Building extension
LIA: 25% of $600,000 (IA) 150,000
LIA: 5% of $900,000 (AA) 45,000

Mainframe computer D201

s19A: 100% 146,000

Plant & equipment B111

s19A: 33.3% of $108,000 36,000

Plant & equipment B222 (HP)

s19A: 33.3% of $8,500 x 8 months ($425 interest) 22,667

Plant & equipment B333

Balancing charge: B100 = $15,000
s21 election CA: 33.3% of ($105,000 - $15,000) 30,000

Patent
WDA: 20% of $204,000 40,800

Low value assets: (<$5,000) s19A: 100%

21 tables ($1,400 each) 29,400

Remaining 15 tables ($1,400 each)

s19A: 33.3% 7,000

Total capital allowances 608,867

Note:
• Marks may be deducted if deductions are allowed but classified as non-deductible expenses.
• Provide more complete description (for e.g., instead of “bad debt expenses”, provide full description of
“Director’s loan written off).
• Provide workings to get full credit. If no workings are provided, no credit will be given.
• Proper formatting required for the exams

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Question 2

David ($) Victoria ($)

s10(1)(a) income: Self-employed - -
Advertising expenses - -
Taxi fares - -
Net s10(1)(a) income - -

Salary: $15,000/$8,500 x 12 180,000 102,000

Contractual bonus: 2 month/1 month 30,000 8,500
Deemed employment income: $102,000 x 3% 3,060
Performance bonus: 5% of $600,000 30,000
Company car: ($200,000 - $25,000)/10 x 3/7 7,500
Company car expenses: ($840 x 12) x 3/7 4,320
Company car driver: $2,500 x 6 x 20% 3,000
Country club subscription: ($350 x 12) x 2/7 1,200
Net rental income (shared equally) 18,000 18,000
Statutory income 277,080 128,500

Less: Donations: 250% 15,000

Assessable income 262,080 128,500
Less: Personal reliefs
Earned income 1,000 1,000
Qualifying child relief: 2 children 8,000
Parents relief: handicapped x 1 + normal x 2 23,000 9,000
Grandparent caregiver relief 3,000
CPF top-up relief 8,000
SRS relief 15,300
Maid relief 1,440
CPF relief: $102,000 x 20%; (72k + 8.5k) x 20% 20,400 16,100
NS man relief (active, KAH); wife 5,000
Working mother child relief: 1st child (15%) 16,575
Working mother child relief: 2nd child (20%) 22,100
80,700 69,215
Total personal reliefs (capped at $80,000) 80,000 69,215

Chargeable income 182,080 59,285

On the first $160,000 13,950

18% on the remaining $22,080 3,974

On the first $40,000 550

7% on the remaining $19,285 1,349.95
Tax payable 17,924.40 1,899.95
Total marks

Rental income ($5,000 per month) 60,000

Interest paid to DBS (15,000)
Property tax (1,300)
Condo maintenance: $400 per month (4,800)
Repainting (1,600)
Total expenses (22,700)
Deemed expenses: 15% of income + interest (24,000)
Net rental income 36,000

Note:

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• WMCR is calculated based on earned income from employment or through pensions, from trade or
business, or through a profession or vocation.
• Marks are deducted for reliefs claimed that are not entitled (e.g., husband claiming grandparent
caregiver relief)

• Victoria is not entitled to NSman wife relief because she is not a Singapore Citizen. However, I accept
answers where NSman wife relief is claimed
• To minimize tax liability, David should allow Victoria to claim $700 in QCR since the total amount of
relief is more than $80,000. I accept answers where David claims QCR fully for both children.

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Notes on common errors:

Question 1:
• Need to start with accounting net income and make adjustments to determine adjusted
profits.
• You need to provide full description of disallowable expense (e.g., instead of writing
“Bad debt expense”, write “Loan to subsidiary company written off.”
• Avoid combining items together (e.g., combining motor van and lorry drivers’
parking fines ($1,050) and new office tables ($50,400) together). You may not get
partial credit if your combined number is incorrect.
• Postage, printing & stationeries are revenue expenditures and therefore deductible.
When you think about whether an expense is deductible for tax purposes, think about
whether this expense is ordinarily incurred in a typical business. If it is a typical
business expense, and the expense is not a capital expenditure, then the expense is
likely to be deductible.
• 15% deemed rental expense is not applicable to companies.
• Hire-purchase CA is based on number of capital repayments and excluding interest.
• In calculating CA, use s19A unless otherwise stated because it will maximize the
claim for CA.
• LIA: Annual allowance is based on the full cost of the building ($900,000). Initial
allowance is based on capital expenditure incurred in the basis period ($600,000).
• You don’t have to present TWDV of each asset unless stated in the question. This is
to save time.
Question 2:
• Take note of the dates. For example, the chauffeur is only provided for 6 months in
YA 2022. Also, the country club membership is given in YA 2021 and therefore not
assessable as income in YA 2022.
• Victoria’s parents are not staying in Singapore and therefore no parent relief can be
claimed for Victoria’s parents.
• You need to include the cost of COE in calculating the car benefit.
• Donations or gifts that are for a "foreign charitable purpose" (e.g., donations made to
some overseas relief funds managed by an approved IPC) is not an approved
donation.