Upcoming Areas of Focus for Compliance
Focus areas of IRAS' upcoming compliance programmes include the following:
1. Sector Based Audits
IRAS aims to achieve a broad and even audit coverage across all segments of the taxpayer base. We routinely select different industry sectors for audit. Such audits allow IRAS to better understand the respective sectors and take appropriate compliance initiatives against sectors where the tax compliance level requires improvement.
Some of the sectors selected for audit in the year 2021 include renovation-related and funeral service industries. We advise taxpayers to review their tax matters for the past 4 years to ensure that they are in order. Where discrepancies are found, taxpayers should make a voluntary disclosure to IRAS before they are uncovered in an audit in order to benefit from reduced penalties.
2. Taxability of Income/ Gains from Sale of Properties
Taxpayers may purchase property and derive gains upon the sale of such property. Whether such gains are taxable as revenue receipts or exempt as capital gains depends on whether the taxpayer is considered to have engaged in the trade of buying and selling of properties or derive gains which are of an income nature. The frequency of transactions, length of time the properties were held and the manner they were financed are some indicators of whether the taxpayer intended to trade in properties. IRAS regularly examines taxpayers who have engaged in such transactions to evaluate if they have filed their tax returns correctly.
Ongoing Areas of Focus for Compliance
IRAS continues to focus compliance efforts on these areas:
1. Timely Filing of Corporate Income Tax Returns (Form C-S/ Form C-S (Lite)/ Form C)
Currently, about 84% of corporate taxpayers file their Corporate Income Tax Returns on time. Companies have between 11 months (for companies with financial years ending in Dec) and 22 months (for companies with financial years ending in Jan) to prepare and file their returns. This is a reasonable period for a company to fulfil its filing obligations.
It is important that companies file their Corporate Income Tax Returns promptly to ensure timely finalisation of their tax and financial matters. Under the law, failure to file the Corporate Income Tax Return on time is an offence. IRAS will not hesitate to take strong deterrent measures against taxpayers who do not file their tax returns on time, in particular, errant directors who operate multiple companies.
2. Claiming of Private or Non-Deductible Expenses
Some companies may have treated private expenses as business expenses and claimed tax deduction in respect of such expenses. In Apr 2019, a company and its directors were convicted for understating their income by claiming private expenses, such as purchase of luxury bags and family holidays, incurred by the directors in the company's tax returns. Other common items where such mistakes are made include transport expenses incurred on personal S-plated vehicles, as well as claiming expenses on family holidays and meals as business entertainment expenses. IRAS regularly audits companies to ensure that their expenses have been claimed correctly and there has been no under-declaration of taxes. IRAS will not hesitate to impose penalties on non-compliant companies. Taxpayers should review their claims to ensure that they are compliant with tax laws.
3. Classification of Income and Expenses for Income Taxable at Concessionary and Prevailing Corporate Income Tax Rates
A company may receive different streams of income taxable at different tax rates i.e. the prevailing Corporate Income Tax rate and concessionary tax rates.
Through our reviews, we have observed that some companies have made the following errors:
- Incorrect classification of non-qualifying income under the concessionary tax rate category
- Incorrect identification of direct and common expenses
- Adoption of inappropriate bases in the allocation of common expenses and capital allowances
Through our on-going compliance reviews, we aim to understand the measures/ controls put in place by these companies to ensure they have filed their Corporate Income Tax Returns correctly and provide guidance to improve their controls.
4. Group Relief Claims
Since 2013, IRAS has audited selected companies to ensure that their Group Relief claims made in their Corporate Income Tax Returns are correct.
The review of the Group Relief claims focuses on areas such as:
- Whether the 75% ordinary shareholding requirement has been met
- Whether the set-off of loss items transferred/ claimed is in the correct order
- Whether adjustment has been made for different continuous periods
Through our reviews, we have observed the following compliance risks:
- Companies failed to meet the 75% ordinary shareholding requirement to be considered as part of the same Group
- Companies with different financial year ends should not have transferred or claimed losses from each other
IRAS will continue to review selected Group Relief claims made by companies to ascertain that the claims are in order.
5. Tax Exemption for Foreign-Sourced Dividends
Companies may receive foreign-sourced dividends in Singapore and claim tax exemption of these dividends under the foreign-sourced income exemption (FSIE) scheme, subject to certain qualifying conditions.
From our review of such claims, we have observed the following errors committed by companies:
- The dividends did not meet the 'foreign headline tax rate' condition (i.e. the dividends were received from foreign jurisdictions with headline tax rates of less than 15% when the dividends were received in Singapore)
- The dividends did not meet the 'subject to tax' condition (e.g. the dividends were distributed from a company which is part of a group and the income of the company was found not to be subject to tax, even though the consolidated audited accounts had shown a positive current year tax for the financial year prior to the year the dividend is received)
IRAS will continue to review claims relating to exemption of foreign-sourced dividends to ensure that the claims for FSIE benefits are in order.
6. Recognition of Income from Construction Contracts and Provisions Claimed by Construction Companies
Income derived from construction contracts is recognised progressively over a period of time - this is commonly known in the industry as the Percentage of Completion ('POC') method of income recognition.
For income tax purposes, IRAS accepts the accounting recognition of income over time as it is consistent with the tax rule of taxing income when it is accrued. Learn about the tax treatment for common scenarios of income recognition by construction companies.
Construction companies may make provisions for expenses such as defects, damages, warranty and foreseeable losses. Being provisions of expenses, they are not allowable for tax deduction. Deduction is allowable only when the expenses are incurred and not prohibited for deduction under Section 15 of the Income Tax Act 1947.
The objective of the compliance reviews on construction companies is to ascertain that income and expenses have been correctly reported for tax purposes.
7. Companies that have requested for/ been accorded No Business Done status and are exempted from filing Corporate Income Tax Returns
IRAS exempts companies from the requirement to file Corporate Income Tax Returns if:
- The company has filed Form C-S/ Form C-S (Lite)/ Form C as a dormant company for 2 consecutive Years of Assessment; or
- The company has applied for waiver to file Form C-S/ Form C-S (Lite)/ Form C on grounds that it is dormant and has no immediate intention to recommence business.
Companies that are exempted but subsequently recommence business must file a Corporate Income Tax Return for the relevant year in which they recommence their business. They must inform IRAS and request for a Corporate Income Tax Return. IRAS regularly reviews companies that have been granted exemption from filing Corporate Income Tax Returns to ensure that they have remained dormant. Companies found to have recommenced business but failed to meet their filing obligations may be liable to penalties. Companies that are sourcing for business are regarded as having recommenced their business and are required to file a Corporate Income Tax Return for the relevant year.
Playing Your Part in Ensuring Everyone Pays Their Fair Share of Taxes
Voluntarily Disclose Past Mistakes
IRAS believes that the majority of taxpayers are voluntarily compliant. We understand that some taxpayers could have committed errors due to their negligence or lack of understanding of their tax obligations.
We encourage taxpayers who have made errors or filed incorrect returns to come forward voluntarily as soon as they have uncovered the error to disclose these errors or omissions and get their tax obligations right.
By doing so, they may qualify for penalty reduction under our Voluntary Disclosure Programme. Learn more about the common tax filing mistakes to avoid and the Voluntary Disclosure Programme through our e-Learning video.
Report Non-Compliant Activities
We encourage members of the community to report suspected tax evasion or other forms of non-compliance such as those described above. If you suspect a person or business is engaging in certain transactions in order to evade their tax obligations, or you know of someone who is not complying with their tax obligations, let us know by emailing [email protected]. Your information will be kept confidential.
Keep Proper Business Records
When you make purchases as a consumer, you should request for a written contract, tax invoice or obtain a receipt on payment. This helps to ensure that you have the necessary records and accounts of business transactions to comply with your tax obligations.
Learn more about record keeping requirements.
Fulfil Your Filing Obligations Promptly
To make compliance easy for taxpayers, IRAS has various service channels to educate taxpayers of their obligations: