| BUDGET 2005 TAX CHANGES |
| S/N. |
TAX CHANGE |
BRIEF DESCRIPTION OF TAX CHANGE |
AMENDMENT TO INCOME TAX ACT
|
EXPLANATION FOR AMENDMENT |
| 1 |
Reduction in Personal Income Tax (PIT) rates |
The top PIT rate will be reduced to 21% for the year of assessment (YA) 2006, and then to 20% for YA2007. The marginal tax rates of the other income brackets will also be correspondingly reduced. |
Second Schedule
Part A
[Clause 45]
|
Clause 45 amends Part A of the Second Schedule to provide for the tax rates applicable to a resident individual or a Hindu joint family for YA 2006. |
| 2 |
Introduction of carry-back of capital allowances (CAs) and trade losses |
With effect from YA 2006, the unutilised CAs and trade losses of any person will, subject to conditions, be allowed to be carried back for set-off against assessable income of the person for the YA immediately preceding the YA relating to the basis period in which the CA was granted or trade loss was incurred. In certain cases, the set off may be granted against the spouse’s assessable income for the immediate preceding YA.
Further details will be released in an IRAS circular by June 05.
|
Sections 2, 10D(2), 10H(1), 23(3), 36A(4), 36A(10), 37(5), 37E & 37F
[Clauses 2(b), 5, 6, 18(a), 20, 22(c)& 26]
|
Clause 26 inserts new sections 37E and 37F. The new section 37E provides for a one-year carry-back of current year unutilised CAs and trade losses, subject to among other conditions, a cap of $100,000. The new section 37F provides for carry-back of current year unutilised CAs and trade losses between spouses in certain cases.
Clause 2(b) makes a consequential amendment to the definition of “earned income” in Section 2 arising from the insertion of new sections 37E and 37F by clause 26.
Clauses 5 and 6 amend Sections 10D(2) and 10H(1), respectively, arising from the insertion of new section 37F by clause 26 to clarify that certain allowances and losses under those sections are not to be transferred between spouses under section 37F.
Clause 18(a) makes a consequential amendment to Section 23(3) arising from the insertion of new sections 37E and 37F by clause 26.
Clause 20 makes consequential amendments to Section 36A(4) and 36A(10) arising from the insertion of new sections 37E and 37F by clause 26.
Clause 22(c) makes a consequential amendment to Section 37(5) arising from the insertion of new sections 37E and 37F by clause 26. |
| 3 |
Provision for a reduced rate of tax on gross amount of distribution by Real Estate Investment Trust (REIT) to foreign non-individual unitholders & provision for deduction of tax at the appropriate rate from gross amount of REIT distribution |
To attract foreign non-individual investors to participate in our REITs market, the tax rate on gross amount of distribution made during the period from 18th February 2005 to 17th February 2010 by a trustee of REIT offered to public for subscription and listed on Singapore Exchange to qualifying foreign non-individuals unitholders is reduced from 20% to 10%. The tax computed based on 10% of the gross amount of distribution is a final tax.
In addition, tax is to be deducted at the appropriate rate from gross amount of distribution made by a trustee of REIT offered to public for subscription and listed on Singapore Exchange to certain unitholders. |
Sections 43(3B), (10), 45G, 46(1) & 48(5)
[Clauses 29, 37, 38 & 39]
|
Clause 29 inserts a new subsection (3B) to section 43 to provide for a final rate of tax of 10% to be paid on gross amount of distribution made during the period from 18th February 2005 to 17th February 2010 by a trustee of REIT to qualifying foreign non-individuals.
Clause 37 inserts a new section 45G to provide for tax to be deducted from any distribution made on or after 18th February 2005 by a trustee of REIT at the rate of 10% to qualifying foreign non-individuals, and at the rate specified in section 43(1)(a) to certain other persons who do not fall within a specified exclusion list.
Clause 38 amends section 46 by inserting a new paragraph (d) to subsection (1) to provide that any tax which a trustee of REIT has deducted from any distribution made to certain person under the new section 45G(1)(b) shall be set-off for collection against tax charged on the chargeable income of that person, provided that the distribution from which the tax has been deducted is included in the chargeable income of that person.
Clause 39 makes a consequential amendment to section 48(5) arising from the insertion of new section 43(3B) by clause 29. |
| 4 |
Extension of existing incentive for qualifying debt securities (QDS) and tax exemption for individuals in respect of locally sourced investment income, to amount payable from Islamic debt securities |
To encourage growth of Islamically structured transactions in Singapore, the QDS scheme will be expanded to cover amount payable from Islamic debt securities. This will apply to such securities which are QDS issued from 1st January 2005 to 31st December 2008. With effect from 1st January 2005, the tax exemption on locally sourced investment income derived by individuals, will also be extended to include any amount payable from Islamic debt securities. The existing conditions for QDS scheme and locally sourced investment income will continue to apply to amount payable from Islamic debt securities. |
Sections 13(1), (2B), (16), 42(6), (7), (8) 43N(1), (2), (4) & 45A(2A) & (3)
[Clauses 10(b), (f), (g), (h),28(c), (e), (f), (g), 34 & 36]
|
Clause 10 amends section 13 —
(i) to insert a new paragraph (ab) to subsection (1) to exempt from tax amount payable to certain non-residents from certain Islamic debt securities;
(ii) to insert new subsection (1)(zf) to exempt from tax amount payable to certain individuals from certain Islamic debt securities;
(iii) to insert a new subsection (2B) to exclude certain amounts payable from Islamic debt securities from tax exemption under new section 13(1)(ab);
(iv) to insert a new definition of the term “Islamic debt securities” arising from the insertion of new subsection (1)(ab) by clause 10(b).
Clause 28 amends section 42 —
(i) to insert a new paragraph (c) to subsection (6) to provide for an amount payable to a body of persons from Islamic debt securities which are qualifying debt securities issued during the period from 1st January 2005 to 31st December 2008 to be taxed at the rate of 10%, subject to conditions specified under subsection (7);
(ii) to make a consequential amendment to subsection (7) arising from the insertion of paragraph (c) to subsection (6) by clause 28(c);
(iii) to define certain terms used in section 42 arising from the amendment of subsections (6) and (7) by clause 28(c) and (e).
Clause 34(a) inserts a new paragraph (ab) to section 43N(1) to extend the concessionary rate of tax of 10% to any amount payable to any company from any Islamic debt securities which are qualifying debt securities issued from 1st January 2005 to 31st December 2008.
Clause 34(b), (d) and (e) amends section 43N(2) to provide the circumstances under which the concessionary rate of tax in section 43N(1)(ab) shall not be applicable.
Clause 34(f) inserts a definition of the term “Ïslamic debt securities” arising from the insertion of subsection (1)(ab) by clause 34(a).
Clause 36 inserts a new subsection (2A) to section 45A to provide for waiver of withholding tax on any amount payable from Islamic debt securities liable to be paid to non-resident persons, subject to conditions. |
| 5 |
Changes to the tax exemption scheme for funds managed for foreign investors |
To address the difficulty faced by start-up fund managers at the initial stage of their business to attract investors who qualify as “foreign investor” to invest in the funds they are managing, some changes have been made to the current tax exemption scheme for funds managed for foreign investors. The definition of “foreign investor” will be amended to include a non-resident company or a trust fund, being a fund set up by a fund manager while it is an “approved start-up manager” and managed by it, for a period of 12 months from the date of its set up. This is notwithstanding that 20% or more of the issued share capital of the non-resident company or value of the trust fund, as the case may be, is beneficially held by persons who are not foreign investors. However the non-resident company and trust must be one set up during the period from 18th February 2005 to 17th February 2010. |
Section 13C
[Clause 11]
|
Clause 11 amends section 13C to extend the tax exemption to any prescribed income derived by certain persons from funds managed by an approved start-up fund manager as prescribed in the regulations. |
| 6 |
Tax exemption on specified income derived from funds held in foreign account of a philanthropic purpose trust |
To facilitate the administration of foreign philanthropic purpose trusts in Singapore, a new scheme is introduced to grant tax exemption on the following:
(a) specified income from designated investments derived from any funds or assets in any foreign account of a philanthropic trust constituted on or after 18th February 2005, and administered by a trustee company in Singapore;
(b) specified income from designated investments derived from any funds or assets of an eligible holding company established for the purposes of that philanthropic trust which are held for the foreign account of that trust. |
Section 13O
[Clause 13]
|
Clause 13 inserts new sections 13O and 13P. The new section 13O provides for tax exemption on any prescribed income from funds or assets of any foreign account of a philanthropic purpose trust administered by a trustee company in Singapore, and from any funds or assets of eligible holding company, and defines certain terms used in the section. |
| 7 |
Tax incentive for securities lending or repurchase activities |
Prior to Budget 2005, companies do not enjoy any concessionary tax treatment in respect of income derived from securities lending or repurchase activities, unless they are companies approved under the Financial Sector Incentive (FSI) Scheme. To encourage more companies to participate in securities lending or repurchase activities in Singapore, a concessionary tax rate of 10% would be granted on qualifying income derived by any qualifying company during the period from 18th February 2005 to 31st December 2008 from such activities. |
Sections 13B(1), (2), (8), 13E(12), 14C(6), 37B(7) & 43T
[Clauses 35 & 47]
|
Clause 35 inserts new sections 43T and 43U. The new section 43T provides that a concessionary rate of tax of 10% shall be levied in respect of specified income derived on or after 18th February 2005 but before 1st January 2009 by a qualifying securities lending or repurchase company under a securities lending or repurchase arrangement, subject to conditions |
| 8 |
Enhancement to Finance and Treasury Centre (FTC) incentive scheme |
Prior to Budget 2005, an approved FTC is granted a concessionary tax rate of 10% on its income derived from the provision of approved qualifying services to its approved offices and associated companies where such offices and associated companies are outside Singapore. In addition, for the purpose of tax incentive, the approved qualifying services performed by the approved FTC for its approved offices and associated companies, and the approved qualifying activities carried out by the FTC, are restricted to non-S$ transactions.
Following 2005 Budget announcement, income derived by an approved FTC from the carrying on of approved qualifying services denominated in S$ on or after 18th February 2005 will qualify for the concessionary tax rate of 10%. In addition, Singapore-based associated companies of the FTC (or known as local network companies “LNC”) can also be approved as approved network companies with effect from 18th February 2005, so long as the LNC’s total annual revenue shall not exceed 10% of the Group’s annual total revenue globally. |
Section 43G(1) & (3)
[Clause 33(a) & (b)]
|
Clause 33 amends section 43G —
(i) to extend the concessionary rate of tax of 10% to income derived by an approved Finance and Treasury Centre from the provision of prescribed qualifying services to its offices in Singapore or its associated companies in Singapore, that are approved on or after 18th February 2005;
(ii) to make a consequential amendment to subsection (3) arising from the amendment of subsection (1) by clause 33(a). |
| 9 |
Concessionary tax rate for specified income derived from organising or staging approved tourism event |
To encourage companies to organise or stage more world-class events and activities, a concessionary tax rate of 10% would be granted in respect of specified income derived on or after 1st April 2005 by an approved company from organising or staging approved tourism event. No approval shall be granted on or after 31st March 2010. |
Sections 13B(1), (2), (8), 13E(12), 14C(6), 37B(7) & 43 U
[Clauses 35 & 47]
|
Clause 35 inserts new sections 43T and 43U. The new section 43U provides that subject to conditions, a concessionary rate of tax of 10% shall be levied in respect of specified income derived by an approved company, incorporated or registered in Singapore, on or after 1st April 2005 from organizing or staging an approved tourism event. |
| 10 |
Granting double tax deduction for naming donations to approved institution of a public character (IPC) and approved recipient |
To encourage more charitable giving, double tax deduction will be granted for all naming donations made on or after 1st January 2005 and covered under section 37 of the Income Tax Act (ITA), i.e. cash donations and in-kind donations (public sculptures, artefacts, computers, shares of companies listed on Singapore Exchange, units in unit trusts traded in Singapore or listed on Singapore Exchange, immovable property). |
Sections 37(2), (6), (7), (8), (9), (12), (18), 37C(14) & 37D(8)
[Clauses 22(a), (d), 24(f) & 25]
|
Clause 22 amends section 37 to extend deduction for an amount equivalent to twice the amount or value of donations that do not involve naming opportunities, to those involving naming opportunities, subject to conditions.
Clauses 24(f) and 25 make consequential amendments to sections 37C and 37D respectively arising from the change to allow double tax deduction for donation involving naming opportunities by clause 22(a) and (d). |
| 11 |
Enhancement to computer donation scheme |
To encourage IPCs to improve their administration and manage their programmes more effectively through the use of IT, donations of computer hardware and software made by any company on or after 1st January 2005 to an approved IPC will be granted double tax deduction, besides donations made to prescribed institutions |
Section 37(3)
[Clause 22(b)]
|
Clause 22 amends section 37 to provide deduction for approved donation of computer to an approved institution of a public character. |
| 12 |
Change to the tax relief for CPF contributions by self-employed individuals |
To encourage Singaporean to save more for their retirement, the self-employed individual will be given CPF tax relief computed based on 33% of his assessable income or the revised overall dollar cap of $28,050 (for the year 2005), whichever is the lower. The dollar cap for self-employed individuals for the year 2004 is $21,780. |
S39(2)(h)
[Clause 27(a), (b)]
|
Clause 27(a) and (b) amends section 39(2)(h) to increase the limit of relief given to a self-employed individual in respect of his voluntary contributions to the Central Provident Fund. |
| 13 |
Change to deductions for Supplementary Retirement Scheme (SRS) contributions |
Under the current section 39(2)(o), tax deduction for SRS contributions (SRS relief) made by an SRS member who –
| |
a) |
derives income from a trade, business, profession or vocation or from the exercise of an employment outside Singapore, or |
| |
b) |
is a Not-Ordinarily Resident (NOR) individual who has elected for tax exemption under section 13N(1) for the year of assessment, |
is restricted to –
| |
(i) |
the amount of the trade, business, profession or vocation income, or employment income received in Singapore; and |
| |
(ii) |
the apportioned employment income for the year immediately preceding the year of assessment, |
respectively.
In Budget 2005, it was announced that employees or self-employed individuals might make contributions up to 15% or 35% of $85,000 (depending on whether they are a Singaporean or a foreigner) regardless of their actual level of income from their employment, trade, business, profession or vocation. Consequential to this change, it has been decided that the restriction of SRS relief to the amount of the trade, business, profession or vocation income, or employment income received in Singapore would be lifted. However, the restriction of SRS relief to the apportioned employment income of NOR individuals remains.
|
Section 39(2)(o)
[Clause 27]
|
Clause 27(c) deletes proviso (i) to section 39(2)(o) to lift the limit on the tax relief granted in respect of contribution made to an SRS account by an SRS member who derives income from a trade, business, profession, vocation or employment from outside Singapore, to the amount of such income remitted to Singapore. |
OTHER TAX CHANGES |
| S/N. |
TAX CHANGE |
BRIEF DESCRIPTION OF TAX CHANGE |
AMENDMENT TO INCOME TAX ACT
|
EXPLANATION FOR AMENDMENT |
| 1 |
Company Legislation Regulatory Framework Committee (CLRFC)-related consequential tax changes, including Shareholding test |
Parliament had on 16th May 2005 passed the Companies (Amendment) Bill 2005. The changes in the Companies (Amendment) Act 2005 include the abolition of the concept of par value and allowing repurchased shares to be held as treasury shares.
With the abolition of the par value concept, there will no longer be a distinction between par value and share premium/discount. The amounts shareholders pay for the shares in a company will simply be referred to as share capital of the company.
Consequent to the abolition of the par value concept and the allowing of repurchased shares to be held as treasury shares, several provisions of the Income Tax Act (ITA) which make reference to the “nominal value of allotted shares”, “issued share capital”, “paid-up capital” or “ordinary share capital” will have to be amended.
For instance, in respect of Section 23(7) and Section 37(14) of the ITA, to determine whether the ownership of a company has changed substantially, reference is made to the number of issues shares (which excludes treasury shares) instead of to the paid up capital and the nominal value of the allotted shares of the company. In addition, a proportion of a share of a shareholder that has not been paid up at any of two relevant dates would be disregarded. |
Sections 2(1), 10(14), (23), 10I(5), 10J(1), 10N(12), 13(1)(e), 13G(2), 14I(7), 23(7), 37(14), (14A), 37A(4), 37C(3), (4), (5), (19), 43E(5), 43G(4), 50A(2)& (3)
[Clauses 2(c), (d), 3, 7, 8, 9, 10(c), 12, 15, 18(b), (c), 22(e), (f), 23, 24 (except in relation to section 37C(14)(c)), 32, 33(c), (d), (e) & 41]
|
Amendments are consequential to the abolition of the concept of par value of shares, and the change to allow repurchased shares to be held as treasury shares, as introduced in the Companies (Amendment) Act 2005. |
| 2 |
Advanced Rulings System |
To provide greater clarity and certainty to taxpayers, the advanced ruling system will be formalised in law with effect from 1st January 2006. A ruling issued under the advance ruling system will bind the Comptroller of Income Tax to apply those statutory provisions in the manner set out in the ruling. The amendments also make clear the circumstances under which the Comptroller shall/may not provide rulings.
Further details will be released in an IRAS circular shortly. |
Sections 106(3), 108 & 7th Schedule.
[Clauses 43, 44 & 46]
|
Clauses 44 and 46 insert new section 108 and Seventh Schedule. The new section 108 and Seventh Schedule enable the Comptroller to make a binding advance ruling on how the provisions of the Act apply to an arrangement of a person upon an application by the person. The Seventh Schedule also sets out the features of the advance ruling system. |
| 3 |
Revised assessment as relief for late Goods & Services Tax (GST) registration |
Where a person fails to register for GST on time, the Comptroller of GST will backdate his GST registration to the date on which his liability to register first arose. The person will need to account to the Comptroller of GST the amount of output tax of his previous sales by applying the tax fraction to the sales consideration.
Currently, section 93A of the ITA does not allow the Comptroller of Income Tax to revise the income tax assessments of any person for the backdated period to exclude the output tax from the amount of sales made by him, because there was no error or mistake made by the person and the amount of sales was correctly recorded at the time of sales. This means that the person will be taxed on the output tax as part of its sales reported for income tax purposes.
The tax change is to ensure that taxpayers are not taxed on the output tax as part of their sales reported for income tax purposes. The amendment is to allow the Comptroller of Income Tax to adjust the amount of sales to exclude output GST for income tax purposes in cases of late GST registration which are registered on or after 1st December 2005. To minimise imposing undue burden on taxpayers to re-compute the affected tax computations, the Comptroller of Income Tax may make the adjustments based on best estimates. If taxpayers so decide that they wish to review the past years’ records in detail to arrive at more accurate income tax adjustments, they can file revised tax computations for the affected years of assessments with the Comptroller of Income Tax. |
Section 74A
[Clause 42]
|
Clause 42 inserts a new section 74A to provide that where any person liable to tax, being required to be registered under the Goods and Services Tax Act but has failed to do so, has been registered on or after 1st December 2005 and his income relating to a basis period for which he ought to have been registered includes an amount in respect of output tax paid or payable under the Goods and Services Tax Act, the Comptroller of Income Tax shall revise his assessment to provide relief in respect of the amount so paid or payable. |
| 4 |
Enabling the Deputy Comptroller etc to remit penalty under section 45(4) |
To streamline the processing of applications for waiver or reduction of the penalties imposed under section 45(4) and allow IRAS to provide efficient service to taxpayers, an amendment will be made to the ITA to enable a Deputy Comptroller or an Assistant Comptroller to exercise the power conferred upon the Comptroller by section 45(7)(b). |
Section 2(1)
[Clause 2(a)]
|
Clause 2 amends section 2(1) to enable a Deputy Comptroller or an Assistant Comptroller to exercise the power conferred upon the Comptroller by section 45(7)(b). |
| 5 |
Removal of tax rate cap |
The tax rate cap under sections 42(2) and 50(3) are no longer needed |
Sections 42(2) and 50(3)
[Clauses 28(a) and 40]
|
Clause 28 amends section 42 to remove the redundant limit on the rate of tax applicable to the income of an individual or Hindu joint family received in Singapore from outside Singapore to 28%, where the rate exceeds 28%.
Clause 40 amends section 50(3) to remove the redundant limit on the rate of tax to be used for computing the amount of tax credit to 28%, where the rate exceeds 28%. |
| 6 |
100% capital allowances for items of machinery or plant costing no more than $1,000 each |
To streamline and simplify tax rules so as to reduce taxpayer’s cost of compliance, for assets qualifying for capital allowances under sections 19 and 19A(1), 100% of the cost of such asset acquired during or after the basis period relating to the year of assessment (YA) 2005 will be allowed on due claim, subject to conditions, which include:
i) the cost of each asset is not more than $1,000; and
ii) the aggregate claim for 100% write-off of all such assets does not exceed $30,000 per YA. |
Section 19A
[Clause17]
|
Clause 17 amends section 19 to insert new subsections (10A) to (10C). These new subsections are inserted to provide for capital allowance to be made to any person over a period of one year in respect of capital expenditure incurred by him on any item of machinery or plant that costs not more than $1,000 for the purposes of his trade, business or profession. The total of such allowance made to the person each year shall not exceed $30,000;
Subsection (14) has also been amended consequent to the insertion of subsections (10A) to (10C). |
| 7 |
Income tax treatment of a trust registered under the Business Trust Act |
For any trust which is registered under the Business Trusts Act 2004, the present tax treatment of trusts will not apply to such a trust. Instead, it will be treated like a company under the one-tier system with effect from the first year such a trust commences operation as a registered business trust. Based on this treatment, the income of a registered business trust will continue to be taxable at the trustee level. However the unitholders of the registered business trust will not be taxed on their share of the statutory income of the trustee to which they are entitled (whether distributed or not) and no credit will be allowed to the unitholders for the tax paid by the trustee of the registered business trust. The following features of the tax system that are applicable to a company will apply to a registered business trust subject to necessary modifications:
(a) group relief
(b) application of “shareholding test”
(c) election of section 24 for the sale of property |
Sections 13(1)(zg) & 36B
[Clauses 10(f) & 21]
|
Clause 10 amends section 13 to insert a new paragraph (zg) to subsection (1) to exempt from tax the distributions made by any registered business trusts.
Clause 21 inserts new section 36B to provide that a registered business trust is treated as a company for the purposes of the Act subject to certain modifications. |
| 8 |
Extension of tax incentives for general insurance business to approved members (other than individuals) under foreign insurer scheme |
Currently, section 43C of the ITA grants a concessionary tax rate of 10% on specified income from offshore general insurance businesses as well as tax exemption on specified income from marine hull and liability business derived by an approved general insurance company registered under the Insurance Act in Singapore. Furthermore, section 14O provides that certain reserves of an approved general insurance company may qualify for tax deduction, subject to conditions.
To encourage members of Lloyd’s to expand their insurance activities in Singapore, the above incentives are extended to approved members (other than individuals) under the Lloyd’s Asia scheme with effect from YA 2005. |
Sections 14O & 43C
[Clauses 16 & 30]
|
Clause 16 amends section 14O to extend the deduction for certain special reserves to an approved person (including a foreign partnership), other than an individual, that carries on an insurance business in Singapore under a foreign insurer scheme.
Clause 30 amends section 43C to extend the tax exemption and concessionary rate of tax of 10% to specified income derived by an approved person (including a foreign partnership), other than an individual, that carries on an insurance business in Singapore under a foreign insurer scheme. |
| 9 |
Tax exemption for income derived by an approved Special Purpose Vehicle (SPV) in a qualifying asset securitization arrangement |
Income of an approved SPV from asset securitisation transactions entered into during the period from 27th February 2004 to 31st December 2008 will be exempt from tax, subject to conditions. Further details will be released by MAS by June 05. |
Section 13P
[Clause 13]
|
Clause 13 inserts new sections 13O and 13P.
The new section 13P provides for tax exemption on income derived by an approved securitisation company from asset securitisation transactions entered into during the period from 27th February 2004 to 31st December 2008 (both dates inclusive), subject to conditions prescribed in the regulations. |
| 10 |
Amendments to Section 13(1)(ze) |
Currently, section 13(1)(ze)(v) grants tax exemption on distributions derived on or after 1st January 2004 by individuals from any collective investment schemes constituted as unit trusts that are authorised under section 286 of the Securities and Futures Act, provided that such distributions are not derived through a partnership in Singapore or from the carrying on of a trade, business or profession. This amendment is to make clear the policy position that the above tax exemption is confined to distributions from unit trusts that are offered to the public for subscription. |
Section 13(1)(ze)(v)
[Clause10(e)]
|
Clause 10 makes a technical amendment to section 13(1)(ze) to clarify that the tax exemption on any qualifying distribution made to any individual by an authorised collective investment scheme constituted as a unit trust is applicable only where the unit trust is offered to the public for subscription. |
| 11 |
Amendments to Section 24 |
Where control exists, and where both the buyer and seller of any asset have made an election under section 24(3), the buyer of the asset would be eligible for capital allowance based on the asset’s tax written down value, and no balancing allowance/charge would be computed for the seller of the asset.
This amendment seeks to codify the current practice for situations where there are changes in the partners of a partnership, and where no election is made under section 24(3). For such situations, all partners of the partnership would be deemed to have sold their assets to the new and continuing partners, and consequently, balancing allowance/charge would be computed for the partners of the partnership, and for the new and continuing partners, capital allowance would be computed based on the open market price of the assets.
In so doing, the parties concerned avoid having to put up complex tax computations to (i) reflect the remaining partners’ continual claim of capital allowance on the part of the assets owned by them while the new partners/remaining partners would start a new claim on the part of the same assets acquired by them; and (ii) to compute balancing allowance or charge for the part of the same assets sold by exiting partners/remaining partners. |
Section 24(1), (5) & (6)
[Clause19]
|
Clause 19 inserts new subsections (5) and (6) to section 24 to clarify that, for the purpose of making capital allowances, the property of all the partners of a partnership is deemed to be sold to the remaining and new partners of the partnership at the open-market price whenever there is any change in the partners of the partnership by reason of an admission, retirement, death etc of partners |
| 12 |
Technical Amendments |
Technical amendments have been made to sections 13(1)(a), (aa), 43D(1) and (4). |
Sections 13(1)(a), (aa), 43D(1) & (4)
[Clauses 10(a) & 31]
|
Clause 10 amends section 13 to make a technical amendment to subsection (1)(a) and (aa).
Clause 31 makes technical amendments to section 43D. |
| 13 |
Portable Medical Benefits Scheme (PMBS) |
It was announced in Budget Statement 2003 that the current 2% tax deduction limit for medical expenses incurred by the employer would continue to apply if the employer implements the PMBS or the transferable medical insurance scheme (TMIS). Otherwise the tax deduction limit for medical expenses incurred by the employer will be reduced from 2% to 1% of total remuneration of his employees. The above change took effect from 1st April 2004. Employers with financial year starting on or after 1st April 2004 will be subjected to the new tax deduction limit. For employers whose financial year starts in January to March 2004, the new tax deduction limit will come into force in their next financial year starting in 2005.
The qualifying conditions for the employer to enjoy the 2% tax deduction limit include:
(a) the employer contributes a specified amount into the medisave accounts of a specified percentage of his local employees under the PMBS; or
b) the employer incurs expenses to provide a specified insurance plan to cover a specified percentage of his local employees under the TMIS. |
Section 14(5), (6), (6A), (6B) & (8)
[Clause 14]
|
Clause 14 inserts new subsections (6A) and (6B) to section 14. Subsection (6A) provides that a tax deduction of 2% of the total remuneration of his employees shall be allowed to an employer who contributes a specified amount into the medisave accounts of, or who incurred expenses to provide a specified insurance plan to cover, a specified percentage of his local employees, and to provide that in any other case the tax deduction shall be 1%. Subsection (6B) provides that the tax treatment in the new subsection (6A) shall not apply to any basis period which commenced before 1st April 2004. The clause also defines certain terms used in the subsections. |
| 14 |
Consequential amendments arising from CPF rate changes for the year 2005 |
The CPF salary ceiling was lowered from $5,500 to $5,000 per month from 1st January 2005. The tax relief caps on mandatory contributions to CPF have thus been adjusted downwards with the lower CPF salary ceiling. |
Sections 10C(1)(b), (7), (12), 39(6) & (10)
[Clauses 4 & 27(d), (e) & (f)
|
Clause 4 makes consequential amendments to section 10C arising from the changes in the maximum amount of ordinary and additional wages in respect of which mandatory contributions to the Central Provident Fund should be made.
Clause 27(d) and (e) make consequential amendments to section 39(6) arising from changes in the maximum amount of ordinary and additional wages in respect of which mandatory contributions to the CPF should be made.
Clause 27(f) repeals and reenacts section 39(10) provide that CPF contributions made in respect of overseas ordinary wages or additional wages arising from sources outside Singapore shall not be allowed as deductions.
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DOCUMENTS TO DOWNLOAD
| Income Tax (Amendments) Bill 2005 |
- Entire Bill (word) |
- Commencement Notification (word) |
- Clause 2 to 47 (word) |
- Explanatory Statement (word) |
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| Summary Table |
- Budget 2005 tax changes (word) |
- Other tax changes (word) |
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Prescribed template for submission of comments (word) |
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| Other useful references: |
You may obtain a copy of the Income Tax Act at http://statutes.agc.gov.sg/.
For more details on the tax changes, you may refer to the circulars at the IRAS' website.
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