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Income tax questions

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1. What is an investment holding company?
An investment holding company refers to a company whose principal activity is that of investment holding. It owns investments such as properties and shares for long term investment and derives investment income such as dividend, interest or rental.

2. What is YEAR OF ASSESSMENT?
From YA 2009 onwards, all investment income of a company must be assessed on an accounting year basis.
 
If you are incorporated on 2 February 2013, your first financial period will consist of 12 months (called the basis period) from 02 February 2013 to 31 January 2014.

Your year of assessment will be YA 2015, to be reported on 30 November 2015

3. What do I need to do for accounting?

Types of records to keep include:

Tax invoices and receipts issued/ received

Credit notes and debit notes

Business contracts and agreements

Tourist refund claim forms (if any)

Import and export documents (e.g. permit, bill of lading, air waybill)

Business and accounting records
(e.g. general ledgers/ debtors, creditors ledgers, purchase orders, delivery notes, purchase and sales books, cash books, records of daily takings, stock records, bank statements, bank-in slips, relevant business correspondences, GST accounts and financial statements)

Other documents supporting GST declaration

4. What are deductible expenses?

Examples of the deductible expenses are:

Statutory expenses

Expenses incurred in accordance with statutory provisions, such as the Companies Act, are deductible.

Examples of statutory expenses:

Audit fee

Accounting fee

Secretarial fee

Income tax service fees

Basic printing and stationery

Bank charges

Annual listing fees

Direct expenses

Revenue expenses directly incurred to earn investment income are deductible against the respective source of investment income.

Examples of direct expenses are:

Interest expenses (on loan taken to acquire the investment, e.g.shares or properties)

Property tax (for rental properties)

Insurance (for rental properties)

Repair and maintenance (for rental properties)

MCST management fees (for rental properties)

Cost of collecting rent (for rental properties)

Expenses incurred before the commencement of investment income are not deductible expenses.

For example, interest incurred on loan Indirect expenses Indirect expenses incurred are not deductible.

However, as a concession,an amount not exceeding 5% of the gross investment income that is chargeable to tax is deductible.

Examples of such indirect expenses are:

Directors' fees

Office rental

Office telephone charges

Office water and light

Staff salaries, allowances, bonus and approved provident fund contributions

Transport expenses

(exclude motor vehicle expenses on "S"-plate cars which are not deductible)

General expenses

Administrative and management fees

What are NON deductible expenses?

Capital expenses and expenses attributable to non-income producing investments are not deductible.

Examples are:

1. Stamp duty and legal fees incurred for the purchase of investments

2. Cost of new assets such as refrigerator, air-conditioner, washing machine, furniture and fittings for the investment property. However, replacement cost for fixed assets are deductible expenses.

3. Interest expense incurred to acquire shares that did not yield dividends

4. Commission, advertising, legal costs incurred to secure the first tenancy. Such expenses are incurred to acquire a new source of income and are not incurred in the production of income.

5. Excess of expenses over the income received from one source of investment cannot be claimed against the surplus arising from another source of investment

Example:
Any excess of expenses attributable to rental income cannot be deducted against dividend or interest income.
Any unutilised losses cannot be carried forward to be deducted against the income for a subsequent YA.
An investment holding company is not entitled to claim capital allowances as it is not carrying on a trade or business. However, fixed assets purchased can be claimed on a replacement basis as deductible expenses.