Mock Examination

: ACCA Paper P6

Advanced Taxation
Session

: June 2014

Set by

: Mr Goh Sher Wee

Your Contact Number : ______________________________________

I wish to have my script marked by the lecturer and

collect the marked script at the SAA-GE Reception Counter

email me the marked script to ____________________________

(Please submit your script latest by 9th May 2014 for marking)

SAA GLOBAL EDUCATION CENTRE PTE LTD

Company Registration No. 201001206N
111 Somerset Road, TripleOne Somerset #06-01/02
Singapore 238164
Tel: (65) 6733 5731 Fax: (65) 6733 5750
Website: www.saage.edu.sg

Email: studentservices@saage.edu.sg

Tax Rates and Allowances

The following tax rates and allowances are to be used in answering the questions.

Goods and Services Tax (GST)

Standard rate
Registration threshold

Buyers stamp duty for all properties

Purchase or transfer of immovable property
Purchase price or market value
Every $100 or part thereof of the first $180,000
Every $100 or part thereof of the next $180,000
Thereafter, every $100 or part thereof

7%
$ 1 million

Duty payable
$1
$2
$3

Additional buyers stamp duty for residential properties

From 8 December 2011 to 11 January 2013
Foreigners and entities buying a first and subsequent
residential property
10%
Singapore permanent residents buying a second and subsequent
residential property
3%
Singapore citizens buying a third and subsequent
residential property
3%
From 12 January 2013 onwards
Foreigners and entities buying a first and subsequent
residential property
Singapore permanent residents buying a first residential property
Singapore permanent residents buying a second and subsequent
residential property
Singapore citizens buying a second residential property
Singapore citizens buying a third and subsequent
residential property

15%
5%
10%
7%
10%

Sellers stamp duty for residential properties

From 20 February 2010 to 29 August 2010
Property disposed of within one year of purchase

From 30 August 2010 to 13 January 2011

Property disposed of within one year of purchase
Property disposed of within two years of purchase
Property disposed of within three years of
purchase

Same stamp duty as payable by

buyer

Same stamp duty as payable by

buyer
Two-thirds of the stamp duty
payable by buyer
One-third of the stamp duty
payable by buyer

From 14 January 2011 onwards

Property disposed of within one year of purchase
Property disposed of more than one year and up to two years
of purchase
Property disposed of more than two years and up to three years
of purchase
Property disposed of more than three years and up to four years
of purchase
Sellers stamp duty for industrial properties
From 12 January 2013 onwards
Property disposed of within one year of purchase
Property disposed of more than one year and up to two years
of purchase
Property disposed of more than two years and up to three years
of purchase
Stamp duty on transfer of shares
Purchase price or net asset value
Every $100 or part thereof

16%
12%
8%
4%

15%
10%
5%

$0.20

Corporate income tax

Rate - Year of assessment 2014

17%

Corporate income tax rebate (capped at $30,000)

30%

Partial tax exemption

First $10,000 of chargeable income is 75% exempt
Next $290,000 of chargeable income is 50% exempt

$
7,500
145,000

Total

152,500
Full tax exemption for new startup companies

First $100,000 of chargeable income is 100% exempt

Next $200,000 of chargeable income is 50% exempt

$
100,000
100,000

Total

200,000

Central Provident Fund (CPF)

Contributions for individuals below the age of 50 years and earning more than
$1,500 per month
Employee Employer
Rates of CPF
20%
16.0%
Maximum monthly ordinary wages (OW) attracting CPF
For the year 2013
(i.e. from 1 January 2013 to 31 December 2013)
Maximum annual ordinary wages (OW) attracting CPF
Maximum annual additional wages (AW) attracting CPF

$5,000

$60,000
$85,000 less
OW subject to CPF

Personal income tax rates for resident individuals

Year of Assessment 2014

Chargeable Income
$

Tax Rate
%

Tax
$

On the first
On the next

20,000
10,000

0
2.0

0.00
200.00

On the first
On the next

30,000
10,000

3.5

200.00
350.00

On the first
On the next

40,000
40,000

7.0

550.00
2,800.00

On the first
On the next

80,000
40,000

11.5

3,350.00
4,600.00

On the first
On the next

120,000
40,000

15.0

7,950.00
6,000.00

On the first
On the next

160,000
40,000

17.0

13,950.00
6,800.00

On the first
On the next

200,000
120,000

18.0

20,750.00
21,600.00

On the first
Excess over

320,000
320,000

42,350.00
20.0

Personal income tax reliefs for the Year of assessment 2014

Earned income
Below 55 years
55 to 59 years
60 years and above

Normal (max)
$1,000
$6,000
$8,000

Handicapped (max)
$4,000
$10,000
$12,000
$2,000 (max)
$3,500 (max)

Spouse relief
Handicapped dependent spouse relief

$4,000
$5,500

Qualifying child relief (per child)

Handicapped child relief (per child)
Working mothers child relief

(% of mothers earned income)

15%
20%
25%
25%
100%
$50,000

1st child
2nd Child
3rd Child
4th Child and subsequent child
Cumulative % WMCR
Maximum relief per child

Parent relief
Not living in the same household
Living in the same household

Normal parent
$4,500
$7,000

Handicapped parent
$8,000
$11,000

Grandparent caregiver relief

$3,000

Dependent handicapped siblings relief

$3,500

Life assurance relief

$5,000 (max)

Voluntary CPF contribution of selfemployed

Capped at $30,600 or 36% of

s10(1)(a) assessable income
whichever is lower
$5,500 (max)

Course fee
NSman relief
Active NSman
Non-active NSman
Wife/widow

Normal appointment
holder
$3,000
$1,500
$750

Foreign maid levy

Supplementary retirement scheme foreigners
Singaporeans and Singapore permanent residents

Key appointment
holder
$5,000
$3,500
$750
$6,360 (max)

$29,750 (max)
$12,750 (max)

QUESTION 1

Prestige Pte Ltd (PPL) is a company registered and resident in Singapore since 1997 with
the principal activity of manufacturers of up-market costume jewellery. In line with the
managements objective of diversification and expansion plans, the company acquired the
following subsidiaries :

1.

Alpha Pte Ltd (APL)

PPL acquired 75% of APL on 1 December 2012. APL has unutilised capital
allowances for the years ended 30 September 2012 and 2013 amounting to $56,000
and $60,000 respectively. PPL expects to turn the Singapore registered APL
around in the coming financial year.
APL is a partner of Alpha-Omega Partnership with an investment of $5,000 into
the partnership as 50% of the capital. APLs share of partnership loss for the year
of assessment 2014 amounted to $12,000.

2.

Beta Pte Ltd (BPL)

PPL acquired 80% of BPL (a Singapore incorporated company) on 1 July 2013.
BPL incurred an unutilised adjusted trade loss of $110,000 for the year ended 30
September 2013. BPL is expected to become profitable in two years time.
BPL is a partner of a Limited Liability Partnership (LLP) whose financial year also
ends on 30 September. BPLs contributed a capital of $60,000 on 1 October 2011
(the commencement date) to the LLP. In the year ended 30 September 2012, BPL
withdrew $15,000 of its share of the LLPs profit of $55,000. BPLs share of loss
for the financial year ended 30 September 2013 amounted to $10,000.

3.

Delta Pty Ltd (DPL)

DPL has been registered in Australia by two Singaporeans in 2007 and has been
incurring losses since. PPL acquired 100% of DPL on 1 September 2013 despite
DPLs unutilised adjusted trade loss of $48,000 (Singapore equivalent) for the year
ended 30 September 2013.

4.

Echo Investment Pte Ltd (EIPL)

EIPL has been profitable since PPL acquired 75% of its ordinary shares. EIPL has
been assessed under s10E treatment. However for the financial year ended 30
September 2013, EIPLs capital allowances claimed exceeded its adjusted profit by
$38,000.

QUESTION 1

(continued)

PPLs decision to acquire shares and control in all the four companies because of the
strategic business structure and future plans and its ability to improve its market share and
overall profit in all the companies of the Group. PPL has achieved an adjusted profit of
$4,230,000 in the financial year ended 30 September 2013 and expects the Groups profit
to improve by 40% in the coming year.

PPL has two retail outlets. One outlet operating within a departmental store in Orchard
Road, Singapore and another in a rented shop in Shah Alam, Malaysia. The Singapore
branch generated a profit of $175,000 (net of deductible expenses) in the year to 30
September 2013. This profit has been included in the adjusted profit of PPL. The
Malaysian branch generated a profit of $105,000 (Singapore equivalent) for the same
period and remitted on 30 September 2013 after incurring Malaysian tax at 25%. The
Malaysia Branch profit has not been included in the adjusted profit of PPL.

The following has been extracted from the tax computation of PPL for the Year of
Assessment 2013 :

Industrial building
Production plant

Acquired in the year

ended 30 September
2007
2010

Qualifying
Cost
$ 2,000,000
$ 450,000

TWDV at
30 September 2012
$ 1,140,000
$
-

PPL acquired a new automation plant for $647,000 after disposing the existing plant for
$50,000 on 15 August 2013. Upon settlement, PPL incurred a foreign currency exchange
loss of $3,000 which taken to expense in the next financial year. PPL did not acquire any
automation equipment in the year ended 30 September 2012. PPL has applied for and has
been granted investment allowance of 30% on the newly acquired plant.

PPL received dividends from investment in Singapore public listed companies amounting
to $16,000 and $24,600 in November 2012 and June 2013 respectively. In view of the
results of the acquired subsidiaries, PPL has filed an election for claim of loss relief from
the subsidiaries based on the order of the dates of acquisitions from those of the latest
acquisition to the earliest. PPL intends to remit all profits of DPL in the near future as
dividends. The corporate tax rate in Australia is 30% and Australia operates an imputation
system of taxation.

QUESTION 1

(continued)

Required -

(a)

Compute the net tax payable by PPL for the year of assessment 2014
maximising all available relief and allowances.
(16 marks)

(b)

Advise the directors of PPL of the consequences of remittance of dividends

from overseas equity investment and explain briefly the rules of s13(8).
(4 marks)

(c)

Explain to conditions for utilisation of items under s37C and s37E by a

company.
(7 marks)

(d)

In view of the exemption of foreign sourced dividend income under s13(8), if

DPL requires higher financing from PPL, should the additional financing be
by way of capital injection or interest bearing loan ?
(3 marks)
(30 marks)

QUESTION 2

William Lai is a proprietor of a business in antiques for the past 6 years. His wife, Mary
Lee has been assisting him in the business since her left her employment as business
consultant. William and Mary, both Singaporean, have been happily married since 2008
and have a pair of twins, age 3 years.

Williams business has been growing in the past two years with profit increasing at about
10% p.a.. Based on careful estimates, William expects his business adjusted profit to be
$480,000 in the year ending 30 September 2015. He has been paying compulsory
medisave promptly in for each year and also contributed $3,000 per month to the Central
Provident Fund. With the rapid business expansion, Mary has decided to assist him on a
full-time basis from 1 October 2014 with William employing an Indonesian maid to look
after the children. The maid levy payable by William will be $170 per month with a
monthly salary of $300 payable to the maid and an annual leave passage of $500.

Mary has suggested that the business be incorporated. However, William felt that this will
result in an increase in his overall tax liability. Mary is of the opinion that the business
should pay her a salary of $4,000 per month and one month annual-bonus. For the
purpose of financing the expansion, William will be remitting $250,000 into Singapore.
The money was an inheritance from his grandparent in the United States. Additional
financing will be withdrawn from his savings with Standard Chartered Bank in Singapore
amounting to $150,000 (including interest for 2010, 2011 and 2012 of $1,000, $2,000 and
$3,000 respectively).

Williams medical status has recently been reclassified by MINDEF and will no longer be
called up for national service duty although he is only 32 years old. Williams received his
last national service called-up pay of $2,800 in April 2014. Williams mother is solely
dependent on William and is looking forward to celebrate her 55th birthday on 1 January
2016. She has been living with William and his family since the birth of the twins so as to
look after the twins.

William also has concerned over the possibility of incurring business losses in the future.
He has been informed by an old friend that losses incurred can be set off against past and
future income.

10

QUESTION 2

(continued)

You are required to advise William (purely on the tax viewpoint) -

(a)

whether his wife should be paid a salary, stating all relevant reasons;
( 4 marks)

(b)

whether it will be beneficial for him to incorporate his business with effect
from 1 October 2014; and
(20 marks)

(c)

the deductibility of losses against past and future income by a company.

(6 marks)
(30 marks)

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Section B TWO questions ONLY to be attempted

QUESTION 3

Mr Larry, a bachelor of aged 33 and resident in HongKong, is employed by a company in

HongKong. Mr Larry is a British citizen who prefers to live and work in the East. His
employment duties require him to promote sales of his companys products in South-East
Asia. In 2013, he spent four months in Singapore visiting the Singapore distributors and
assisting them in promoting the HongKong companys products as he has the technical
expertise.

His annual salary of S$90,000 and a special bonus of $20,000 for his outstanding
marketing efforts in Singapore were paid to his bank account in HongKong. He received
allowances totalling S$4,000 to cover any incidental expenses that he may incur while in
Singapore. He incurred expenses of S$2,800 (all for business promotion) while in
Singapore. His employer paid S$18,000 for his travelling and accommodation expenses
for his Singapore business trip. Accommodation was provided at an Orchard Road Hotel
at a special promotion of $3,000 for the four months.

Larry brought $150,000 of his past earnings into Singapore and deposited the money with
HSBC, Singapore Branch on a time deposit for 3 months while he was still in Singapore.
He received $3,000 interest and spent it on gifts for his parents who came to Singapore
with him for the duration of his assignment. Larry also made some investment in bluechip stocks of the Singapore Stock market and made $10,000 from his purchase and sale
of shares during the four-month period. He donated $1,600 of this gain to an approved
Institution of Public Character (which entitled him to a charity dinner) before he left
Singapore. Larry also donated $500 to another Institution of Public Character in the same
month; this donation entitles Peterson to a special lucky draw on 25 December 2013.

Larry is impressed by the Singapore business economy and intends to take up employment
in Singapore from 1 July 2014. Larry has read from the Singapore newspapers on the
benefits of applying for the not-ordinarily resident scheme. He therefore wishes to apply
for this tax-status.

12

QUESTION 3

(continued)

You are required to advise Larry -

(a)

the extent that he is liable to Singapore tax for the year of Assessment 2014;
(5 marks)

(b)

his tax liability for the year of assessment 2014, if any;

(9 marks)

(c)

the applicability and benefit of the not-ordinarily resident scheme.

(6 marks)
(20 marks)

13

QUESTION 4

Global Enterprise Pte Ltd (Global) is a tax resident in Singapore. The directors of the
company felt the need to expand its business operations internationally. They wish to set
up business presence in a newly declared independence state, Ataz Republic. The entity in
Ataz Republic shall take the form of a wholly-owned subsidiary. After much deliberations
and careful business appraisals and planning, the directors expects a capital outlay to
operate the subsidiary as S$1 million. The Singapore company will finance the investment
from its surplus cash. It is the requirement of Ataz Republic for a foreign company to
have at least S$100,000 of share capital. The Subsidiary will be known as AtazCo Ltd
(AtazCo).

Global requires a 10% returns on all its investment and that the returns are to be remitted
into Singapore to fund dividends payment to its shareholders annually.

Ataz Republic imposes tax at 25% on profits from operations and a withholding tax of
10% on any interest, dividend and royalty payments. Singapore has responded quickly to
the take advantage of the long term benefit of this new Republic and has signed an
Avoidance of Double Taxation Agreement granting relief for both underlying and
withholding taxes.

You are required to advise on the following -

(a)

Explain briefly what is the purpose of an Avoidance of Double Taxation

Agreement.
(6 marks)

(b)

What is the suitable capital structure to minimise overall tax ?

(14 marks)
(20 marks)

14

QUESTION 5

Section 10(1) of the Singapore Income Tax Act states that Income tax shall, subject to the
provision of this Act, be payable at rate or rates specified hereinafter for each year of
assessment upon the income of any person accrued in or derived from Singapore or
received in Singapore from outside Singapore. As such any income derived from
Singapore accruing to a non-resident remains taxable in Singapore unless specifically
exempted by other provisions of the Income Tax Act (ITA).

Tax on income derived from Singapore by non-resident individual is 20% with effect from
the year of assessment 2005. However, provisions in ITA grants reduction to the tax rates
chargeable on certain income derived subject to conditions.

You are required to -

(a)

Explain the taxability of income derived from Singapore as a public

entertainers by a non-resident individual.
(8 marks)

(b)

Explain the taxability of income derived from profession or vocation exercised

in Singapore by a non-resident professional.
(12 marks)
(20 marks)

15