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Note: You may download the summary table, as well as other relevant documents here.
| 1 |
Enhancement to the claim for Industrial Building Allowance |
To rationalise the current rules for Industrial Building Allowance, the following enhancements have been made to the Industrial Building Allowance for industrial buildings purchased on or after 1st January 2006:
(a) To allow Initial Allowances and Annual Allowances to purchasers of new industrial buildings with leasehold interest less than 25 years;
(b) Eligibility to Annual Allowances will be based on the current use of the building as an industrial building;
(c) To compute the Annual Allowances on purchased industrial buildings (both new and used) based on the purchase price, without reference to the cost of construction, or residue of expenditure;
(d) To compute the Initial Allowances on new purchased industrial buildings based on the purchase price, without reference to the cost of construction;
(e) To remove the 50-year restriction for granting annual allowance. |
Sections 16, 17, 18 and 24
[Clauses 12, 13, 14 and 17] |
Clause 12 amends section 16 (Initial and annual allowances for industrial buildings and structures) —
(a) to restrict subsection (6) (which limits a claim for annual allowance to the end of the 50th year after the building was first used) to cases where the building is constructed or purchased before 1st January 2006;
(b) to insert new subsections (6A) and (6B) to give an annual allowance to the purchaser of a building that is used as an industrial building, based on 3% of the capital expenditure incurred by him on the purchase of the building, if the sale and purchase agreement for the building is entered into on or after 1st January 2006;
(c) to restrict subsection (12) (which gives an initial allowance to the purchaser of an industrial building or a lease therein of at least 25 years, based on the lower of the construction cost and purchase price) to cases where capital expenditure was incurred towards such purchase before 1st January 2006; and
(d) to insert a new subsection (12A) to give, under certain circumstances, an initial allowance to a person who incurs capital expenditure on or after 1st January 2006 on the purchase of a new industrial building that is based on such capital expenditure. Unlike subsection (12), the initial allowance may be given to the purchaser in respect of a leasehold interest of less than 25 years.
Clause 13 makes consequential amendments to section 17 (Balancing allowances and charges for industrial buildings and structures) arising from the amendment of section 16 by clause 12.
Clause 14 makes consequential amendments to section 18 (Definitions for sections 16 and 17) arising from the amendment of section 16 by clause 12. It also inserts a new subsection (7A) to provide that where, in respect of a building which is only partly an industrial building, it is not practicable for the Comptroller to determine the capital outlay for that part of the building that is not an industrial building, the whole building may be considered as an industrial building if that part of the building is one-tenth or less of the entire floor area, or if the Comptroller is satisfied that it is just and proper to so consider.
Clause 17 makes a consequential amendment to section 24 (Special provisions as to certain sales) arising from the amendment of sections 16 and 18 by clauses 12 and 14 respectively. |
| 2 |
Allowing tax deduction for treasury shares transferred under employee equity-based remuneration scheme |
Where companies have incurred an actual cash outlay to fulfil their employee stock option and share award obligations, companies will be allowed to claim such costs as an expense for the benefit of employees. Hence, with effect from the year of assessment 2007, a tax deduction will be accorded to a company if it purchases its own shares into treasury (treasury shares) and uses these shares for the purposes of fulfilling its stock option or share award obligations. |
New Section 14P
[Clause 11 ] |
Clause 11 inserts new section 14P to allow a company a deduction for the costs of acquiring treasury shares when it transfers such shares to any of its employees under a share option scheme or share award scheme, and to provide for the computation of such costs. |
| 3 |
Tax exemption scheme for funds set up in the form of companies which are resident in Singapore and substantially owned by foreign investors |
To support growth in the asset and wealth management industries, tax exemption will be granted on specified income in respect of any designated investments derived by a fund company approved during the period from 17th February 2006 to 16th February 2011. |
New Section 13R
[Clause 10 ] |
Clause 10 inserts new section13R.
The new section 13R provides for a tax exemption on the prescribed income of an approved company which is incorporated and resident in Singapore, arising from funds managed by a prescribed fund manager in Singapore. |
| 4 |
Tax exemption for prescribed locally administered trust and prescribed underlying holding company |
To support growth in the asset and wealth management industries, tax exemption will be granted on locally-sourced investment income derived on or after 17th February 2006 and foreign-sourced income received on or after 17th February 2006 by prescribed locally administered trusts and their prescribed underlying holding companies administered in Singapore, to the extent the tax exemption mirrors the tax exemption on locally-sourced investment income and foreign-sourced income for individuals. Any distribution made by such trusts to their beneficiaries out of such locally-sourced investment income derived on or after 17th February 2006, and foreign-sourced income received on or after 17th February 2006, will also be tax exempt in the hands of the beneficiaries. In addition, any dividend paid by a prescribed underlying holding company to a prescribed locally administered trust out of locally-sourced investment income derived on or after 17th February 2006, and foreign-sourced income received on or after 17th February 2006, will be tax exempt. |
New Section 13Q
[Clause 10 ] |
Clause 10 inserts new section13Q.
The new section 13Q provides for a tax exemption on certain income of a prescribed locally administered trust and of a prescribed holding company established for the purposes of such trust. It also provides that where such income is exempt from tax, the share of such income to which any beneficiary of the trust is entitled to receive is also exempt from tax. |
| 5 |
5% concessionary tax rate for qualifying income derived by general clearing member of OTC derivatives |
To encourage the use of OTC derivatives clearing facility in Singapore, income derived from the provision of clearing services in Singapore by approved corporate clearing members of a Singapore OTC derivatives clearing facility will be accorded a 5% concessionary tax rate for a period of 5 years. The window period for clearing members to apply for the incentive is from 17th February 2006 to 16th February 2011. |
New Section S43V
Miscellaneous Amendments- Sections 13B(1), (2), (8)(a), 13E(12)(b), 14C(6), 37B(7) and 37E(17)
[Clauses 34 and 43] |
Clause 34 inserts new section 43V.
The new section 43V enables regulations to be made to levy a concessionary tax rate of 5% upon specified income derived on or after 17th February 2006 by an approved clearing member of a Singapore clearing house from the provision of over-the-counter derivatives clearing services using the Singapore clearing house, subject to conditions.
Clause 43 makes consequential amendments to various provisions of the Act arising from the insertion of section 43V by clause 34.
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| 6 |
Tax exemption scheme for captive insurance companies carrying on offshore insurance business |
To support the growth of the captive insurance industry, which contributes to Singapore’s position as an insurance hub, approved captive insurance companies will be granted tax exemption on qualifying income for a period of 10 years. The window period for approving captive insurance companies is from 17th February 2006 to 16th February 2011. |
Section 43C
[Clause 30] |
Clause 30 amends section 43C (Exemption and concessionary rate of tax for insurance and reinsurance business) to enable a tax exemption to be given to qualifying income derived by an approved insurer from the business of life assurance. |
| 7 |
Enhancement of the Designated Unit Trust Scheme (DUT) |
To support growth in the asset and wealth management industries, the scope of DUT scheme will be expanded to include unit trusts targeted at sophisticated and institutional investors such as restricted authorized schemes under the Securities and Futures Act. Specified income derived on or after 17th February 2006 by such unit trusts that are granted the DUT status will not form part of their statutory income. Individuals will also enjoy tax exemption on distributions (out of income derived from Singapore or received in Singapore on or after 17th February 2006) from unit trusts that are restricted authorized schemes funds. |
New Section 13(1)(zi)
[Clause 6] |
Clause 6 amends section 13 (Exempt income) to extend tax exemption to various types of income derived by individuals such as a distribution made by a restricted authorised scheme. |
| 8 |
Enhancement of tax incentives for prescribed foreign trusts |
To support growth in the asset and wealth management industries, the tax exemption scheme for prescribed foreign trusts and tax incentive scheme for approved trustee companies (ATC) scheme are enhanced as follows:
(a) Expand with effect from 17th February 2006 the scope of persons who can be considered as settlors and beneficiaries of prescribed foreign trusts by including foreign persons other than foreign individuals and foreign companies; and
(b) Extend the tax exemption scheme for prescribed foreign trusts to such trusts administered by companies exempted from the requirement to hold a trust business licence in respect of the carrying on of trust business in Singapore under the Trust Companies Act. Specified income derived on or after 17th February 2006 by such trusts will be tax exempt; and
(c) Extend the ATC scheme to companies exempted from the requirement to hold a trust business licence in respect of the carrying on of trust business in Singapore under the Trust Companies Act and which are administering prescribed foreign trusts in Singapore. Specified income derived on or after 17th February 2006 by such companies which are approved as ATCs will be taxed at the concessionary tax rate of 10%. |
Sections 13G and 43J
[Clauses 8 and 31] |
Clause 8 amends section 13G (Exemption of income of foreign trust) —
(a) to extend the tax exemption in that section to the share of income in a prescribed foreign trust of a beneficiary who or which is —
(i) any entity (not being an individual or company) that is neither a resident of Singapore nor constituted or registered under Singapore law; or
(ii) a trustee of another prescribed foreign trust; and
(b) to provide that the share of income in a prescribed foreign trust that a foreign account of a philanthropic purpose trust is entitled to receive is also tax exempt.
Clause 31 amends section 43J (Concessionary rate of tax for trustee company) to extend the definition of “trustee company” to include a company that is exempted under the Trust Companies Act 2005 (Act 11 of 2005) from holding a trust business licence |
| 9 |
Extension of qualifying debt securities (QDS) incentive scheme and tax exemption on locally-sourced investment income of individuals, to cover discount debt securities with tenure of more than 1 year |
To encourage the development of our capital market, discount from discount debt securities with tenure of more than one year, which are issued from 17th February 2006 to 31st December 2008, will qualify for tax incentive under the QDS scheme.
The scope of tax exemption on locally-sourced investment income derived by individuals will also be expanded to include discount from debt securities with tenures of more than one year, unless such income is derived though a partnership in Singapore or is derived from the carrying on of a trade, business or profession.
The scope of specified income derived by a designated unit trust (DUT) that do not form part of its statutory income under the DUT scheme will be expanded to include discount from QDS with tenure of more than 1 year. |
Sections 10(20A), 13(1)(aa), (zi)(i), 42(6) ,(7), 43N(1), (2) and 45A(2)
[Clauses 2(k), 6(a), (e), 27, 33 and 35] |
Clause 2 amends section 10 (Charge of income tax) to extend subsection (20A) (which deems certain types of income as the income of a unit holder of a designated unit trust or approved CPF unit trust if he is not a foreign investor) to a discount from qualifying debt securities which are issued during the period from 17th February 2006 to 31st December 2008 and which have a tenure of more than 1 year.
Clause 6 amends section 13 (Exempt income)-
(a) to extend tax exemption to a discount derived by certain non-residents from qualifying debt securities which are issued during the period from 17th February 2006 to 31st December 2008 and which have a tenure of more than 1 year;
(b) to extend tax exemption to various types of income derived by individuals such as a discount from debt securities irrespective of the tenure.
Clause 27 amends section 42 (Rates of tax upon individuals) to extend the 10% concessionary tax rate under subsection (6) to a discount derived by a body of persons from qualifying debt securities which are issued during the period from 17th February 2006 to 31st December 2008 and which have a tenure of more than 1 year, subject to conditions.
Clause 33 amends section 43N (Concessionary rate of tax for income derived from debt securities) to extend the 10% concessionary tax rate under subsection (1) to a discount derived by any company from qualifying debt securities which are issued during the period from 17th February 2006 to 31st December 2008 and which have a tenure of more than 1 year, subject to conditions. |
| 10 |
Tax treatment of prescribed financial arrangements based on specified Islamic finance concepts |
To further promote Islamic financing activities, the tax treatment of Shariah-compliant prescribed financing arrangements entered into by a financial institution on or after 17th February 2006 will be harmonised with conventional arrangements to ensure a level playing field with respect to tax. |
New Section 34B
[Clause 20 ]
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Clause 20 inserts new section 34B.
The new section 34B provides for the tax treatment of prescribed Islamic financial arrangements. Sections 10, 12, 13, 14, 15, 43Q and 45 of the Act shall apply to such arrangement as if a reference to interest were a reference to the prescribed return in lieu of interest (the effective return) under such arrangement. The effective return is to be excluded from the consideration for the sale and purchase of any asset under such arrangement. This is without prejudice to any provision of the Act which provides that the consideration for a sale or purchase is taken to be an amount other than the actual consideration. |
| 11 |
Enhancement to writing down allowances granted under sections 19B of Income Tax Act |
To help boost Singapore’s attractiveness as an intellectual property (IP) Hub, the writing down allowances (WDA) under section 19B of Income Tax Act will be awarded to economic owners who are companies acquiring on or after 17th February 2006 but before 1st November 2008 approved IP with sole, exclusive or substantial economic rights.
The current section 19B of Income Tax Act stipulates an expiry date of 31st October 2008 for WDA claims, regardless when the IP is acquired. In recognition that any company can acquire the IP rights prior to 31st October 2008 on staggered/instalment payment basis, section 19B will be amended to allow the claim for WDA under section 19B for the full cost of acquisition, even when the subsequent payments are made after 31st October 2008.
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Section 19B
[Clause 15]
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Clause 15 amends section 19B (Writing down allowances for intellectual property rights) —
(a) to insert a new subsection (2B) to empower the Minister or such person as he may appoint to waive, in respect of any intellectual property rights acquired on or after 17th February 2006, the requirement under subsection (2A) that the company to which the writing down allowance is to be made must provide an undertaking that it is the assignee of the intellectual property right, and that it must make the claim in the manner and subject to the conditions specified by the Comptroller; and
(b) to provide that no writing down allowances shall be made for any capital expenditure incurred in respect of intellectual property rights that are acquired after 31st October 2008.<> |
| 12 |
Enhancement to writing down allowances granted under sections 19C of Income Tax Act |
To foster interest in the formation of collaborative research networks, the writing down allowances for cost sharing agreements entered into and approved on or after 17th February 2006 will be accelerated to a writing down period of 1 year.
To align the treatments for collaborative and in-house R&D, and to provide certainty to companies on their tax liabilities, in the event of disposal of rights, only the amount of proceeds from the disposal up to the writing down allowances granted previously under section 19C would be recovered. |
Section 19C
[Clause 16]
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Clause 16 amends section 19C (Writing-down allowances for approved cost-sharing agreement for research and development activities) —
(a) to allow a one year (instead of over a period of 5 years) write off for expenditure incurred under any cost sharing agreement entered into and approved on or after 17th February 2006; and
(b) to provide that the amount of consideration from the sale, assignment or disposal of any rights, technology or know-how under any approved cost sharing agreement which may be treated as a trading receipt shall not exceed the amount of expenditure allowable under the section. |
| 13 |
Tax incentives to grow creative industries |
To encourage more creation and exploitation of IP, the existing scope of section 10(14) has been expanded to include all Singapore-sourced qualifying income received for the assignment of or for the rights to use the copyright in any literary, dramatic, musical or artistic work.
To complement the efforts of the National Research Foundation, the concession under section 10(16) is extended to cover qualifying income from Industrial Design and Interactive and Digital Media sectors
To encourage enterprising inventors and creators to move beyond freelancing to even formalize his business in the form of a company wholly-owned by him, section 10(16) is now expanded to include to companies wholly owned by the inventor/ creator.
The above enhancements take effect from 1st April 2006. |
Section 10(14), (16) and(18)
[Clause 2(h), (i) and (j)]
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Clause 2 amends section 10 (Charge of income tax) —
(a) to extend the tax concession under subsection (14) to cover any income derived by an author, composer or choreographer, or a company all of whose issued shares are beneficially owned by him, from the assignment or licensing of copyright in works, irrespective of the person from whom such payments are received;
(b) to extend the tax concession under subsection (16) to cover specified income derived from the assignment or licensing of any approved intellectual property by any company all of whose issued shares are beneficially owned by the owner of the intellectual property. |
| 14 |
Introduction of a new Maritime Finance Incentive scheme (MFI) |
To encourage the development of ship financing activities which contributes to Singapore’s position as an maritime hub, the MFI scheme is introduced from 1st March 2006. Under this scheme, tax exemption will be granted for a period of 10 years on qualifying income of Approved Ship Investment Vehicles while a concessionary tax rate of 10% will be granted to Approved Ship Investment Managers.
The window period for applying MFI status is from 1st March 2006 to 28th February 2011. |
New Sections 13S & 43W
Miscellaneous Amendments- Sections 10(4), (5), (5A), 13B(1), (2), (8)(a), 13E(12)(b), 14C(6), 37B(7) and 37E(17) [Clauses 2, 10, 34 and 43(c)]
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Clause 2 amends section 10 (Charge of income tax) to exempt from tax a specified amount of balancing charge made to an approved shipping investment enterprise within the meaning of new section 13S;
Clause 10 inserts new section 13S.
The new section 13S provides for a tax exemption on income derived by an approved shipping investment enterprise from the chartering or finance leasing of ships for a period not exceeding 10 years.
Clause 34 inserts new section 43W.
The new section 43W enables regulations to be made to levy a concessionary tax rate of 10% upon specified income derived on or after 1st March 2006 by an approved shipping investment manager from managing an approved shipping investment enterprise or from other prescribed services carried out for such enterprise, subject to conditions.
Clause 43 makes consequential amendments to various provisions of the Act arising from the insertion of section 43W by clause 34. |
| 15 |
Review of tax relief for NSmen |
(a) To align the recognition given to NSmen with their contributions in the work year, the basis period to determine the NSmen Tax Relief was changed from the preceding calendar year to the preceding work year.
(b) To recognize the additional contributions and sacrifices by NS Key Command and Staff Appointment Holders (KAHs), an additional NSmen relief of $2,000 will be granted with effect from the year of assessment 2007 to NS KAHs over and above what they would normally receive as NSmen. |
Section 39(2A), (2B)
[Clause 25(b) to (e), (i) and (k)]
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Clause 25 amends section 39 (Relief and deduction for resident individual and Hindu joint family) —
(a) to allow an additional tax relief of $2,000 to an individual who is a NS key command and staff appointment holder at any time during the basis period; and
(b) to change the basis period for determining the tax relief for operationally ready national servicemen from the preceding calendar year to a period beginning from 1st April of the year preceding the year of assessment and ending on 31st March of the subsequent year. |
| 1 |
Tax treatment of mutual concerns set up as companies limited by guarantee |
To facilitate the application of mutuality treatment to companies limited by guarantee, the Act will be amended to subject companies limited by guarantee that operates as a mutual trade association to the rules under section 11(2) of Income Tax Act. The company limited by guarantee will have to satisfy certain conditions before it is regarded as a mutual trade association.
For the purpose of administering the 50% test, the "receipts from Singapore members" will be used as the denominator and if the organisation has non-Singapore membership and it fails the 50% test, only the receipts from Singapore members will be taxed.
Receipts from third parties will be taxed in all cases. |
Section 11
[Clause 5] |
Clause 5 amends section 11(Ascertainment of income of clubs, trade associations, etc.) to provide that an approved company limited by guarantee that carries on a trade association, and has more than half of its receipts by way of entrance fees and subscriptions from certain members in Singapore, shall be deemed to carry on a business. |
| 2 |
Revision of the amount of penalty for failure to file return and give notice of chargeability |
To strongly discourage taxpayers from avoiding to pay tax by not submitting their income tax returns, a new penalty will be introduced to impose a penalty of double the amount of tax which has been undercharged for the failure to file tax returns within 3 years from the deadline to file the tax return.
The new penalty will only be imposed on taxpayers who, without any reasonable excuse, fail to file their returns within 3 years from the deadline to file the return, and is not targeted at taxpayers with valid reasons for late filings. |
Sections 62, 94, 94A and 101
[Clauses 38, 39, 40 and 41] |
Clause 38 makes a consequential amendment to section 62 (Notice of chargeability and returns) arising from the insertion of new section 94A by clause 40.
Clause 39 makes consequential amendments to section 94 (General penalties) arising from the insertion of new section 94A by clause 40.
Clause 40 inserts new section 94A —
(a) to provide for the offence of failure to make a return of income which is currently included in section 94; and
(b) to enhance the penalty for failing to make a return of income for any year of assessment for 3 years or more.
Clause 41 makes a consequential amendment to section 101 (Sanction for prosecution) arising from the insertion of new section 94A by clause 40. |
| 3 |
Cut in personal income tax (PIT) rates from the year of assessment 2007 |
To legislate the reduction in the top marginal PIT rate from the year of assessment 2007 to 20% as announced in 2005 Budget Statement. The marginal tax rates of the other income brackets will also be correspondingly reduced. |
2nd Schedule
[Clause 42] |
Clause 42 deletes and substitutes Part A of the Second Schedule to provide for the tax rates applicable to a resident individual or a Hindu joint family for the year of assessment 2007 and subsequent years of assessment. |
| 4 |
Policy Clarifications on Group Relief (GR) and Carry-back Relief System |
To provide greater clarity, the Income Tax Act will be amended to:
(a) Allow current year unabsorbed industrial building allowances of section 10E companies to be transferred under the Group Relief (GR) system;
(b) Disallow companies to transfer under the GR system or carry back under the carry-back relief system, their qualifying deductions relating to income that is granted tax remission, except under specific circumstances. |
Sections 37C and 37E
[Clauses 23 and 24 ] |
Clause 23 amends section 37C (Group relief for Singapore companies) —
(a) to allow a company to which section 10E applies to transfer under the group relief system its un-utilised industrial building allowances for the current year; and
(b) to disallow a transfer under the group relief system of qualifying deductions relating to any income the tax on which is remitted, unless the Minister otherwise approves.
Clause 24 amends section 37E (Carry-back of capital allowances and losses) to disallow the carrying back of qualifying deductions relating to any income the tax on which is remitted, subject to certain exceptions. |
| 5 |
Taxation of insurers following the adoption of the Risk Based Capital (RBC) framework implemented by MAS |
With the implementation of the RBC framework for insurers by MAS and the application of Financial Reporting Standard (FRS) 39 with effect from 1st January 2005, the Income Tax Act has to be amended to clarify the changes to the taxation basis of insurers. The following changes are made:
(a) For life insurers’ financial statements beginning on or after 1st January 2005:
i. To tax the surplus of the par fund based on the actual distributions made to policyholders and shareholders;
ii. To accept the policy liabilities computed under RBC for tax-deduction without the need to make further adjustments; and
iii. To continue the current tax treatment of taxing the surplus attributable to par policyholders at 10%;
(b) To follow the tax treatment stipulated for companies adopting FRS 39 for accounting purposes in respect of unrealized gains/losses, as well as the transitional adjustments. |
Sections 26 and 43(9)
[Clauses 18 and 29(c) and (d)] |
Clause 18 amends section 26 (Profits of insurance companies) —
(a) to modify the basis of taxation of life insurers in light of the adoption by such insurers of a risk based capital framework. In the case of participating funds, a life insurer shall be chargeable to tax on the surplus of such funds based on actual distributions made to policyholders and shareholders;
(b) to extend the application of the section to a person (including a foreign partnership) permitted under the Insurance Act to carry on insurance business in Singapore under a foreign insurer scheme;
(c) to make consequential amendments arising from the change in the treatment of financial assets and liabilities for income tax purposes following the adoption of Financial Reporting Standard 39 (FRS 39) for accounting purposes;
(d) to enable the Comptroller to make adjustments to the tax liability of a life insurer in a case where, immediately before the life insurer ceases business permanently without transferring the business to any person in Singapore, there is an amount remaining in the participating fund which is not allocated by way of bonus to any participating policy;
(e) to empower the Minister to make regulations for the purposes of the section and to provide that the tax treatment of the income of an insurer derived before the year of assessment 2006 shall be in accordance with section 26 in force immediately before the amendment to the section; and
(f) to define or redefine certain terms used in the section.
Clause 29 amends section 43 (Rate of tax upon companies and others) to replace references to “insurance company” in subsection (9) (which specifies the tax rate for certain types of income of life insurance companies) with “insurer” to cover entities other than companies carrying on life insurance business. |
| 6 |
Manner of computing and assessing income derived by members of Lloyd’s through syndicates formed to carry on insurance business in Singapore |
A new section is introduced to clarify and effect the tax treatment of members of Lloyd’s through syndicates formed to carry on insurance business in Singapore. This section provides the manner of computing and assessing the income derived by such members. |
New Section 26A
[Clause 19] |
Clause 19 inserts a new section 26A to provide for the manner of ascertaining and assessing the income from a business of insuring and reinsuring risks carried on by a member of Lloyd’s through a syndicate formed to carry on such business in Singapore. It also provides that the tax chargeable on the income of a non-resident member from those syndicates of which he is a member shall be aggregated with that of other non-resident members of those syndicates, and assessable in the name of the agent who shall, among other things, make returns of income when required by the Comptroller. |
| 7 |
Improve clarity on the tax treatment of trust |
Tax treatment of trusts will be clarified as follows:
(a) Trading income derived by trusts will be taxed at the trustee level. This will be a final tax. Subsequent distributions by the trustee will no longer retain the original character of the income. Distributions will be exempt in the hands of beneficiaries;
(b) Where passive income is derived by a normal trust and distributed in the year it is earned or when beneficiary is entitled to the income in the year it is earned (as in non-discretionary trust), beneficiaries will be regarded as deriving the income directly and hence all concessions, exemptions and credits attached to the income will be given to beneficiaries;
(c) Where passive income is derived by a normal trust and not distributed within the year, the trustee will be taxed on the income. This will be a final tax. Subsequent distributions by the trustee will no longer retain the original character of the income. Distributions will however be tax-exempt in the hands of beneficiaries. |
Sections 13(1)(zg)(ii), 13T, 35(16)(b), 40(6), 43(2A)(b), 43X, and 50B
Miscellaneous Amendments- Sections 13B(1), (2), (8)(a), 13E(12)(b), 14C(6), 37B(7) and 37E(17)
[Clauses 6(e), 10, 21, 26, 29(a), 34, 37 and 43] |
Clause 6 amends section 13 (Exempt income) to clarify that any trust distribution out of trade or business income (other than in respect of a real estate investment trust) is exempt from tax in the hands of the beneficiaries since tax is payable on such income by the trustee;
Clause 10 inserts new section 13T.
The new section 13T provides that a trust distribution in the hands of a beneficiary shall be exempt from tax if it would have been exempt from tax under any provision of Part IV (Exemption from Income Tax) if derived or received directly by the beneficiary rather than the trustee. This would enable the beneficiary to enjoy a tax exemption in respect of such income even though it is not so exempt when first derived or received by the trustee. This does not apply to the income of a real estate investment trust, a designated unit trust, an approved CPF unit trust, a foreign trust or a locally administered trust as most or all of such income already enjoys separate exemptions under the Act.
Clause 21 inserts a new subsection (16) in section 35 (Basis for computing statutory income) to exclude from the statutory income of a beneficiary under a trust certain trade or business income of the trustee. Such income shall be assessable in the hands of the trustee.
Clause 26 makes a consequential amendment to section 40 arising from the insertion of new section 50B by clause 37.
Clause 29 amends section 43 (Rate of tax upon companies and others) to disapply subsection (2) (which allows the Comptroller to charge a lower tax rate on, or to exempt from tax, any share of trust income which a beneficiary is entitled to) to trust income from any trade or business carried on by a trustee. This is to place the trust in the same position as any entity that engages in a similar trade or business.
Clause 34 inserts new section 43X.
The new section 43X provides that a trust distribution in the hands of a beneficiary shall, if it would have been subject to a concessionary tax rate under any provision of Part XI (Rates of Tax) if derived or received directly by the beneficiary rather than the trustee, be subject to the same concessionary tax rate. This would enable the beneficiary to enjoy the concessionary tax rate in respect of such income even though it is not subject to tax at that rate when first derived or received by the trustee. The section does not apply to the income of a real estate investment trust, a designated unit trust, an approved CPF unit trust, a foreign trust or a locally administered trust as most or all of such income already enjoys separate concessionary rates under the Act.
Clause 37 inserts new section 50B which provides that where a trustee is allowed a tax credit under Part XIV (Relief Against Double Taxation) in respect of income received from overseas, that credit shall be given to a beneficiary of the trust who is entitled to a share of the income. The credit of the beneficiary shall be computed as if the beneficiary rather than the trustee had received the income directly. The amount of the credit is thus ascertained by reference to the tax chargeable on the income of the beneficiary rather than the trustee. The section does not apply to the income of a real estate investment trust, a designated unit trust, an approved CPF unit trust, a foreign trust or a locally administered trust as most or all of such income in the hands of the beneficiary already enjoys separate exemptions or concessionary rates under the Act.
Clause 43 makes consequential amendments to various provisions of the Act arising from the insertion of section 43X by clause 34. |
| 8 |
Distinguish tax treatment of Real Estate Investment Trusts (REITs) from other trusts |
The tax regime for REITs listed on Singapore Exchange is distinct from other trusts. A listed REIT enjoys tax concessions such as tax transparency treatment on rental income and lower concessionary tax rate on REITs distributions to qualifying non-resident institutional investors.
The Income Tax Act is amended to distinguish listed REITs, which are incentivised, from normal trusts and to grant Comptroller of Income Tax control over the income sources to which tax transparency treatment shall be applied to listed REITs. |
Sections 13(1)(zg)(iii), 13(1)(zh), 35(16)(a) and 43(2A)(a) and (b)
[Clauses 6(e), 21, 29 (a) and (b)] |
Clause 6 amends section 13 (Exempt income) —
(a) to clarify that any distribution of trade or business income of a real estate investment trust listed on the Singapore Exchange (other than certain types of income such as rental income and interest income ancillary to the management or holding of real property) is exempt from tax in the hands of the unitholders, since tax is payable on such income by the trustee;
(b) to restrict the tax exemption for any distribution of income of a real estate investment trust that is authorised under the Securities and Futures Act and whose units are offered to the public, to the distribution of certain types of income such as rental income and interest income ancillary to the management or holding of real property.
Clause 21 inserts a new subsection (16) in section 35 (Basis for computing statutory income) to exclude from the statutory income of a beneficiary under a trust certain trade or business income of the trustee. Such income shall be assessable in the hands of the trustee.
Clause 29 amends section 43 (Rate of tax upon companies and others) —
(a) to disapply subsection (2) (which allows the Comptroller to charge a lower tax rate on, or to exempt from tax, any share of trust income which a beneficiary is entitled to) to trust income from any trade or business carried on by a trustee. This is to place the trust in the same position as any entity that engages in a similar trade or business. An exception is made in the case of certain types of income distributed by a trustee of a real estate investment trust listed on the Singapore Exchange, such as rental income and interest income ancillary to the management or holding of real property;
(b) to restrict subsection (3B) (which applies a 10% tax rate on distribution by a trustee of a real estate investment trust listed on the Singapore Exchange to certain non-resident persons) to the distribution of certain types of income such as rental income and interest income ancillary to the management or holding of real property. |
| 9 |
Tax treatment arising from the adoption of FRS 39 for accounting purpose |
With effect from 1st January 2005, all companies with annual periods beginning on or after 1st January 2005 have to adopt the Financial Reporting Standard (FRS) 39- Financial Instruments: Recognition & Measurement and recognise all financial instruments on their financial statements. IRAS has issued a circular on 30th December 2005 to explain the changes to the treatment of financial assets and liabilities for income tax purposes arising from the adoption of FRS 39 for accounting purpose. |
New Section 34A
[Clause 20] |
Clause 20 inserts new section 34A.
The new section 34A provides for changes to the basis of computing profits of financial instruments arising from the adoption of FRS 39 by companies in Singapore. It provides that, with certain specified exceptions, any amount to be brought into account in respect of any financial instrument of a person subject to the section is that which, in accordance with FRS 39, is recognised in determining the profit or loss or expense in respect of that financial instrument.
The section applies to all persons required to comply with FRS 39, unless he makes an election not to be subject to it. A person who so elects may subsequently revoke his election and the revocation is irrevocable. A person not required to comply with FRS 39 may apply to the Comptroller to be subject to the section. |
| 10 |
Amendment of section 13O to clarify the additional requirements imposed on a settlor of a philanthropic purpose trust |
The amendment is to make clear additional requirements to be satisfied by a settlor of a philanthropic purpose trust injecting funds or assets into a foreign account of the trust, where such settlor is a foreign company . |
Section 13O
[Clause 9] |
Clause 9 redefines the expression “foreign account” in section 13O (Exemption of income of foreign account of philanthropic purpose trust) by adding further requirements which a foreign company injecting funds into such account must satisfy e.g. it must not carry on business in Singapore or beneficially own more than 20% of the issued shares of a company incorporated in Singapore. |
| 11 |
Tax treatment of trusts - giving credit under section 46 (1)(b) of Income Tax Act |
Refer to item 7 |
Section 46 (1)(b)
[Clause 36] |
Clause 36 makes consequential amendments to section 46 (Tax deducted from dividends, interests, etc.) arising from the amendments of sections 13, 35 and 43 by clauses 6, 21 and 29 respectively. With the amendments made to sections 13, 35 and 43, the income (other than franked dividends derived from Singapore) is taxed either in the hands of the trustee or beneficiary and there is therefore no need to grant a tax credit to the beneficiary |
| 12 |
Clarification of the definition of deposit under sections 13(1)(t) and 13(1)(zd), and expansion of scope of locally sourced investment income of individuals qualifying for tax exemption to include income from structured products |
The amendment is to define deposits in accordance with the Banking Act and MAS' Guidelines on Deposits (released on 7th October 2004), with effect from the year of assessment 2006. In connection with this amendment, the list of financial instruments qualifying for tax exemption under the locally-sourced investment income regime for individuals will also be expanded to include structured products with effect from the year of assessment 2006. |
New Section 13(1)(zj)
Amendment to Section 13(16)
[Clause 6(e), (f) and (i)] |
Clause 6 amends section 13 (Exempt income) —
(a) to extend tax exemption to various types of income derived by individuals such as income from structured products;
(b) to clarify the definition of “deposit” used in subsection (1)(t) and (zd). |
| 13 |
Amendment to section 11(2) of Income Tax Act to clarify the income tax treatment of professional associations. |
The amendment is to make clear in the Income Tax Act that professional associations will be subjected to the treatment under section 11(2) of the Income Tax Act. Strictly, this is not a change in tax treatment from the practice today. |
Section 11
[Clause 5] |
Clause 5 amends section 11(Ascertainment of income of clubs, trade associations, etc.) to clarify that the tax treatment in subsection (2) also applies to a professional association. |
| 14 |
Amendment of definition of “qualifying company” under section 43(10) of Income Tax Act |
The amendment is make clear that to qualify for the exemption on chargeable income (excluding Singapore franked dividend) of up to the first $100,000 for a qualifying year of assessment under section 43(6A), the total share capital of the qualifying company is to be beneficially held, directly or indirectly by no more than 20 shareholders all of whom are individuals. |
Section 43(10)
[Clause 29(e)] |
Clause 29 amends section 43 (Rate of tax upon companies and others) to provide, for the purposes of subsection (6A) (which gives a tax exemption on the first $100,000 of certain normal chargeable income of a qualifying company), that a company is a qualifying company only if its total share capital during the basis period for each of its first 3 years of assessment is beneficially held directly or indirectly by no more than 20 shareholders all of whom are individuals. |
| 15 |
Amendment of section 13A of Income Tax Act to include income from offshore oil and gas activity |
The amendment is to include operation outside the limits of the port of Singapore of a Singapore ship, being a dredger, seismic ship or vessel used for offshore oil or gas activity, as a qualifying activity for the purpose of granting tax exemption on income of a shipping enterprise under section 13A of the Income Tax Act. This change will take effect from the year of assessment 2007. |
S13A(16)
[Clause 7] |
Clause 7 amends section 13A (Exemption of shipping profits) to extend the tax exemption in that section to income from the use outside the limits of the port of Singapore of a Singapore ship as a dredger, seismic ship or vessel used for offshore oil or gas activity. |
| 16 |
Enhancements to the Artefact Donation Scheme (ADS) and Public Art Tax Incentive Scheme (PATIS) |
To include other forms of public art under the scheme and to liberalise the scheme so that more arts, culture and heritage related organizations will be able to benefit from it. The following enhancements will be made:
(a) To extend the Approved Museum status beyond museums to collecting institutions;
(b) To enhance the Public Sculpture Donation Scheme (PSDS) to incorporate other forms of public art, besides sculptures (to reflect this enhancement, PSDS will be renamed PATIS) as well as monies or services given towards the installation or maintenance of the sculptures or work of art. |
Section 37(3) and 37(16)
[Clause 22 ] |
Clause 22 amends section 37 (Assessable income) to expand the types of donations qualifying for double deduction to include any approved donation of a work of art to an approved museum, a work of art to an approved recipient for public display, any sculpture to an approved recipient for public display indoors, and money or services for installing or maintaining any sculpture or work of art for public display. It also defines museums to include collecting institutions. |
| 17 |
Repeal of section 43L of Income Tax Act (Concessionary tax rate for qualifying income derived by approved art and antique dealers) |
The concession is no longer relevant and it shall lapse with effect from 1st November 2006. |
Section 43L
Miscellaneous Amendments- Sections 13B(1), (2), (8)(a), 13E(12)(b), 14C(6), 37B(7), 37E(17), 44(20)(e)(ii) and 43D
[Clauses 32 and 43(a) and(b)] |
Clause 32 repeals section 43L (Concessionary rate of tax for art and antique dealers) which is no longer required.
Clause 43 makes consequential amendments to various provisions of the Act arising from the repeal of section 43L by clause 32. |
| 18 |
Changes to Central Provident Fund (CPF) contributions |
(a) To align the tax relief quantum for CPF contributions on Additional Wages (AW) to the mandatory CPF contributions required by CPF Act. The amount of tax relief granted in respect of the AW on which CPF contributions are made would be subject to a ceiling of (17 times monthly CPF salary ceiling less total Ordinary Wages subject to CPF contributions in the year), or actual AW, whichever is less;
(b) The CPF salary ceiling has been revised from $5,000 to $4,500 in 2006. The amendments are consequential to this change;
(c) The CPF Voluntary Contribution (VC) cap and the self-employed tax relief cap has been revised from $28,050 to $25,245. |
Sections 10C and 39
[Clauses 3, 25(a), (f), (g), (h) and (j)] |
Clause 3 amends section 10C (Excess provident fund contributions, etc. deemed to be income) to provide that tax relief for mandatory contributions to the CPF in respect of additional wages shall be a sum computed in a specified manner instead of a fixed sum. It also makes consequential amendments to section 10C arising from the change to the maximum amount of ordinary wages in respect of which mandatory contributions to the CPF are to be made.
Clause 25 amends section 39 (Relief and deduction for resident individual and Hindu joint family) to revise the limit of relief given to a self-employed individual in respect of his voluntary contributions to the CPF. |
| 19 |
Extension of Parenthood Tax Rebate (PTR) to parents of legitimised children |
To recognize parents’ effort to give their child an intact family during the child’s early years:
(a) To grant PTR to parents of a legitimised Singapore citizen child if the natural parents marry when the child is below 6 years old; and
(b) To grant PTR to parents of an adopted Singapore citizen child only if the child is below 6 years old at the point of adoption. |
Section 42A
[Clause 28] |
Clause 28 amends section 42A (Rebate for second, third and fourth child of family) —
(a) to grant a tax rebate to an individual who has an illegitimate second, third or fourth child of the family born to him on or after 1st January 2004, if the individual becomes lawfully married to the other natural parent of the child before the child reaches 6 years of age; and
(b) to provide that a tax rebate will only be granted to an individual who adopts a second, third or fourth child of the family on or after 1st January 2006 if the child is adopted before he reaches 6 years of age. |
| 20 |
Amendment of section 10 of Income Tax Act to clarify tax treatment of gains or profits from any right or benefit granted prior to 1st January 2003 to any person to acquire shares in a company, by reason of any office or employment held by him |
For the avoidance of doubt on the taxability of gains or profits from any right or benefit granted before 1st January 2003 to any person, by reason of any office or employment held by him, to acquire shares in a company, section 10(6A) of Income Tax Act is inserted to clarify that such gains or profits shall be treated in accordance with section 10(5) of Income Tax Act in force immediately before 10th December 2002. |
Section 10(6A)
[Clause 2(g) ] |
Clause 2 amends section 10 (Charge of income tax) to state for the avoidance of doubt that section 10(5) in force immediately before 10th December 2002 shall apply to any gains or profits from any right or benefit granted to a person before 1st January 2003 to acquire shares in a company, by reason of any office or employment held by him. |
| 21 |
Applicability of section 10J (Shares buyback) provisions |
The amendment is to provide that section 10J shall not apply when a company buys back its own shares and hold them in treasury instead of cancelling them. |
Section 10J
[Clause 4] |
Clause 4 amends section 10J (Shares buyback) to make it inapplicable to a case where shares bought back by a company are held in treasury. |
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- Full Draft (pdf)
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- Commencement Notification (pdf)
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- Clause 2 to 43 (pdf)
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- Explanatory Statement (pdf)
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- Budget 2006 tax changes (pdf)
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- Other tax changes (pdf)
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Prescribed template for submission of comments (pdf)
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- You may refer to the online version of the Income Tax Act athttp://statutes.agc.gov.sg/.
- For more details on the tax changes, you may refer to the circulars at the IRA's website at www.iras.gov.sg.
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