Answers

Applied Skills, TX – SGP September 2020 Answers

Taxation – Singapore (TX – SGP) and Marking Scheme

Section A

1 D 1, 2, 3 and 4

2 A Within two months from the date of the notice of assessment.

3 D $0
Gains on share awards granted in respect of employment exercised in Singapore are taxable as employment
income. For such share awards, they are taxable in the year of vesting, i.e. YA 2019 and YA 2022 in Janice’s
case in respect of the share awards from JCL. Share awards granted in respect of employment exercised
outside Singapore are not taxable in Singapore.

4 D Related parties are those whereby one controls the other or are under common control, directly or indirectly.

5 A $460 (40 + 420)

Where business expenses are paid by REPL, only the net amount not paid is claimable by Gerald as a
deductible expense. Penalties paid for breach of law are not tax deductible.

6 B $29 ((360 + 50) x 7%)

The amount of goods and services tax (GST) payable is based on the CIF value (i.e. cost, insurance and
freight) of the goods imported. However, GST need not be paid for goods with a CIF value of not more than
$400.

7 C $28,000 (20,000 + 8,000)

Gratuity payments for past services and the waiver of the education loan amount are taxable.

8 A $47,000 (100,000 – 48,000 – (15,000/3 years))

Revenue expenses incurred up to one year prior to commencement of business are tax deductible. Renovation
expenditure incurred prior to commencement of business is deemed to have been incurred on the first day of
the company’s business.

9 C Increase input tax by $476 and increase output tax by $280.

The conditions for bad debt relief include:
(i) the amount has been written off as bad debt in the accounts; and
(ii) a period of 12 months from the date of supply has elapsed or the debtor has become insolvent before
the period of 12 months has elapsed.
When a bad debt is recovered after bad debt relief has been claimed, the goods and services tax (GST)
repayable to the Comptroller should be included as output tax in the GST return.

10 B The restructuring could be viewed as tax avoidance unless there is a valid commercial reason.
Unless there are valid commercial reasons, incorporation of more than one company for the sole purpose of
obtaining a tax advantage is considered tax avoidance.

11 C $34,000 (unabsorbed trade losses only)

The unabsorbed capital allowances brought forward are disregarded as Duo-Talent Pte Ltd did not carry on
the same trade as at the relevant dates. The unabsorbed donations brought forward are also disregarded as
donations can only be carried forward for up to five years of assessment.

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12 D $61,930 ((400,000 – 1,000 (earned income relief) – 320,000) x 22% + 44,550)
Jasper is regarded as a tax resident of Singapore for the year of assessment 2020 as he worked in Singapore
for more than 183 days for a continuous period over two years. Hence, his income is taxed at the progressive
resident rates after deduction of earned income relief.

13 A $17,250 ((13,500 + 38,250)/3 years)

Capital allowances can be claimed on the down payment and principal repayment made in the year of
assessment 2020. The interest payment under hire purchase can be claimed as a revenue expense deduction.

14 C $23,400 (10,000 + 13,400)

One of the conditions for group relief is that the direct and indirect shareholding must be at least 75%.
Therefore, the losses of Sub X are transferable to Rojak Group Ltd (RGL) under group relief, but the losses of
Sub Y are not.
As RGL’s indirect shareholding in Sub Z is 75% (i.e. 80% x 50% through Sub X plus 70% x 50% through
Sub Y), the losses of Sub Z are also transferable to RGL under group relief.

15 B $28,500 (22,500 + (40,000 x 15%))

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2 marks each 30
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Section B Marks

1 Best Floral Pte Ltd – Goods and services tax (GST) return for the quarter ended 31 March 2020

Amount Type of Output Input

supply/purchase tax tax
$ $ $
Receipts
Landscaping services at hotel in Singapore 185,600 Standard rated 12,992 1
Landscaping services at airport in Malaysia 404,000 Zero rated 0 1
Interest income from loan to Turf Pte Ltd 18,000 Exempt 0 1
Sponsorship received 20,000 Deemed supply 1,400 1
Expenditure
Import of fresh flowers 39,000 Standard rated 2,730 1
Purchase of fresh flowers from Malaysia and
delivered directly to customer in Malaysia 16,300 Out-of-scope 0 1
Payment to Malaysia design firm for
landscape design service at hotel in Malaysia 19,800 Out-of-scope 0 1
Realised foreign exchange loss 6,320 Exempt 0 1
Airfare to Malaysia 7,000 Zero rated 0 1
Hotel accommodation in Malaysia 6,540 Out-of-scope 0 1
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2 (a) Foreign sourced dividend income shall be exempt from tax in Singapore when all of the following three
conditions are met:
1. The foreign income has been subject to tax in the foreign jurisdiction from which it was received; 1
2. The headline tax rate of the foreign jurisdiction from which the income is received is at least 15% at the
time the foreign income is received in Singapore; and 1
3. The Comptroller is satisfied that the tax exemption would be beneficial to the person resident in
Singapore. 1
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(b) Red Velvet Pte Ltd – Income tax computation for the year of assessment 2020
$
Dividend income from Subsidiary A (tax exempt) 0 1
Interest expense on loan taken to invest in Subsidiary A (30,000 ) 0·5
Share of common expense (32,000 x B/A (working)) (4,312 ) 1
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Disregarded (34,312 ) 0·5
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Interest income received on loan extended to Subsidiary A 86,000 1
Interest expense on loan taken to extend to Subsidiary A (12,000 ) 0·5
Share of common expense (86,000 x B/A (working)) (11,588 ) 1
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Net interest income 62,412
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Chargeable income (before partial tax exemption) 62,412

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Working
$
Dividend income from Subsidiary A 32,000
Interest income received on loan extended to Subsidiary A 86,000
––––––––
Total income (A) 118,000 0·5

––––––––
––––––––
Allowable rental expense (restricted to lower of actual expense ($36,000) or 5% of
total income (5% x $118,000)) 5,900 0·5
Add: Statutory expense – audit fee 10,000 0·5
–––––––– –––
Total common expense (B) 15,900 7
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3 (a) Wright Coconut Singapore Limited – Withholding tax on payments to Wright US Inc
Interest on loan
Withholding tax applies. 0·5
Reason: Interest in connection with a loan is deemed sourced in Singapore as it is deducted against income
derived from Singapore. 0·5
Withholding tax = $630 (15% x 4,200) 1
Technical support services
Withholding tax is not applicable. 0·5
Reason: The technical services are rendered outside Singapore. 1
Business process training
Withholding tax applies. 0·5
Reason: The payment is for the rendering of assistance in connection with the application or use of commercial
information. As the amount is deducted against income derived from Singapore, it is deemed to be derived
from Singapore. 1
Withholding tax = $425 (17% x 2,500) 1
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(b) The date of payment to a non-resident company is defined as the earliest of the following dates: 1
When the payment is due and payable based on the agreement or contract, or the date of the invoice in the
absence of any agreement or contract (credit terms should not be taken into consideration); or 1
When payment is credited to the account of the non-resident or any other account(s) designated by the
non-resident; or 1
The date of actual payment. 1
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4 (a) Wildlife Partners LLP – Year of assessment 2020

$ $
Net profits before tax 143,200
Add:
Partners’ salaries 220,000 0·5
Advertising and promotion expenses 0 0·5
Stamp duty on new office lease 7,200 1
Office furniture expensed off (chairs, tables, cabinets: each item
costing < $5,000) 33,000 1
Website development fees 800 1
Annual subscription fee for Alex’s golf club membership 1,600 1
Donation to Indonesia Wildlife Conservatory Fund 5,000 1
––––––––
267,600
––––––––
Adjusted profit 410,800
Less: Partners’ salaries and Alex golf club subscription (220,000 + 1,600) (221,600 ) 0·5
––––––––
Divisible profits 189,200

––––––––
––––––––
Capital allowances (30,000 (capped) + 3,000/3 years + 800) 31,800 1·5
–––––––– –––
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(b) Alex – Assessable income tax for the year of assessment 2020
$
Alex’s share of Wildlife Partners LLP’s profits (189,200 x 70%) 132,440 0·5
Less: Share of capital allowance (31,800 x 70%) (22,260 ) 0·5
––––––––
110,180
Add: Salary drawn from Wildlife Partners LLP 100,000 0·5
Add: golf club subscription 1,600 0·5
–––––––– –––
Assessable income 211,780 2
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5 (a) Candice – Singapore income tax liability for the year of assessment 2020
$ $
Salary (relates to overseas employment and remitted into Singapore) 0 1
Salary (relates to employment with Swan Limited) 140,000 0·5
Sign-on bonus 25,000 1
Taxi reimbursement claims 0 0·5
Birthday gift (two-night hotel stay) 800 1
Fees for professional qualification examination 0 1
––––––––
Assessable income 165,800
Less: Personal reliefs
Earned income relief (1,000 ) 0·5
Central Provident Fund (CPF) relief (15,800 ) 0·5
Life insurance premium 0 1
Parent relief (9,000 ) 0·5
Grandparent caregiver relief (3,000 ) 0·5
Child relief (2 x 4,000) (8,000 ) 0·5
Working mother child relief (35% x 165,800) (58,030 ) 1
––––––––
Total personal reliefs (capped) (94,830 ) (80,000 ) 0·5
––––––––
Chargeable income 85,800
––––––––
Tax on the first $80,000 3,350 0·5
Tax on the next $5,800 at 11·5% 667 0·5
–––––––– –––
Tax liability 4,017 11
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Tutorial note:
(1) The sign-on bonus is taxable at the time of receipt by Candice. The amount repaid to Swan Ltd will be
considered as an adjustment to Candice’s employment income in the year of assessment 2021.
(2) To qualify for life insurance premium relief, one of the conditions is that the total compulsory employee
CPF contribution is less than $5,000. As Candice’s compulsory employee CPF contribution exceeds
$5,000, she does not qualify for life insurance premium relief.

(b) Differences between the assessment basis and income tax treatment for an employee and a sole proprietor
(1) An employee is assessed to tax on their remuneration as employment income whereas a sole proprietor’s
business income is assessed to tax as trade income. 1
(2) The year of assessment for a sole proprietor is the preceding accounting year. The year of assessment for
an employee is the preceding calendar year. 1
(3) Capital allowances can be claimed by a sole proprietor but cannot be claimed by an employee. 1
(4) Trade losses incurred by a sole proprietor can be set off against their other non-trade income. 1
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6 (a) Loss carry back relief
The company has to meet the substantial shareholding test 0·5
and same business test in order to qualify for loss carry back relief. 0·5
Current year unutilised capital allowance 1
and trade losses can be carried back. 1
The amount which can be carried back is capped at $100,000. 0·5
The qualifying deductions can be carried back for one year of assessment (YA) immediately preceding that YA
in which the capital allowances are granted or the trade losses incurred. 0·5
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(b) Great Chef Pte Ltd – Income tax computation for the year of assessment (YA) 2020
$
Net loss before tax (117,000 )
Add/(Less):
Bank interest income (7,000 ) 0·5
Government paid maternity leave 0 1
Compensation for damage to glass door at restaurant (4,600 ) 1
Legal fee to defend the company’s trademark 0 1
Tax service fee to pursue income tax objection at Board of Review 8,200 1
Foreign exchange gain relating to import of food supplies 0 1
Renovation of new restaurant 11,600 1
s.14Q deduction (6,600/3 years (working)) (2,200 ) 0·5
––––––––
Adjusted trade loss (111,000 )
Add: Bank interest income 7,000 0·5
––––––––
Adjusted loss (104,000 )
Less: Loss carry back 100,000 0·5
––––––––
Current year unabsorbed loss carried forward (4,000 )
––––––––
Working
$
Expenditure qualifying for s.14Q deduction:
– interior designer service 0 0·5
– lighting 3,200 0·5
– kitchen sinks and fittings 1,400 0·5
– wall paper 2,000 0·5
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Total amount qualifying for s.14Q deduction 6,600
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Revised income tax computation for YA 2019
$
Chargeable income (before partial tax exemption) 105,000
Less: Loss carry back from YA 2020 (100,000 ) 0·5
––––––––
Revised chargeable income (before partial tax exemption) 5,000
Less: Partial tax exemption (75% on first $10,000) (3,750 ) 0·5
–––––––– –––
Revised chargeable income (after partial tax exemption) 1,250 11
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