As companies prepare to e-File their income tax returns by 15 Dec 2015 (or 30 Nov 2015 if they paper file), IRAS would like to highlight three common mistakes so that companies can avoid them1.
Compliance Reviews and Guides to Help Companies File Correctly
IRAS recovered $217 million in taxes and penalties from our compliance reviews on companies last year. Three common mistakes found from these reviews were:
- Failure to keep proper records and accounts
- Wrongful claim of tax deduction on private expenses, or inflated payments to related parties; and
- Wrongful claim of tax deduction under the Productivity and Innovation Credit (PIC) Scheme
A. Failure to Keep Proper Records and Accounts
Companies with inadequate or improper record-keeping and accounting practices tend to understate sales, or overstate expenses in their tax returns. Companies must maintain proper records and keep the source documents for transactions connected with their business. If a company does not keep sufficient records, IRAS may estimate its income and expenses based on available information and assess its tax accordingly.
These records should be kept for five years for future checks, even after the company has received its Notice of Assessment for the year.
Companies can refer to the guides on record keeping and a self-assessment toolkit available on the IRAS website to review their record keeping standards and maintain proper records.
B. Wrongful Claim of Tax Deduction on Private Expenses or Inflated Payments to Related Parties
Companies, in particular family-owned businesses, often claim tax deduction on expenses or payments that are disallowed.
- Personal expenses incurred by company directors;
- Private motor car expenses, which are specifically disallowed for tax deduction under the Income Tax Act; and
- Excessive payments to family members or related parties. Tax deduction can be claimed only for salaries that are pegged at market rates and not excessive compared to those paid to an unrelated employee with similar qualifications and skillset performing the same job.
C. Wrongful Claim of Tax Deduction Under the PIC Scheme
We noted that a number of businesses tried to claim 400% tax deduction or allowance on:
- Non-PIC qualifying equipment; and
- PIC qualifying expenditure that has been converted to cash payout.
Businesses can claim deduction for expenditure only on equipment listed in the PIC IT and Automation Equipment List (PDF, 227KB). Companies have to seek IRAS’ approval for equipment not on the list, and demonstrate how the equipment would be used to enhance their productivity.
Under the PIC scheme, companies must choose between a 400% tax deduction/allowance and a cash payout. They cannot claim enhanced tax deduction/allowance if they have already opted for and received cash payout for the expenditure.
Penalties for Non-compliance
“As the paper filing due date of 30 November is fast approaching, we would like to remind all companies to file their taxes accurately and on time. Companies can enjoy an extended due date till 15 December if they e-File”, says Ms Chiam Yah Fang, Assistant Commissioner, Corporate Tax Division of IRAS. “While we believe that most companies are voluntarily compliant, we would not hesitate to take enforcement actions on those companies that are not compliant.”
Taxpayers convicted under Section 95 of the Income Tax Act for filing incorrect tax returns may face a penalty of up to 200% of the amount of tax undercharged. A fine up to $5,000 or imprisonment for up to three years may also be imposed.
To encourage taxpayers to review their past records and voluntarily declare any errors made, IRAS is prepared to accord a zero or reduced penalty treatment for voluntary disclosure of incorrect returns submitted without intention to evade tax under the Voluntary Disclosure Programme (VDP).
IRAS has also compiled tax saving tips that companies can look out for2.
E-File and Avoid Penalties for Late Filing
Companiesare reminded to e-File their returns by 15 Dec, or earlier by 30 Nov if they are submitting paper returns. All companies must file their tax returns, even if there was no business done, so long as they have received the Form C or Form C-S (for smaller companies).
If a company’s return is not received by the due date, IRAS may estimate the company’s income and issue a Notice of Assessment (NOA) accordingly. The company will have to pay the tax within one month, or face late payment penalties. A Letter of Composition and/or Summons may also be issued for late or non-filing. Any objection to IRAS’ NOA will be reviewed only after the company submits its tax return.
Companies are encouraged to e-File Form C/ C-S to enjoy the following benefits:
- Filing assistance with the iHelp facility, in-built formulae that auto-fill certain fields and an estimate of the tax payable
- Function to save a draft version until it is ready for submission
- Instant acknowledgment upon successful e-Filing
Companies that have e-Filed their Form C/C-S shared their positive experiences in Annex C.
1 Case studies on common filing mistakes are shown in Annex A.
2 Please refer to Annex B for common saving tips for companies.
Annex B - Tax Saving Tips for Companies
Tax Exemption Scheme for New Start-Ups
About 16 per cent of companies that need to file their income tax this year are newly incorporated companies. Qualifying new companies can enjoy full tax exemption on the first $100,000 of chargeable income, and a further 50 per cent exemption on the next $200,000 of chargeable income, for the first three YAs from date of incorporation. This exemption is not available to investment holding companies and companies engaged in property development activities that are incorporated on or after 26 Feb 2013. Instead, these companies will be given a partial tax exemption - 75 per cent on the first $10,000 of chargeable income and 50 per cent on the next $290,000 of chargeable income.
Expenses Incurred Prior to Commencement of Business
To provide further relief to business start-ups, businesses are allowed deduction for revenue expenses incurred up to one year prior to the first day of the accounting period that the company earns its first dollar of revenue. This takes effect from Year of Assessment (YA) 2012.
Corporate Tax Rebate
Companies get a 30% tax rebate from YA 2013 to 2015, subject to a cap of $30,000 per YA. No application needed!
Renovation and Refurbishment (R&R)
Costs Qualifying expenses on R&R works such as general electrical installations, fixed partitions and so on are tax deductible. Deduction will be granted on a straight-line basis over three consecutive YAs, subject to an expenditure cap of $300,000 for every relevant three-year period from YA 2013.
Capital Allowances (CA)
Capital allowances are deductions that companies can claim on the wear and tear of fixed assets bought and used in the trade or business. They are given in place of depreciation and other capital expenditure, which are not deductible for income tax purposes. Examples of qualifying fixed assets include furniture, electrical and electronic equipment etc.
Companies can enjoy a 400% tax deduction/allowance or 60% cash payout (YA 2013 to 2018) for spending in the six qualifying activities: 1. Purchase/Lease of PIC IT and Automation Equipment 2. Training of Employees 3. Acquisition and In-licensing of Intellectual Property Rights 4. Registration of Patents, Trademarks, Designs and Plant Varieties 5. Research and Development Activities 6. Design Projects Approved by DesignSingapore Council
Companies can claim further/ double tax deduction for qualifying expenses incurred on qualifying market expansion and investment development activities, up to $100,000 without approval from IE Singapore or Singapore Tourism Board. Examples of qualifying activities include participation in: i) Overseas business development trips; ii) Overseas trade fairs /missions; iii) Approved local trade fairs; and iv) Overseas investment study trips. Examples of qualifying expenses include airfare, hotel accommodation and meals, overseas transportation, insurance and freighting of exhibits, stand rental/ construction/ design/ decoration.
Companies can claim 250% tax deduction for approved donations. In conjunction with SG50, the Government will grant tax deduction of 300% of the amount of approved donations made during the period 1 Jan 2015 to 31 Dec 2015. For approved donations made after this period (up to 31 Dec 2018), 250% tax deduction will be granted. * Approved donations refer to donations made to an approved Institution of a Public Character (IPC) or to the Singapore Government, which benefit the local community.
Annex C - Companies' Feedback on Their e-Filing Experiences
- "1885 The Bottle Shop Pte Ltd is a wine retail private company. We used to do paper-filing of company income tax by 30 November every year. We were glad to know that IRAS launched a pilot run of the Form C e-Filing in the Year of Assessment (YA) 2014
and we benefited from this e-Filing service in many ways.
Going paperless helped us save a lot of time from filling in the paper form and mailing the documents to IRAS. It is good that the deadline for e-Filing is extended to mid of December so that we have more time and don’t need to rush for submission at the end of November. e-Filing also helps us to reduce human error as the IRAS website has detailed guidance on how to complete the form and it will auto-calculate for us the estimated tax payable. The e-Filing service is really efficient and user-friendly. We would like to give great appreciation for the e-Filing service!”
- Ms Xinhui, Accounts Executive, 1855 The Bottle Shop Pte Ltd
- "We agreed to participate in the pilot run of the Form C e-Filing with some apprehension and reluctance as we were used to manual submission. Two of our staff attended the half day training which was clear and good, and the trainers were helpful.
They clarified our doubts and in a way, allayed our anxiety about using this new platform.
While we encountered a minor problem during the actual e-filing of our YA 2014 Form C, the IRAS staff who attended to us over the phone assisted us patiently. We noted that e-Filing improved filing accuracy as its in-built validations helped to minimise errors. Other benefits of e-Filing included the extension of the deadline in filing our Tax Return and instant confirmation of the submission.
We are glad to have participated in the pilot launch and are satisfied with the e-Filing experience as it is user-friendly.”
- Angie Lim, Finance Manager, Benair Freight Pte Ltd