A blanket exemption for estate duty?

To minimise estate duty – invest in residential real estate given the exemption granted for value up to $9mio – was the advice given in last week’s article.

This is a heavy weightage on property as an asset class. Why? To encourage home ownership? To encourage you to stay in Singapore or to discourage you from leaving? To hold up property prices? Don’t think so.

Tan Peng Boon, in today’s Sunday Times, suggested a blanket exemption of up to $9.6mio in term of all assets instead of the current sublimits applied on residential properties and other assets.

Perhaps this is a convenient compromise for the government to hold on to this tax for a few more years.

Balancing your accounts.

P/S Orchard Turn under construction.
1% reduction in corporate tax rate would cost $400mio a year.
1% increase in GST is expected to raise $750mio.

An 8% decline in compulsory road tax is to compensate you 50cts ERP increase in toll rate, more tolls to be operational and higher carpark charges. [I still lose. For a 2-litre car, 8% is about $120 per annum. $120 is meaningless. Btw, my car is only 1.6 litre.]

A 1.5% increase in employer’s CPF is cushioned by a 2% cut in corporate tax rate and an increase in the partial exemption threshold from $100,000 to $300,000.

A 2% increase in GST is compensated by a comprehensive offset package to citizens with no change to personal income tax. [I still lose as I won’t be able to get a single cent of the offset package.]

Borrowing costs other than interest

There are many other costs associated with the act of borrowing other than interest costs. Example of such costs could be professional fees, arrangement fees, statutory fees etc.

While such costs may be considered capital expenditures, these costs are currently not tax deductible.

Recent budget annoucement has indicated a willingness to reconsider this area. Look out for more details from May 2007.

Let’s talk about sex in the Boardrooms!

Humans compressed over 2 streets.
“No no,” my friends. I want to say, “Let’s talk about TAX in the boardrooms.”
Recently a student asked me some questions on how to apply GST on the transactions that she has to invoice.
Not sure where she is in her company’s management hierarchy. The fact that she is asking questions should be a comforting plus to her boss. Incorrect GST application not only invite unnecessary attention from the authority but may incur financial loss in the form of fines, penalty and manhours to remedy. A 5%-mistake (and soon a 7%) will really eat into your margin. Customer goodwill may be eroded too.

The directors of a computer gaming developer startup were grilling me on the tax implications of some corporate moves that they are considering.

In the past, tax matters were considered private, too technical for the laymen – it was something the tax department or someone from the auditor’s office dealt with, with the tax authorities.
What is the price of not talking about tax in the boardroom?
  • Without good tax management, you will not be considered a good boy ie. a company with good corporate governance; and
  • You will not have the strength & depth to venture overseas and hold yourself up to the sometimes different standards in other jurisdictions.

If you don’t about tax in the boardroom, what do you guys actually talk about? [wink.. wink..]

HG Metal and its S44A balance

Background
HG Metal, a listed company in Singapore, is a stockist and manufacturer of steel products. The company has a S44A balance of approximately $1.6mio.
It also wish to conserve funds to expand its capacity to meet growing demand.

Actions taken
To meet the contradiction in shareholders’ need to take advantage of the S44A balance with dividend payout against the company’s wish to conserve funds for investment, the company came out with the following initiatives:-

  • For the year ended 30 Sep 2006, the company has announced a special dividend of 4cts per share ie. 3.6cts (frankable) and 0.4cts (tax exempt).

A shareholder may seek a tax refund on the “frankable” portion. The refund would depend on the difference between the corporate tax rate of 20% and his personal tax rate.

  • HG Metal has also simultaneously annouced a 2-for-5 rights issue @20cts. Shareholders have the option to use part or all of the special dividend to take up the rights.

Isetan Singapore and S44 tax credits

“Minority investors want Isetan to pay out tax credits” as per today’s ST on page 29.

With $61mio tax credits, the investors are asking for only $2 dividend from a maximum $7.50 for a full advantage on the credits.

Does Isetan has the monies?
As per Jun 2006 accounts, it is reported that it has a $100mio cash in its balance sheet. Then why not pay since cashflow is not an issue?

Has the cash been earmarked for investment?
No such info presented. It is reported that the answer lies with the higher tax rate on income received in Japan as compared to Singapore.

Isetan Tokyo, which owns 61% of Isetan Singapore, would have to pay a higher tax in Japan on dividends received from Singapore.

Moral of the story

  • Minority investors should not expect to receive much dividends from a company with this kind of tax complication.
  • If you are investing for dividend yield, then please do your homework.