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.
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.
Less – RDTA set off
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?
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.
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?
- (10% x $150,000) = $15,000 or
The lower amount being $15,000 ==> taxable benefit would be $15,000 less $8,400 = $6,600.
- (10% x $150,000) less $8,400 = $6,600 OR;
Thus the taxable benefit would be $6,600.
Which do you think is the correct presentation though both give you the same answer?
In BT dated June 4, 2008, Wong Sze Teen and Yeo Kai Eng also discusses the implication of GST on donations.
What is the Rule?
Generally, no GST on CASH donations if the amount involved is small and no tangible benefits granted to Donor.
But when Donors are entitled to some form of benefits ie. chance of a lucky draw to win a trip to Timbuktu, technically speaking such donations attract GST.
IRAS Concessionary Exemption is granted to certain benefits if:-
– the benefit is given as part of acknowledging the donation made and;
– the benefit has no resale value.
Thus certain acts by the Recipients, which are technically speaking, benefits to the Donors, are exempted. Eg. Donors could be invited to and honoured at a Gala Dinner held in conjuction to the Charity.
What if your GST-registered business gave a donation in kind?
Donor has to account for output GST on deemed supply except if:-
– less than $200 and;
– is not part of a series of gifts.
such beautiful mature bamboo
In BT today, Wong Sze Teen and Yeo Kai Eng, GST experts from Ernst & Young, wrote an article on the implication of GST on sponsorship, government grants and donation.
I will cover issues on sponsorship and grants first.
Company X gives $1,000,000 to Company Y as sponsorship for a certain event that Company B is organising. Assuming both are GST-registered.
What is the Rule?
IRAS said sponsorship will not attract GST if company X:-
– did it voluntarily without any obligation and;
– did not receive any tangible benefits in return.
Failing which, company Y would have to issue a GST-tax invoice to company X.
For what amount should the invoice be issued on?
Answer – It depends on the market value of the benefits company Y would have to give to company X.
If market value of benefits < $1,000,000 eg. $800,000, company Y would have to issue an invoice for $800,000 inclusive of GST. Thus company Y would have to account for output GST of $52,236.45 to IRAS. Company X could then account for input GST of the same amount.
Firstly, when is a benefit given is considered a benefit given?
Secondly, company Y would have to determine the market value the benefits granted.
Generally and simply said – Attracts no GST to both the Giver and Recipient.
I have been paying attention to the numerous huge advertisements by the many industry players in the red hot lasik market in Singapore. Prices of lasik is definitely on a downtrend and possibility of hitting sub-$1,000 per eye for standard lasik is very real. (someone told me the limit has been breached already)
In today’s national paper, I notice a lasik provider has now included the GST-inclusive price of $2,341.16 into the advert albeit in a smaller font size.
In the heat of competition, perhaps many have forgotten the small detail of the need to place GST-inclusive prices.
What is the Law?
According to reg 77(1) of GST regulations, “where a taxable person publicly displays or advertises the price of any supply of goods and services he makes, or intends to make, it has to be the “GST-inclusive” price.
Any exception to this law must be approved by IRAS.
While such taxable persons may not be sufficiently in tune with all details, I wonder whether the advertising agents or media owners should play a role in removing such “printing errors or omissions”.
For most of us, we should not bother to know the crime and punishment one could get for evading tax. We only need to know the law will come down hard on you.
But given the recent hoo and haah of going tax violators in the now glamourous occupation of being a hawker, it would be appropriate for our students and members of accounting profession to remind our clients of the consequences of tax evasion.
What is tax evasion?
Income tax evasion requires both a wilful intent to evade tax as well as one of five forms of physical conduct, namely:-
- omitting from a tax return, income that should be included
- making a false statement or entry in a tax return
- giving a false answer, whether verbally or in writing, to any question or request for information from the IRAS
- preparing or maintaining false books of account or other records, or authorising the same, or falsifying any books of account or other records
- making use of any art, fraud or contrivance or authorising the use of any art, fraud or contrivance.
Since December 2003, apart from the offence of tax evasion in Section 96 of the Income Tax Act, an offence of serious fraudulent tax evasion has been enacted under Section 96A.
The newer offence carries a heavier penalty, a higher fine and an extended jail time, for essentially some of the same acts that used to constitute ordinary tax evasion.
A person convicted of tax evasion under Section 96 faces a penalty of three times the tax evaded, a fine of up to $10,000 and a term of imprisonment of up to three years or both fine and jail.
The last two types of physical conduct listed above have been taken out from Section 96 and reinstated as new offences.
Under Section 96, there is a minimum jail sentence of six months upon a conviction for three or more offences, including assisting another to evade tax.
Under Section 96A, a person found guilty and convicted of two or more offences, also faces at least six months in jail.
Final Remark – I have done a simple format above for you to do email broadcasts to your hawker clients if necessary.