Ion in the making

Who are the parties involved?
UOL Development (Novena) Pte Ltd vs Commissioner of Stamp Duties

What are the facts of the case?
In 2005, 53 owners at Minbu Road sold their respective properties on an enbloc basis to UOL Development after a tender. UOL Development’s lawyers subsequently sent separate letters of acceptance to each owner. UOL Development was effectively trying to treat this as 53 separate purchases instead of as an en bloc purchase.

The intended outcome was to reduce the stamp duties payable by UOL Development as the rate of stamp duties is progressively structured.

To illustrate
I assume each property is $1 million and the en bloc price is $53 millions.
The stamp duties payable for $53 mio en bloc price would be $1,584,600.
The stamp duties payable for $1 mio x 53 transactions would be $1,303,800.
A saving of about $280,000!!!

Decision of the Court
The Court ruled against UOL Development for reason that the original intention and contract was for a Sale & Purchase on an en bloc basis.

The Court also said that there was NO “sound commercial basis” for 53 separate contracts and the arrangement was “so contrived that it was clearly intended to reduce or avoid tax liabilities”.

Reference – Lim Gek Khim, “Tax Planning – When does it become tax avoidance?”, Singapore Accountant, Sep/Oct 2008.

F1 in Singapore soon but Look at the mess!

As we consult with our clients on structuring a business and its activities, we often have to check ourselves as to whether we are helping the client to manage its tax exposure efficiently as compared to facilitating the client in avoiding tax.

What is it that so difficult, you may ask. Just go and find out the definition of tax planning and tax avoidance and; just follow the letters of the law.

Dr Richard Hu, the then Minister of Finance back in 1999, attempted to give some meat to the meaning of tax avoidance in the second reading of the bill to adopt Section 33A of the Stamp Duties Act. He said,

• tax avoidance schemes are purely tax driven, with little or no commercial value or rationale.
• tax planning are activities/ schemes structured to be tax efficient in accordance with the relevant tax laws.

But am I any wiser after the reading that? I don’t think so.

As we push the boundary of tax planning, are we edging closer to tax avoidance?

In my next posting, I will cite a real case for discussion.

Source – Lim Gek Khim, “Tax Planning – When does it become tax avoidance”, Singapore Accountant, Sep/Oct 2008.

New allowance is deductible from Chargeable Income effective YA2009 – YA2013.

It is capped at 50% of the first $300,000 of Chargeable Income.

RDTA Computation

Chageable income
Less – RDTA set off
—————————-
X
Less – Partial Exemption
—————————-
Net Chargeable Income (A)
====================

RDTA = 50% of A
Max – $150,000

Basic guidelines of how RDTA works
1. Compute RDTA for Year 1
2. Year 1 RDTA is available for setoff against net Chargeable Income for Year 2, 3 and 4
3. Any unutilised RDTA would be “lost” after 3 years
4. The setoff amount is the lower of RDTA OR incremental R&D expenditure by company for the year.

What is “incremental” R&D expenditure?

Example
R&D expenditure for YA2009
Less – R&D expenditure for YA2008
————————————–
Incremental R&D expenditure
==========================

R&D expenditure now qualify for 150% deduction with effect from YA2009 – YA2013.

The R&D may not be related to the existing business / trade.

Mr Sum Yee Loong (assuming I heard him correctly) thus advised that if you want to start a new business with some R&D activities, you should it as a division in the existing business first.

You may push the division out as a separate business later.

This is an undoubtedly a taxable benefit. The only doubt here is how to compute the quantum of taxable benefit.

Benefit is applicable to employees. Not applicable to directors who are employees too.

What is the Rule?
The taxable value of the accommodation is the lower of:-

• 10% of the gains or profits from employment LESS any rent paid by the employee; OR;
• the annual value of the premises.

Illustration

Annual value – $38,000

Rent paid by employee – $700 x 12 months = $8,400

Remuneration from employment – $150,000

Which of the following presentation is correct?

Option A

Lower of:-

• (10% x $150,000) = $15,000 or
• $38,000

The lower amount being $15,000 ==> taxable benefit would be $15,000 less $8,400 = $6,600.

Option B

Lower of:-

• (10% x $150,000) less $8,400 = $6,600 OR;
• $38,000

Thus the taxable benefit would be $6,600.

Which do you think is the correct presentation though both give you the same answer?

• All 1-room and 2-room flats will pay zero property tax room flats.
• 3-room flats – 60% (compared to 13% in 2007) will pay zero property tax and 40% will be paying less tax than in 2007.
• For 4-room, 5-room and executive flats, about 15% will pay more property tax but the increase in property tax is less than $40 (or about $3 per month).