AY2021/22 Term 2 ACCT223 Taxation

Dr Jimmy Lee

Suggested Solutions to Topic 3 – Deductible Expenses

Answer 1 (Comprehensive)

Holding company – Year ended 31 Dec 2021

$
(a) Provision for leave pay + 80,000
Loan to ex-employee written off + 18,000
(b) New tenancy agreement + 4,100
(c) Reimbursement of private car expenses + 4,500
(d) Fines + 5,000
(e) Donations + 12,500
(f) Entrance fee to Keppel Country Club + 17,000
Formation expenses + 15,000
(f) Interest income on a loan to a local company - (10,000)

• Provision for leave pay not deductible as this is a general provision.

• Loan to ex-employee written off is a non-trade debt and not deductible.
• New tenancy agreement is not deductible because this is a new agreement and hence capital in
nature. However, renewal of tenancy agreement will be deductible.
• Private car expenses in Singapore is not deductible.
• Fines for law violation is not deductible.
• Donations are not deductible. However, tax deductions of $12,500 ($5,000 x 2.5) approved cash
donations made to National Kidney Foundation on 4 May 2021 of $5,000 can be claimed
against statutory income under s37(3).
• Entrance fee to Keppel Country Club and formation expenses are capital expenditure.
• Interest income is not s10(1)(a) income. Will be separately reported as interest income.

Subsidiary Company – Year ended 31 Dec 2021

$
(a) Renovation of office + 40,000
(b) SKD 947 B + 5,500
Upkeep of rental cars + 9,600
(c) Annual car rental charges + 32,000
(d) Issue of new share certificates + 4,000
(f) Interest income (net) - 26,500
(g) Provision for stock obsolescence + 10,000

• The renovation of office (ceramic flooring, walls, and ceilings) of $40,000 can be claimed as a
tax deduction over three years under s 14Q of the ITA, subject to a cap of $300,000 for each
relevant three consecutive basis periods. If the expenses pertained to normal repairs and
replacement, then the entire amount may be claimed under s 14(1)(c) of the ITA.
• Private cars and rented cars expenses are not deductible.
• Issue of share certificate is capital expenditure.

1
• Interest income is not s10(1)(a) income. However, only $5,000 received in the financial year
ended 31 Dec 2020 will be added to the adjusted trading profits to determine the statutory
income to be assessed on an accounting year basis. Fixed deposit maturing on 31 March 2022
($4,500) will be reported in YA 2023. Interest from an overseas associated company not remitted
into Singapore will not be liable to tax ($18,000).
• General provision for stock obsolescence is not deductible. However, specific provisions is
allowable.