Seminar 2

Section 10 (1)
Heads of charge:
(a) gains or profits from any trade, business, profession or vocation
(TBPV);
(b) gains or profits from any employment;
(d) dividends, interest or discounts;
(e) any pension, charge or annuity;
(f) rents, royalties, premiums and any other profits arising from property;
and
(g) any gains or profits of an income nature not falling within any of the
preceding paragraphs.
Section 10 (1a)
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Distinguishing between trade and non-trade income is needed because

only trade losses are available for set off against any other income, C/F,
C/B and transfer under group relief
Section 10 (1) (d) to (g) non trade losses are not available for set off
Claim of C/A is only allowed for TBPV

Income from TBPV

-

Gains from TBPV are taxable

TBPV is determined under Badges of Trade

6 Badges of Trade
1. Subject matter of realisation
- Determine if subject matter is held as investment (not taxable) or as a
deal (taxable if trade)
- Nature of assets transacted may be indicative of trading or investment
(i)
Assets with a ready market
(ii)
Assets acquired in large quantities
(iii)
Assets for personal enjoyment
(iv)
Assets yielding periodic income
2. Period of ownership
- Short period more likely to be taxable, long period more likely to be
investment
3. Frequency of similar transactions
- Frequent transactions more likely to be considered as trade but not vice
versa
4. Supplementary work
- Supplementary work to increase saleability more likely to be considered as
trading
5. Circumstances for realisation
- If circumstances forced a sale (exigencies, opportunity, forced sale), may
be less likely to be considered as trading
6. Motive
- Motive is inferred from circumstances, ownership, sale of subject matter,
reason for purchase/sale, documentary evidence, real vs purported motive

Dividends
-

Dividend is income in nature (fruit), therefore taxable

May be exempted under Section 13

Interest
-

Interest is income in nature (fruit)

May be exempted under Section 13

Rent
-

Rent is income in nature (fruit)

Taxable when due and payable

Royalty
-

Income in nature (fruit)

Taxable when due and payable

Section 10 (1g)
-

Gains from a transaction not an activity or incident in the ordinary course

of business is not taxable provided there was intention of profit making at
the time of transaction
Casual service income
Receipts deemed as Section 10 (1g) income
Does not cover gain from disposal of assets held as investments and
voluntary payments in certain circumstances

Seminar 3
Locating source of income
Trading in VS Trading with
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When an NR has business dealings with Singapore, there is a need to

consider if the NR is trading with (no tax exposure) or trading in Singapore
(tax exposure)

Source of trading income

-

Determined by:
Criteria from case law
Section 12 (1)
Concept of Permanent Establishment

Section 12 (1)
Where a non-resident (NR) person carries on a trade or business of which only
part of the operations is carried on in Singapore, the gains or profits of the trade
or business shall be deemed to be derived from Singapore to the extent to which
such gains or profits are not directly attributable to that part of the operations
carried on outside Singapore
Concept of Permanent Establishment
-

Refers to the minimum level of presence of an NR in a state that gives rise

to a trading source
If minimum level is exceeded, then NR is considered to have a PE and
trading in that State, subsequently income is taxable and considered
sourced in that State
Presence determined by:
Assets owned
Extent of activities
Agency relationships

1) Determine if there is PE
2) If there is, quantify amount of SSI
3) If there is a tax treaty, apply the tax treaty. Else, apply PE definition
Attributing profit to a PE
-

If there is PE, there is a need to quantify portion of taxable income

Article 7 of tax treaty (Business Profit article) covers the quantification
PE is considered as a separate entity acting in an arms length relationship
with the NR company

Definition of PE under ITA

-

If no treaty, apply definition of PE in S2.1 of the ITA or apply case law

principles
"permanent establishment" means a fixed place where a business is
wholly or partly carried on including
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a warehouse;
(f) a workshop;
(g) a farm or plantation;
(h) a mine, oil well, quarry or other place of extraction of natural
resources;
(i) a building or work site or a construction, installation or
assembly project,
and without prejudice to the generality of the foregoing, a person shall be
deemed to have a permanent establishment in Singapore if that person
(ii) carries on supervisory activities in connection with a building
or work site or a construction, installation or assembly project; or
(ii) has another person acting on that persons behalf in
Singapore who
(A) has and habitually exercises an authority to conclude contracts;
(B) maintains a stock of goods or merchandise for the purpose of delivery
on behalf of that person; or
(C) habitually secures orders wholly or almost wholly for that person or for
such other enterprises as are controlled by that person

IRAS clarifications
NR will not be regarded as trading in Singapore just because it has:
-

a mere purchasing function in Singapore; or

stocks warehoused in Singapore for delivery, without trading activities
here; or
a representative office that properly confines its activities to
promotional/liaison work

Locating source of dividend income

-

source of dividend depends on resident status of company paying dividend

resident status determined by place where control and management of
company is exercised

Locating source of rent from immovable property

depends on location of immovable property, located in Singapore, SSI,

located outside Singapore, FSI
Singapore Payer NR (recipient of income)
Is the payment to the NR covered under Section 12 (6) or (7)?
If yes, is it deemed sourced in Singapore?

Section 12 (6)
There shall be deemed to be derived from Singapore
a) Any interest, commission, fee or any other payment in connection with any
loan / indebtedness or with any arrangement, management, guarantee, or
service relating to any loan or indebtedness which is; or
b) Any income derived from loans where the funds provided by such loans are
brought into or used in Singapore.
Section 12 (7)
There shall be deemed to be derived from Singapore:
a)Royalty or other payment in one lump sum or otherwise for the use of or the
right to use any movable property;
b)Any payment for the use of or the right to use scientific, technical, industrial or
commercial knowledge or information (i.e. know-how) or for the rendering of
assistance or service in connection with the application or use of such knowledge
or information (i.e. show-how); Payment covered by Section12(7) contd
c) Any payment for the management or assistance in the management of any
trade, business or profession (i.e. Management fee); or
d) Rent or other payments under any agreement or arrangement for the use of
any movable property (e.g. rental of equipment),
Deemed source rules
Section 12 (6) and (7) payments to NR are deemed sourced in Singapore if
-

Payment is borned by Singapore resident or PE in Singapore; OR

Payment is deductible against SSI; OR
In the case of S12(6), funds provided by loan are brought into or used in
Singapore

Section 12 (6) and (7) payments will not be deemed sourced in Singapore if it is,
-

Payment in respect of business carried on outside Singapore through a PE

outside Singapore; OR
In the case of S12(6), payment in respected of any immovable property
situated outside Singapore

Section 12 (6a) and (7a) exclusions

The following payment is excluded from the scope of s.12(6) & (7), subject to
conditions:
-

Commission, fee or other payment (exclude interest payment) relating to

any loan or indebtedness;
Guarantee fee relating to any loan or indebtedness;
Show-how payment (exclude know-how payment);
Management fee payment

Conditions for exclusion:

-

Service is performed outside Singapore (except guarantee fee)

Service provider or loan guarantor is a NR person
If the NR person is not an individual, it must not be
incorporated/formed/registered in Singapore
Service or guarantee is not provided or given in the course of any business
carried on in Singapore by the NR person and not attributable to any PE in
Singapore of the NR person
Recipient of the service or guarantee is a Singapore resident person or PE
in Singapore

Applying deemed source rules in Section 12 (6)/(7)

(1) Is the payment one of those covered by s12(6)/(7), i.e. interest, loan/debtrelated fee/commission, royalty, know-how payment, show-how payment,
management service fee, or rent from movable property?
If yes, (3) If no, (2)
(2) Some other source rule applies.
(3) Is the payment borne by a Spore resident person or PE in Spore?
If yes, (4) If no, (5)
(4) Is the payment in respect of a business carried on outside Spore thru a PE
outside Spore? For s.12(6) payment, is the payment in respect of immovable
property outside Spore?
If yes, (5) If no, (8)
(5) For the payer, is the payment an expense deductible against his SSI?
If yes, (8) If no, (6)
(6) For s.12(6) payment, was the fund from the loan brought into or used in
Spore?
If yes, (8), If no/(NA), (7)
(7) The income is FSI.

(8) Does s12(6A)/(7A) apply to exclude the payment from the scope of the
deemed source rules?
Note that s12(6A)/(7A) applies only to: - loan/debt-related fee/commission show-how payment - management service fee and the relevant conditions must
be met
If yes, (7) If no/(NA), (9)
(9) The income is SSI.
Section 13 Exemptions
Individuals
- Foreign sourced income (FSI) received (except through partnership)
- Interest income from approved banks or licensed finance company in Spore
- Investment income e.g. distribution from unit trust
- One-tier dividend
- S.13(6) - Employment income derived by nonresident from short term
employment (details to be covered in due course)
Corporate
- Certain FSI subject to conditions details to be covered in due course
- One-tier dividend
- Interest income from approved banks in Spore derived by non-resident (other
than individuals) who does not have a PE in Spore and does not carry on
business in Spore
- S.13(4) Ministerial approval S.12(6) or (7 ) payments made to
promote/enhance economic/technological development

Seminar 4
Deductions
Expense is deductible only if:
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the general deduction formula set out in s14(1) is satisfied; and

the deduction is not prohibited by s15

General deduction formula

sS4(1) ITA:
For the purpose of ascertaining the income of any person for any period from any
source chargeable with tax under this Act (referred to in this Part as the income),
there shall be deducted all outgoings and expenses wholly and exclusively
incurred during that period by that person in the production of the income,
including
(i)
chargeable with tax
- only expenses incurred in the production of taxable income is deductible
against that income
- expenses incurred in the production of non-taxable income or tax-exempt
income are not deductible against taxable income
(ii)
wholly
- deductible expense must be wholly incurred to produce income
- if part of the expense is not incurred in the production of income, then that
part of the expense is not deductible
- attribution formula may be used to compute partial non-deductible
expense
(iii)
exclusively
- refers to motive for incurring expense (business, not personal)
- motive vs effect/result (what if no income is being produced as a result of
incurring expense?)
(iv)
incurred
- liability to pay has been incurred
- Consider: general provisions, unrealised losses
(v)
for any period.. from any source.. incurred during that period
- relevant source of income must exist in that period
- consider: pre-commencement expenses (exception made for Concession
for Enterprise Development Section 14 U
- post-cessation expenses
(vi)
incurred.. by that person
- claimant of the deduction must have incurred the expense in the
production of the income

Deduction is on a source-by-source bases

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expense #1 incurred to derive income from source #1 cannot be deducted

against income from source #2

Section 15 prohibitions
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Domestic/private expenses (vs business)

Sum recoverable under an insurance or contract of indemnity
Singapore income tax and foreign taxes suffered on foreign sourced
income
S-plate car expenses/car rental in Singapore
Certain input GST and output GST borne on behalf of customers (to be
covered under topic for GST)
Capital expenditure (vs revenue expenditure)
Capital employed in improvement (vs repairs)

Revenue vs Capital expense

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Revenue expense are deductible whereas capital expenditure are

generally not deductible except when in certain cases capital expenditure
such as S14Q where special deduction is granted

Capital expenditure
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Acquiring an asset/advantage of enduring benefits

Acquiring a source of income
Acquiring a mean of production
Acquiring a fixed capital (vs circulating capital)
Initial expense (new/ first time) (vs subsequent incurrence/renewal)
One-off/non-recurring (vs recurring)

Motor car expense S15 (1k)

Expenses related to private cars (E/S plate) and rented cars are not deductible
Specific S14 deductions
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S.14(1)(a) Interest expense/borrowing cost

o The principal sum must be used for a purpose which is intended to
produce taxable income
o Where borrowing is used to finance a capital asset and the asset is
employed in acquiring taxable income interest expense is
deductible
o Where part of the loan principal is used for acquiring non-income
producing assets, interest attributable to the non-income producing
assets is not deductible
o Other borrowing costs are deductible if they are meant to substitute
or reduce interest
S.14(1)(c) Repairs and renewals
o Repairs are revenue expenses and therefore deductible

o Improvements are capital expenses and therefore not deductible

o Initial improvements depend on the
(i)
condition of the asset when purchased
(ii)
price paid for asset if in a commercially useable condition
(iii) generally accepted accounting treatment
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S.14(1)(d) Bad/doubtful debts

o Conditions for deduction
o Trade debt (vs non-trade debt)
o Claimants business not ceased
o Previously included as trading receipt of claimant
o Proven to the satisfaction of the CIT to be irrecoverable
Deductible
Trade debt written off
Impairment loss on revenue accounts

Not deductible
Non-trade debt written off
Impairment loss on capital accounts

Taxable
Recovery of trade debt

Not taxable
Recovery of non-trade debt

Reversal of impairment loss on

revenue accounts

Reversal of impairment loss on capital

accounts not taxable

S.14(1)(e) Contributions by employers

Conditions for deduction
(i)
Approved local fund (e.g. Central Provident Fund) or fund
constituted overseas
(ii)
Employees engaged in the production of the employers income
(iii)
Obligatory contributions (under employment contract or constitution
of fund)
(iv)
Excess CPF contribution (over the statutory requirement) or
voluntary contribution not deductible
S.14(2) Payment to related employees
o Remuneration, etc. paid to employee related to employer4
o Reasonableness test (commercial justification)
o Excessive payment not deductible
S.14(5) -(8) - Medical expenses restriction
o Deduction of medical expense restricted to 1% (or up to 2% if
certain portable medical benefit schemes are implemented) of total
employee remuneration in the basis period

Allowances paid to employees

What is an allowance for tax purposes?
-

Contractual
Lump sum per period
Employee not required to account to the employer for expenditure out of
the allowance