Singapore Budget 2014: Commentary CONTENTS OVERVIEW CORPORATE TAX Extension and Enhancement of the PIC Scheme... 4 Extending the Research and Development ("R&D") Tax Measures... 7 Acquisition and Protection of Intellectual Property Rights... 8 Extending and Enhancing the LIA Scheme... 10 Waiver of Withholding Tax Requirement for Payments Made to Singapore Branches. 12 Investment Allowance for Aircraft Rotables... 14 FINANCIAL SERVICES Certainty of Tax Treatment for Basel III Additional Tier 1 Instruments other than Shares... 15 Extending and Refining Tax Incentive Schemes for Qualifying Funds... 17 Recovery of GST for Qualifying Funds... 19 Enhancement of the Foreign-Sourced Income Exemption Scheme for Listed Infrastructure Registered Business Trust ( RBTs )... 20 Refining the Designated Unit Trust ( DUT ) Scheme... 22 PERSONAL INCOME TAX Enhancing Dependent Family Member Reliefs... 23 Removing Transfers of Qualifying Deductions and Deficits between Spouses... 25 Removing the Section 40 Relief... 26 1 Rajah & Tann LLP
STAMP DUTY AND PROPERTY TAX Streamlining the Stamp Duty Rate Structure - Leases of Immovable Property... 27 Streamlining the Stamp Duty Rate Structure - Buyer s Stamp Duty... 29 Streamlining the Stamp Duty Rate Structure Share Transfers and Mortgage Instruments... 30 Approved Building Project ( ABP ) Scheme... 31 2 Rajah & Tann LLP
OVERVIEW The Deputy Prime Minister and Minister for Finance, Mr. Tharman Shanmugaratnam, delivered the 2014 Budget Statement in Parliament on 21. In terms of the proposed tax changes, Budget 2014 contains few surprises. The proposed extension and enhancement of the popular Productivity and Innovation Credit ( PIC ) scheme, including additional support for SMEs under the new PIC+ scheme, signals the Government s continued efforts to support the economic restructuring that Singapore has undertaken. The Land Intensification Allowance ( LIA ) scheme will also be extended and enhanced to further encourage the effective land use by businesses in land scarce Singapore. With the extension of the various fund incentive schemes (other than the section 13C prescribed trust fund scheme, which will be subsumed into the section 13CA scheme), funds that will be managed out of Singapore may continue to qualify or seek approval under the relevant fund incentive schemes. And perhaps as a result of the OECD Base Erosion and Profit Shifting project, there are no new tax incentives introduced that are specifically targeted at foreign investors or multinational companies. This client alert sets out a summary of the proposed tax changes and our views on them. We hope that you will find this publication useful. 3 Rajah & Tann LLP
CORPORATE TAX Extension and Enhancement of the PIC Scheme Enhanced Tax Deduction or Allowance The PIC scheme was designed to encourage businesses to invest in productivity and innovation activities in order to achieve long term sustainable economic growth. Under the scheme, enhanced tax deductions or allowances of 400% (inclusive of the normal 100% tax deduction or allowance) are given for the first S$400,000 of qualifying expenditure incurred from YA 2011 to YA 2015 on each of the following six categories of qualifying activities, namely: (a) (b) (c) (d) (e) (f) acquisition or leasing of PIC information technology and automation equipment; acquisition or licensing of intellectual property rights ( IPRs ); registration of certain IPRs; research and development; training provided to employees so as to upgrade skills and capabilities; and approved industrial or product design projects conducted primarily in Singapore. The expenditure cap for each category of activities may be combined across different YAs in the following manner, provided that the taxpayer is carrying on a trade or business in the basis period for the relevant YAs: Qualifying YAs 2011 to 2012 2013 to 2015 Combined Expenditure Cap For Each Qualifying Activity S$800,000 (i.e. S$400,000 x 2) S$1,200,000 (i.e. S$400,000 x 3) 4 Rajah & Tann LLP
PIC Cash Payout Instead of claiming enhanced deduction or allowance, taxpayers may instead choose to convert qualifying expenditure of up to S$100,000 for each YA into cash, subject to a minimum of S$400 per application. Unlike the enhanced deduction or allowance, the expenditure cap for the PIC cash payout option may not be combined. The conversion rate for YA 2013 to YA 2015 is 60%. To qualify for the PIC cash payout option, the taxpayer must carry on business operations in Singapore and employ at least three local employees (the three local employees requirement ). PIC Bonus In addition, for YA 2013 to YA 2015, a PIC bonus is available to businesses that invest a minimum of S$5,000 per YA in qualifying activities. The PIC bonus is a dollar-for-dollar matching cash bonus of up to S$15,000 for the three YAs combined. To qualify for the PIC bonus, the taxpayer must also be carrying on business operations in Singapore and meet the three local employees requirement. This cash bonus is paid over and above the existing PIC benefits, i.e. the 400% tax deduction or allowance and the cash payout. Tax Deferral Option The PIC scheme also allows taxpayers to defer their tax payments based on qualifying expenditure incurred for YA 2012 to YA 2015 ( Tax Deferral Option ). Tax payable of up to S$100,000 per YA may be deferred to the following year. The PIC scheme will be extended for a further three years, i.e. until YA 2018. The expenditure cap for each qualifying activity may similarly be combined across YA 2016 to YA 2018 in respect of the enhanced tax deduction or allowance only, and not for PIC cash payout. In addition, the following modifications will be made to the PIC scheme: (a) (b) (c) With effect from YA 2014, taxpayers will be allowed to claim PIC benefits for training expenses incurred in respect of individuals deployed to their organisation under centralised hiring arrangements. From YA 2016 onwards, to qualify for the PIC cash payout, businesses must satisfy the three local employees requirement for a consecutive period of at least three months prior to claiming the cash payout. The Tax Deferral Option will be allowed to lapse with effect from YA2015. 5 Rajah & Tann LLP
A new PIC+ scheme will also be introduced to allow qualifying SMEs to increase their expenditure cap to S$600,000 (instead of the current S$400,000) for each qualifying activity per YA for YA2015 to YA2018. A qualifying SME is one: (a) whose annual turnover is not more than S$100 million; or (b) which employs less than 200 workers. This criterion will be applied at the group level if the entity is part of a group. The applicable expenditure caps for qualifying SMEs under the PIC+ scheme are as follows: Qualifying YAs 2013 to 2015 2016 to 2018 Combined Expenditure Cap For Each Qualifying Activity $1,400,000 [i.e. (S$400,000 x 2) + ($600,000)] $1,800,000 [i.e. S$600,000 x 3] The Inland Revenue Authority of Singapore ( IRAS ) will release more details of these changes by the end of March 2014. Our Comments The renewal of the PIC scheme for another three YAs would enable businesses which have yet to undertake productivity and innovation activities to do so. Moreover, with the introduction of the new PIC+ scheme, SMEs will stand to benefit even more. However, it remains to be seen whether more needs to be done to help SMEs tide over the next few years, in the face of rising costs and tightening labour policies. 6 Rajah & Tann LLP
Extending the Research and Development ("R&D") Tax Measures Apart from the general deduction under section 14 of the Income Tax Act (Cap. 134) of Singapore ( ITA ) for R&D expenditures that are wholly and exclusively incurred by a business in the production of the income, there are a number of other deductions available for expenditure incurred by businesses on R&D, subject to conditions: (a) (b) (c) special deduction under section 14D of the ITA for R&D expenditure of a capital nature incurred during the basis period for any YA between YA 2009 and YA 2015; enhanced deduction of: (i) 50% of R&D expenditure under section 14DA for qualifying expenditure incurred on qualifying R&D activities during the basis period for any YA between YA 2009 and YA 2015 ( Section 14DA Enhanced 50% Deduction ); and (ii) 300% of R&D expenditure under the PIC scheme for the first S$400,000 of qualifying expenditure during the basis period for any YA between YA 2009 and YA 2015 (extended to YA 2018 in Budget 2014) if Section 14DA Enhanced 50% Deduction has not been claimed on the same expenditure (or 250% if Section 14DA Enhanced 50% Deduction has been claimed); and further deduction of 100% of the qualifying expenditure incurred for an approved project during the basis period for any YA between YA 2009 and YA 2015 under section 14E, provided that such expenditure does not qualify for the enhanced 300% deduction under the PIC scheme ( Section 14E Further Deduction ). The Section 14DA Enhanced 50% Deduction will be extended for another ten years till YA 2025, while the Section 14E Further Deduction will be extended for five years till 31 March 2020. Our Comments The extension of the R&D tax measures is aligned with the Government's focus on encouraging businesses in Singapore to build up R&D capability. Given that R&D efforts may not necessarily yield results over a relatively short period of time, businesses will now be able to embark on or continue with major long-term R&D investments with the assurance that they can continue to enjoy these tax benefits. 7 Rajah & Tann LLP
Acquisition and Protection of Intellectual Property Rights A taxpayer may claim writing-down allowance ( WDA ) for capital expenditure incurred in acquiring qualifying IPRs (namely: (a) patents; (b) trademarks; (c) registered designs; (d) copyrights; (e) geographical indications; (f) lay-out designs of integrated circuits; (g) trade secret or information that has commercial value; and (h) plant varieties) over a writing-down period of five years on a straight line basis ( WDA Scheme ). To qualify, the acquiring company must acquire both legal and economic ownership of the IPR. The writing-down period is reduced to two years for approved Media and Digital Entertainment ( MDE ) companies approved by the Singapore Economic Development Board ( EDB ) (the Accelerated WDA Scheme ). In addition, costs incurred in the registration of patents, trademarks, designs and plant varieties are also fully deductible under section 14A of the ITA (the Registration Cost Deduction Scheme ). The WDA Scheme, the Accelerated WDA Scheme, and the Registration Cost Deduction scheme are due to lapse after YA2015. Both the WDA scheme and the Registration Cost Deduction Scheme will be extended for another five years until YA 2020. The Accelerated WDA Scheme will also be extended for another three years until YA 2018. A negative list of information that has commercial value will be legislated to clarify the policy intent of the Scheme. Two categories of information will be expressly excluded from the definition of information that has commercial value and therefore will not qualify for WDA, namely: (a) customer-based intangibles; and (b) documentation of work processes. The list will be published on the IRAS website by the end of April 2014 and legislated by the end of December 2014. 8 Rajah & Tann LLP
Our Comments While the adoption of a negative list of information that has commercial value would provide clarity on the types of expenditure that definitely would not qualify for WDA under section 19B, it still would not conclusively explain what types of information have commercial value, unless it is intended that all types of information, except what is prescribed in the negative, would be deemed to have commercial value. 9 Rajah & Tann LLP
Extending and Enhancing the LIA Scheme The LIA scheme was first introduced in Budget 2010 to support enhanced land productivity among industrial users and served to replace the former Industrial Building Allowance. The scheme is available to businesses in industry sectors which have large land takes and low gross plots ratios ("GPR"). Approved LIA scheme recipients will be granted an initial allowance of 25% and an annual allowance of 5% on the qualifying capital expenditures on qualifying capital expenditure incurred for the construction, renovation or extension of a qualifying building or structure. The scheme currently applies to buildings or structures used for the following activities: (a) food, beverage and tobacco; (b) printing and recorded media; (c) manufacture of coke and refined petroleum products, petrochemicals and petrochemicals products, other chemicals, pharmaceuticals and biological products; (d) manufacture of computers and peripheral equipment, consumer electronics, semiconductor devices, electronics modules & components and communications equipment; (e) land transport; (f) aerospace; (g) marine and offshore engineering; (h) medical technology; (i) machinery and systems; and (j) specified manufacturing activities. The scheme is scheduled to lapse after 30 June 2015. The scheme will be extended for a further 5 years till 30 June 2020 to encourage businesses to continue to optimise land use in Singapore. In addition to the activities specified above, the scheme will be extended to include the logistics sector and businesses carrying out qualifying activities on airport and port land. A new condition is introduced that will require existing buildings that have already met or exceeded the GPR benchmark to meet a minimum incremental GRP criterion of 10%. Implementation details will be announced by the EDB by the end of May 2014. 10 Rajah & Tann LLP
Our Comments It is sensible to extend the LIA scheme to the logistics sector as well as businesses in the operation of or provision of services to air and sea ports, which often requires substantial use of land for their operations. This will encourage more efficient usage of land in Singapore for these businesses. 11 Rajah & Tann LLP
Waiver of Withholding Tax Requirement for Payments Made to Singapore Branches Under section 12(6) and (7) of the ITA, certain types of payments ( section 12(6) or (7) payments ) are deemed to be sourced in Singapore if they are, inter alia, directly or indirectly borne by a person resident in Singapore or a permanent establishment ( PE ) in Singapore (except in respect of any business carried on outside Singapore through a PE outside Singapore or any immovable property situated outside Singapore). Section 12(6) or (7) payments broadly include interest and certain other types of payments in connection with any loan or indebtedness, royalties, know-how and technical assistance fees, management fees and rent for use of movable property. Sections 45 and 45A of the ITA requires the payor to withhold tax on section 12(6) or (7) payments made to a person not known by the payor to be resident in Singapore, including PEs that are Singapore branches of non-resident companies. In practice, the Singapore payor will: (a) deduct tax from the section 12(6) or (7) payment made to the non-resident person; and (b) notify the Comptroller and make payment of the tax withheld through the filing of a Form IR37. If the payee is entitled to tax exemption or a reduced rate of tax withholding under an applicable tax treaty, the Comptroller of Income Tax will refund any excess tax paid if he is provided with a certification of the payee s tax residence. There is also a limited waiver from withholding tax for certain section 12(6) and (7) payments made to the Singapore branches of approved banks and certain approved non-resident companies that have applied for such waiver. A payor who makes a section 12(6) or (7) payment will no longer be required to withhold tax on such payment if it is made to a Singapore branch of any non-resident company. Such payments will instead be declared by Singapore branch in its annual tax return and assessable to tax. This change will take effect for all section 12(6) and (7) payments in respect of obligations arising on or after 21. Our Comments The withholding tax system essentially facilitates the collection of tax from a non-resident person by deducting such tax at source. To the extent that such payment is made to a Singapore branch of a non-resident person, it would not be necessary to mandate the deduction of tax at source since the payment could also be reported by the Singapore branch in its tax return and be assessed to tax in the hands of the Singapore branch. The 12 Rajah & Tann LLP
proposal will therefore reduce the compliance costs for businesses that are making payments to any Singapore branch of a non-resident person as they will no longer be required to file a Form IR37, seek a refund of any excess tax withheld, or verify whether the Singapore branch is an entity to which the Comptroller of Income Tax has granted a waiver. 13 Rajah & Tann LLP
Investment Allowance for Aircraft Rotables The Investment Allowance ( IA ) scheme for aircraft rotables was introduced to encourage investments in aircraft rotables that would increase the productive capacity of the aerospace maintenance, repair and overhaul companies. Companies that are awarded the incentive may claim IA of up to 50% of the fixed capital expenditure incurred within the qualifying period on aircraft rotables. Any unutilised IA can be carried forward indefinitely. The scheme has now been assessed to be no longer relevant and will be allowed to lapse after 31 March 2015. 14 Rajah & Tann LLP
FINANCIAL SERVICES Certainty of Tax Treatment for Basel III Additional Tier 1 Instruments other than Shares Singapore-incorporated banks are required to meet certain minimum capital adequacy ratios under MAS Notice 637 (Notice on Risk Based Capital Adequacy Requirements for Banks Incorporated in Singapore) through the issuance of, inter alia, Additional Tier 1 Capital Instruments as defined in the Notice. For Singapore income tax purposes, distributions on a debt instrument are deductible for the issuer and taxable in the hands of its holder, subject to certain rules, whereas distributions on an equity instrument are not deductible for the issuer and are tax exempt in the hands of its holder under the one-tier corporate tax system, if the issuer is a Singapore resident company. Where an instrument has both debt and equity characteristics ( hybrid instrument ), the Comptroller of Income Tax will generally determine the classification of a particular hybrid instrument for tax purposes by considering whether it has more debt-like or equity-like characteristics, for example, whether there is a right to return of the principal amount and whether the holder has any participation rights in the management of the company. The tax treatment for distributions on such a hybrid instrument will then follow the tax treatment that is accorded based on the classification of the hybrid instrument as debt or equity. All Additional Tier 1 instruments other than shares issued by a Singapore-incorporated bank (excluding its foreign branches) that is subject to MAS Notice 537 will be treated as debt for Singapore income tax purposes. Accordingly, distributions on such instruments will be deductible for the issuer and taxable in the hands of their holders, subject to existing rules. This tax treatment will apply to distributions accrued in the basis period for YA 2015 and thereafter. The Monetary Authority of Singapore ( MAS ) will be releasing more details by the end of May 2014. 15 Rajah & Tann LLP
Our Comments While the proposed new treatment would provide tax certainty to Additional Tier 1 instruments issued by a Singapore-incorporated bank, it is disappointing that such tax certainty is not extended to other types of hybrid instruments. There is also no indication on whether IRAS will be releasing any guidance on how hybrid instruments other than Additional Tier 1 instruments will be classified for Singapore income tax purposes. 16 Rajah & Tann LLP
Extending and Refining Tax Incentive Schemes for Qualifying Funds Specified income derived from designated investments by a qualifying fund managed in Singapore is exempt from tax in Singapore under the following schemes: a) the Prescribed Trust Fund Incentive Scheme under section 13C of the ITA; b) the Offshore Fund Incentive Scheme under section 13CA of the ITA; c) the Resident Fund Exemption Scheme under section 13R of the ITA; and d) the Enhanced Tier Fund Incentive Scheme under section 13X of the ITA. Ownership restrictions apply to resident non-individual investors of qualifying funds enjoying tax benefits under the Offshore Fund Incentive Scheme and Resident Fund Exemption Scheme. Financial penalties apply to such investors who beneficially own more than a stipulated percentage of the total value of the issued securities of the fund. The percentage of ownership over issued securities of a fund is currently computed based on the historical value of the issued securities on the last day of the fund s basis period for the relevant YA. The above fund incentive schemes were due to expire on 31 March 2014. Funds that either satisfy the conditions (in the case of the Prescribed Trust Fund Scheme and the Offshore Fund Incentive Scheme) or are approved by the MAS (in the case of the Resident Fund Exemption Scheme and the Enhanced Tier Fund Incentive Scheme) on or before 31 March 2014 will continue to enjoy tax exemption even after the expiration of the fund incentive schemes, as long as they continue to satisfy the relevant conditions thereunder. The Offshore Fund Incentive Scheme, the Resident Fund Exemption Scheme and the Enhanced Tier Fund Incentive Scheme will each be extended for another five years. The expiry date of each of these schemes is now 31 March 2019. The Prescribed Trust Fund Incentive Scheme will not be renewed and will lapse after 31 March 2014. Instead, the scope of the Offshore Fund Incentive Scheme will be expanded to allow trust funds with resident trustees (previously falling within the Prescribed Trust Fund Incentive Scheme) to qualify for the Offshore Fund Incentive Scheme. 17 Rajah & Tann LLP
In addition, the percentage of an investor s ownership over the issued securities for the purposes of the Offshore Fund Incentive Scheme and the Resident Fund Exemption Scheme will now be computed based on the prevailing market value of the issued securities on the last day of the fund s basis period for the relevant Year of Assessment, and not their historical value. The list of designated investments will also be expanded to include loans made by funds to qualifying offshore trusts, interest in certain limited liability companies, and bankers acceptances. Specified income derived from these forms of investments will be exempt from tax under the schemes with effect from 21. Our Comments The renewal of the schemes signifies the government s commitment to develop the fund management industry in Singapore, Notwithstanding the imposition of a S$250 million AUM requirement for the Financial Sector Incentive-Fund Management ( FSI-FM ) scheme in June 2013, the renewal of the Offshore Fund Incentive Scheme and the Resident Fund Exemption Scheme (which do not have a minimum fund size requirement) indicates that Singapore wishes to continue to attract smaller funds to be managed out of Singapore. The expansion of the list of designated investments also keeps the schemes updated and relevant to developments in the financial industry, and provides fund managers with more flexibility as to their investment mandates. 18 Rajah & Tann LLP
Recovery of Goods and Services Tax ( GST ) for Qualifying Funds As a general rule, a person may recover input tax incurred in respect of its expenses only if such person is a registered person for GST purposes. However, funds that: (a) satisfy the conditions under the Prescribed Trust Fund Incentive Scheme, the Offshore Fund Incentive Scheme, the Resident Fund Exemption Scheme or the Enhanced Tier Fund Incentive Scheme; and (b) are managed by prescribed fund managers in Singapore, may recover input tax incurred on all their expenses based on a fixed recovery rate, regardless of their GST registration statuses. The prescribed fixed recovery rate for 1 January 2014 to 31 March 2014 is 90%. The concession was due to expire on 31 March 2014. The concession will be extended for five years till 31 March 2019. Commentary The renewal of the GST concession is consistent with the Government s strategy to encourage the growth of the fund management industry in Singapore. The ability for funds to recover input GST for expenses incurred ensures that Singapore remains competitive as a location for fund management, vis-à-vis other jurisdictions that do not have a value added tax, notably, Hong Kong. 19 Rajah & Tann LLP
Enhancement of the Foreign-Sourced Income Exemption Scheme for Listed Infrastructure Registered Business Trust ( RBTs ) The Minister of Finance may, upon application, grant tax exemption under section 13(12) of the ITA in respect of certain foreign-sourced income that falls within certain scenarios specified thereunder. These scenarios are set out in the IRAS e-tax Guide entitled Income Tax: Tax Exemption under Section 13(12) for Specified Scenarios, Real Estate Investment Trusts and Qualifying Offshore Infrastructure Project/Assets ( Section 13(12) e-tax Guide ). Specifically, the Minister may grant tax exemption in respect of foreign-sourced interest income derived by a Singapore-listed resident entity or its wholly-owned Singapore resident subsidiary company ( Approved Entity ) from a qualifying offshore infrastructure project/asset. A qualifying offshore infrastructure project/asset is a new investment made by an Approved Entity in certain prescribed areas, such as electricity generation, distribution, transmission and/or alternative energy generation, waste management and water treatment (including desalination) and/or distribution. The Minister may approve the application if certain conditions are met (see paragraph 6 of Section 13(12) e-tax Guide). Application for section 13(12) exemption must be submitted before the foreign-sourced interest income is received in Singapore, and approval by the Minister must be obtained on or before 31 March 2017. To facilitate the listing of more infrastructure assets in Singapore, the specified scenarios under section 13(12) will be expanded to cover dividend income of a listed infrastructure RBT originating from foreign-sourced interest income, as long as it relates to a qualifying offshore infrastructure project/asset. IRAS will continue to verify that the qualifying conditions are met for all specified scenarios. In addition, foreign-sourced interest income derived by a listed infrastructure RBT from a qualifying offshore infrastructure project/asset will automatically qualify for section 13(12) exemption provided that certain conditions are met, instead of requiring approval by the Minister on a case-by-case basis. Again, IRAS will continue to verify that the qualifying conditions are met for all specified scenarios. IRAS will be releasing more details, including the effective date of these changes, by the end of May 2014. 20 Rajah & Tann LLP
Commentary These enhancements to the foreign-sourced income exemption scheme signal the Government s continued efforts to catalyze the growth of the project finance industry through Singapore s capital market. The fact that the enhancements are limited to listed infrastructure RBTs and will not be applicable to other types of listed infrastructure entities may also be indicative of a policy desire for more RBTs to be listed on the SGX. 21 Rajah & Tann LLP
Refining the Designated Unit Trust ( DUT ) Scheme In general, the income of a trust is taxable at the trustee level. However, specified income of a DUT derived from designated investments are exempt from tax in the hand of the trustee, provided that such specified income is distributed to the unitholders of the DUT. Income from such distributions is instead deemed to be the income of the unitholders. Distributions made to unitholders that are foreign investors will not be subject to any Singapore withholding tax, and distributions made to local individual unitholders will not be subject to tax in Singapore. A unit trust that satisfies the qualifying conditions under the DUT scheme, whether it is a retail unit trust or otherwise, may make an application to IRAS for DUT status to be granted. With effect from 21, the DUT scheme will only be available to unit trusts open to retail investors for subscription. Non-retail unit trusts will no longer be able to qualify for the scheme and will have to consider other tax exemption schemes. Non-retail units trusts that have been granted DUT status prior to 21 may continue to retain their DUT status, provided that they continue to satisfy the qualifying conditions. In addition, with effect from 1 September 2014, an application to IRAS will no longer be required for a unit trust to enjoy the tax benefits under the DUT scheme. A unit trust that satisfies all the qualifying conditions will automatically fall within the scope of the DUT scheme. The DUT scheme will be reviewed on or before 31 March 2019 to ensure that it remains relevant. MAS will release further details of these changes by the end of May 2014. Our Comments By limiting the DUT scheme to retail unit trusts, non-retail unit trusts will have to consider the Offshore Fund Incentive scheme and Enhanced Tier Fund Incentive scheme for tax exemption on the unit trust s income. 22 Rajah & Tann LLP
PERSONAL INCOME TAX Enhancing Dependent Family Member Reliefs Individuals may claim tax relief in respect of certain dependent family members, including the parent and handicapped parent reliefs, the handicapped spouse relief, the handicapped sibling relief, and the handicapped child relief (collectively dependent family member reliefs and each a dependent family member relief ). The current quantums of reliefs are: Type of Relief Current Relief Quantum Staying with Dependent Not staying with Dependent Parent Relief $7,000 $4,500 Handicapped Parent Relief Handicapped Spouse Relief Handicapped Sibling Relief Handicapped Child Relief $11,000 $8,000 $3,500 $3,500 $5,500 Currently, the dependent family member reliefs can only be claimed by one claimant in any YA. Where the family members are unable to agree among themselves on who is to claim the dependent family member relief, the Comptroller of Income Tax has the discretion to decide to whom the relief will be allowed. 23 Rajah & Tann LLP
From YA 2015 onwards, the amount of dependent family member reliefs will be enhanced as follows: Type of Relief Enhanced Relief Quantum Staying with Dependent Not staying with Dependent Parent Relief $9,000 ( $2,000) $5,500 ( $1,000) Handicapped Parent Relief Handicapped Spouse Relief Handicapped Sibling Relief Handicapped Child Relief $14,000 ( $3,000) $10,000 ( $2,000) $5,500 ( $2,000) $5,500 ( $2,000) $7,500 ( $2,000) In addition, claimants of parent/handicapped parent relief will be able to share the relief according to the claimants' agreed proportion. If more than one claimant is making the claim and the claimants cannot agree on the apportionment ratio, the relief will be apportioned equally among all the claimants. Our Comments The enhancement is intended to further encourage individuals to support their dependent family members, especially in light of the rising costs of living in Singapore in recent years. The enabling of sharing of parent relief among children also gives recognition to the reality that care for one s parents is often a shared responsibility among siblings. However, given that the relief is to be split in equal shares amongst children in the absence of a consensus, it may inadvertently benefit children who do not undertake such responsibility. 24 Rajah & Tann LLP
Removing Transfers of Qualifying Deductions and Deficits between Spouses A married couple can transfer the unabsorbed trade losses, unabsorbed capital allowances, unutilised donations and rental deficits for any particular YA between each other. A married taxpayer can also carry back any unabsorbed trade losses or capital allowances to set-off against the income of his/her spouse for the immediate preceding YA under the loss carry-back scheme. With effect from YA 2016, married couples cannot transfer qualifying deductions and deficits between each other (including under the loss-carry back scheme). As a transitional concession, qualifying deductions and deficits incurred by a married couple during and before YA 2015 will be grandfathered, i.e. such deductions and deficits may still be transferred between spouses up until YA 2017, subject to current rules. Implementation details will be announced by IRAS by the end of May 2014. Our Comments Spousal transfer of qualifying deductions and deficits needs to be tracked by IRAS. This is a case where the benefits, which are enjoyed by a limited number of couples, are deemed to be insufficient to justify the administrative burden caused. 25 Rajah & Tann LLP
Removing the Section 40 Relief The relief under section 40 of the ITA is a special relief intended to reduce the tax payable by certain qualifying non-resident individuals to a proportionate amount that would be payable on such individual s aggregate income as if he were a resident in Singapore and entitled to personal reliefs. The qualifying individuals are: (a) (b) (c) non-resident Singapore citizens; non-resident individuals who are not Singapore citizens deriving pension income from Singapore; and non-resident individuals who are not Singapore citizens residing in a treaty country which provides reciprocal relief to residents of Singapore. The relief under section 40 of the ITA will be removed with effect from YA 2016. Our Comments Given that the relief under section 40 of the ITA is of little relevance as a result of the reduction in tax rates over the years for non-resident individuals, it makes sense to remove it to simplify the personal income tax system. 26 Rajah & Tann LLP
STAMP DUTY AND PROPERTY TAX Streamlining the Stamp Duty Rate Structure - Leases of Immovable Property Buyer s stamp duty is calculated based on the purchase price or market value of the property, whichever being the higher, as follows: Duration of lease Up to one year Amount of stamp duty payable S$1 for every S$250 or part thereof of the average annual rent More than one but less than three years More than three years S$2 for every S$250 or part thereof of the average annual rent S$4 for every S$250 or part thereof of the average annual rent Based on this method of calculation, the same amount of stamp duty would be payable on a lease instrument creating a lease period of one month and one creating a lease period of one year, where the average monthly rental amount of the one year lease is the same as that of the one month lease. This is in spite of the fact that the total rental amount of the one year lease is more than that of the one month lease. From 22 onwards, the amount of stamp duty payable on a lease for which the average annual rent exceeds $1,000 will be computed as follows: Duration of lease Up to four years More than four years Amount of stamp duty payable 0.4 per cent of the total rent for the entire period of the lease 0.4 per cent of four times of the average annual rent for the entire period of the lease 27 Rajah & Tann LLP
Our Comments The change in the rate structure for leases of immovable property creates a fairer rate of stamp duty for short-term leases by taking into account the actual rent for the lease period. The new rate structure is also easier for a layperson to understand. 28 Rajah & Tann LLP
Streamlining the Stamp Duty Rate Structure - Buyer s Stamp Duty Buyer s stamp duty is calculated based on the purchase price or market value of the property, whichever being the higher, as follows: Purchase price or market value (whichever is higher) First S$180,000 Next S$180,000 Remainder Buyer s stamp duty rate S$1 for every S$100 or part thereof S$2 for every S$100 or part thereof S$3 for every S$100 or part thereof Buyer s stamp duty rates have been restated to be as follows: Purchase price or market value (whichever is higher) First S$180,000 Next S$180,000 Remainder Buyer s stamp duty rate 1 per cent 2 per cent 3 per cent Our Comments Apart from making it easier to calculate the buyer s stamp duty payable, the restatement of the rates is likely to have minimal impact on the amount of duty payable. 29 Rajah & Tann LLP
Streamlining the Stamp Duty Rate Structure Share Transfers and Mortgage Instruments Stamp duty payable on the transfer of stock or shares is currently calculated at a rate of S0.20 for every S$100 or part thereof of the purchase price or market value of the stock or shares, whichever being the higher. For mortgage instruments, stamp duty is computed at a rate of S$2 or S$4 for every S$1,000 or part thereof of the amount of loan facilities granted, depending on the type of mortgage instrument. The maximum stamp duty payable is S$500. Stamp duty rates for share transfers and mortgage instruments have been restated as follows: For the transfer of shares, the amount of stamp duty payable is 0.2 per cent of the purchase price or market value of the shares, whichever being the higher. For mortgage instruments, the amount of stamp duty payable is either 0.2 or 0.4 per cent of the amount of loan facilities granted, depending on the type of mortgage instrument. There is no change to the maximum amount of stamp duty payable. Our Comments Apart from making it easier to calculate the stamp duty payable in respect of share transfer and mortgage instruments, the restatement of the rates is likely to have minimal impact on the amount of duty payable. 30 Rajah & Tann LLP
Approved Building Project ( ABP ) Scheme Under the ABP Scheme, the Minister may grant ABP status to certain building projects in Singapore. Land under development for such ABP projects in Singapore will be exempt from property tax for a maximum period of three years from the date of commencement of foundation works, or up to the date of issue of Temporary Occupation Permit, whichever is earlier. To ensure that the ABP Scheme remains relevant, a review date of 31 March 2017 will be legislated. Contact Irving Aw Partner D (65) 6232 0597 F (65) 6428 2246 irving.aw@rajahtann.com Please feel free to also contact the Knowledge and Risk Management Group at eoasis@rajahtann.com Rajah & Tann LLP is the largest law firm in Singapore and Southeast Asia, with regional offices in China, Lao PDR, Vietnam, Thailand and Myanmar, as well as associate and affiliate offices in Malaysia, Cambodia, Indonesia and the Middle East. Our Asian network also includes regional desks focused on Japan and South Asia. As the Singapore member firm of the Lex Mundi Network, we are able to offer access to excellent legal expertise in more than 100 countries. Rajah & Tann LLP is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealing with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The contents of this Update are owned by Rajah & Tann LLP and subject to copyright protection under the laws of Singapore and, through international treaties, other countries. No part of this Update may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of Rajah & Tann LLP. Please note also that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as such information may not suit your specific business and operational requirements. It is to your advantage to seek legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann LLP or e-mail the Knowledge & Risk Management Group at eoasis@rajahtann.com. 31 Rajah & Tann LLP