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A public consultation exercise on the draft Income
Tax (Amendment No. 2) Bill 2004 was held from 15 July
to 11 August 2004 to obtain feedback on areas of the
draft legislation that require greater clarity or could
be modified to facilitate compliance by companies and
taxpayers.
2. The draft Income Tax (Amendment No. 2) Bill 2004
introduces amendments to the Income Tax Act relating
to the taxation of the Limited Liability Partnership.
Some examples include:
| i. |
Clarifications to the set-off
order for capital allowances between incomes exempt
from and chargeable to tax; and |
| ii. |
Restrictions on losses and
deductions claimable based on the contributed capital
of a partner. |
3. The summary
table in Annex A lists all the tax changes and
explains the amendments to the Income Tax Act. Separately,
IRAS will also release a Circular to clarify the LLP
tax treatment.
4. A total of 27 comments were received from 6 respondents,
mostly from professional bodies.
5. Amongst the comments received, 16 comments (about
59%) related to the drafting of the Income Tax (Amendment)
Bill 2004. 10 other comments were requests to review
the tax policies and other comments on differences between
IRAS' circulars and the draft tax legislation. 1 comment
pertained to the timing of release of IRAS' tax circular.
The tax changes that received the most comments on the
drafting of the legislation were as follows:
| a. |
Definition of partnership
in the Income Tax Act; |
| b. |
Deemed election of section
24 on sale of assets across related parties; |
| c. |
To group the provisions relating
to the ascertaining of assessable income together
(in section 37) instead of separating them in the
LLP sections |
6. MOF has considered all comments carefully. Of the
comments received, 9 have been accepted as they help
clarify policy intentions and improve the formulation
of the legislation. Changes will be made to the draft
Income Tax (Amendment) Bill to take in these suggestions,
along with other changes announced in the Budget 2004
and the procreation package. Comments not accepted were
mainly those where the suggested changes to the legislation
were inconsistent with drafting convention or existing
terms used in the Income Tax Act, or which do not meet
policy intentions.
7. The major comments received (both legislative and
policy) and MOF's responses are summarised below:
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Respondents suggested that, since LLP is separately
defined, the definition of "partnership"
should also be included; and also to ensure that
references made to partnerships under the Act
are extended to LLPs, where relevant.
| MOF's response: Not
accepted. AGC finds it unnecessary to separately
define "partnership", which is an
established concept in our Income Tax Act.
The draft section 36A(2) already clarifies
that in the Act references to a partnership
shall include the LLP. Accordingly, this is
sufficient for the purposes of LLP taxation. |
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Three
comments received delved on the issue of deemed
election under section 24 when there is a sale of
assets involving a partnership or LLP. The respondents
opined that this should not be so because even if
there may be common partners in the buying and selling
parties, the composition and profit sharing ratio
may be different in the 2 partnerships or LLPs.
It would be more equitable to the partners involved
if they are given the option to elect Section 24.
MOF's response: Accepted.
Section 24 would not be made mandatory for sales
of assets relating to LLPs and its partners. |
Respondents
felt that the proposed s36A may not be in an appropriate
location in the ITA as Part VIII deals with ascertainment
of statutory income. Various suggestions are made:
| - |
To legislate section
36 separately as ITA (LLP) Regulations; |
| - |
To expand the scope
of s.36 to include the wording of s.36A(1)
instead of introducing a new section; |
| - |
Instead of introducing
section 36A(3), to expand the scope of section
10E to include LLPs. |
| - |
To arrive at the assessable
income of the partner - it would be more appropriate
to include the rules set out under section.36A(4)
to (6) under s.37 - where the rules in ascertaining
the assessable income of a person are set
out. |
MOF's response: Not accepted. After consultation
with AGC, we agreed that while both styles of drafting
are feasible, it is more user friendly for the provisions
relating to the LLP to be grouped together in section
36A as opposed to separating them and the user having
to refer to many sections.
However, in time to come,
if there are many other business vehicles of a different
nature, MOF is open to changing this to ensure the
Act remains reader friendly. |
9. MOF thanks all who have responded. We will continue
the practice of consulting the public before finalising
the amendments to our income tax laws.
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