| |
1. A public consultation exercise on the draft Income
Tax (Amendment) Bill 2006 was held from 9 June to 8
July 2006 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) Bill 2006 put
up for consultation related to the following:
- Budget 2006 tax changes. These are tax
changes announced by Prime Minister and Minister
for Finance Lee Hsien Loong in his Budget
2006 Statement. An example is the introduction
of a new Maritime Finance Incentive Scheme.
- Other tax changes. These are tax changes
or refinements to existing tax policies and administration
resulting from on-going reviews of the income tax
system. An example is the tax treatment of mutual
concerns set up as companies limited by guarantee.
3. The summary
table listed all the tax changes and explained
the amendments to the Income Tax Act.
4. A total of 73 comments were received, most of the
feedback being from professional bodies and companies.
The responses were of high quality and helpful for
improving the income tax legislation.
5. 49 of the 73 comments received (67%) related to
the drafting of the Income Tax (Amendment) Bill 2006.
The other comments were requests to review tax policies
and tax administration practices or comments on tax
provisions not covered in the Bill. The tax changes
that received the most comments on the drafting of
the legislation were as follows:
| |
a. |
Corporate tax deduction for the cost of treasury
shares used to satisfy obligations under employee
equity-based remuneration schemes;
|
| |
b. |
Tax treatment of financial instruments arising
from the adoption of Financial Reporting Standard
(FRS) 39;
|
| |
c. |
Tax treatment of gains from employee stock
options granted prior to 1st January 2003;
|
| |
d. |
Tax treatment of trusts;
|
| |
e. |
Enhancement to the claim for Industrial Building
Allowance; and
|
| |
f. |
Maritime Finance Incentive scheme (MFI)
|
6. MOF has considered all comments carefully. Of the
49 comments on the drafting of the legislation, 28
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.
7. 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.
8. The major comments received and MOF’s responses
to them are summarised below:
1. Corporate tax deduction
for the cost of treasury shares used to satisfy
obligations under employee equity-based remuneration
schemes
|
(a) Respondents
suggested that the draft legislation be amended
to reflect the policy
intention of allowing taxpayers the choice
of adopting either “first-in-first-out” method
or the simple weighted average method to determine
the cost of the treasury shares for tax deduction.
MOF’s response: Accepted. Companies can
adopt either the "first-in-first out" method
or the weighted average method, as they deem fit,
so long as the method is consistently used. The
Income Tax (Amendment) Bill will be amended to
reflect this.
(b) A respondent commented that recharges
from parent company for shares transferred
to a subsidiary’s
employees are not covered by the new Section 14P.
MOF’s response: Accepted. The law will
be amended to specifically allow, under specified
circumstances, the deduction of parent company
recharges in respect of treasury shares to satisfy
obligations under employee. equity-based remuneration
schemes. |
|
2. Tax treatment arising
from the adoption of FRS 39
|
(a) Subject
to certain exceptions, FRS39 is an accounting standard
that would generally apply to all entities [e.g.
including Singapore entities deriving passive income
that is assessable under Section 10(1)(d) or 10(1)(f),
as opposed to 10(1)(a) of the Income Tax Act].
One respondent therefore suggested that the definition
of “qualifying person” should be extended
to include such entities deriving passive-sourced
income.
MOF’s response: Accepted. The Income Tax
(Amendment) Bill will be amended to make the treatment
explicit.
(b) There was a suggestion that section 34A(g)
should be revised to clarify that its ambit only
covers the tax deduction rules for collective (as
opposed to individual) impairment provisions made
by banks/ finance companies in the interim period
(i.e. before such entities are able to make FRS
39-compliant impairment provisions).
MOF’s response: Not accepted. It is already
stated in section 34A(2)(g) that the transitional
rules relate to a group of financial assets for
which the bank or qualifying finance company is
unable to make a provision for the amount of impairment
losses. |
3. Enhancements to the
Claim for Industrial Building Allowance
|
(a) One
respondent commented that the draft provision appeared
to exclude the scenario of an industrial building
or structure that was in existence before 1 January
2006 where some capital expenditure was incurred
before that date and new capital expenditure was
also incurred on or after that date.
MOF’s response: Accepted. The Income Tax
(Amendment) Bill will be amended to clarify that
the new rules will apply only to new qualifying
capital expenditures incurred on or after 1 January
2006.
(b) “Capital expenditure”, in relation
to the purchase of a building or structure is defined
in Section 18(8) to exclude “cost of land
as determined by the Comptroller”. There
was a feedback that the definition seems to imply
that taxpayers would not have any “say” in
the cost determination. It was suggested that some
flexibility could be introduced to allow the taxpayers
to put forth “valuation” of the cost
of land for the Comptroller’s consideration.
MOF’s Response: Accepted. The provision
in the Income Tax (Amendment) Bill will be amended
to “cost of land as determined to the satisfaction
of the Comptroller”. Hence, taxpayers may
object to Comptroller's valuation of the land.
Such claims should be supported by documentary
proof. |
4. New Maritime Finance
Incentive scheme (MFI)
|
(a) Some
respondents highlighted that the Bill did not incorporate
the new concept of having two distinct time periods
(i.e. length of status of the approved shipping
investment vehicle (ASIV) award and length of tax
exemption to be granted to the qualifying income
of ASIV) under the Maritime Finance Incentive.
MOF’s response: Accepted. The Income Tax
(Amendment) Bill will be amended to reflect the
workings of the MFI scheme as described in the
press release of the Maritime and Port Authority
of Singapore issued on 28 June 2006. |
5. Corporate tax deduction
for the cost of treasury shares used to satisfy
obligations under employee equity-based remuneration
schemes
|
(a)
One respondent suggested that the deduction should
be allowed at the time the share options are
vested, instead of being deductible only when
the share options are exercised.
MOF’s
response: It is the policy intention that the
deduction should be granted to the
company at the point when the company is considered
to have incurred the expenditure in awarding
the shares to the employees. Using the date
of vesting of share options is not appropriate
as the employees may not eventually exercise
the options. |
6. Tax treatment of trusts
|
(a)
A respondent feedback that it was not clear whether
the trade or business income of a trust which
is subject to final taxation in the hands of
a trustee includes investment income that is
immediately distribution and which arises from
a business of making investments. It was therefore
suggested that “Pass Through Income” should
be capable of including investment income from
a business of making investments.
MOF’s response: The suggestion is not
reflective of MOF’s policy intent. The
income from the business of making investments
is still assessed as a trading income. As such,
there would be no see-through and the income
should be taxed at trustee level, consistent
with the treatment of other trading income. |
7. Tax treatment of gains
from employee stock options granted prior to
1st January 2003
|
(a)
Respondents felt that the proposed insertion
in section 10(6A) would impose tax retrospectively,
which is unfair to taxpayers, and proposed that
the amendment be made prospectively.
MOF’s
response: The insertion of the new Section 10(6A)
is merely for the avoidance
of doubt and to ease the interpretation of
the Income Tax Act, and is not intended to
impose any taxes retrospectively. To clarify,
the taxability of stock option gains is determined
under Section 10(1)(g) of the Income Tax Act
and not under the repealed section 10(5). Hence
the absence of the old section 10(5) does not
imply that the gains from employee stock options
(ESOPs) granted prior to 1 Jan 2003 are not
subject to income tax. In addition, although
the old section 10(5) was repealed in Dec 2002,
its operation is preserved under section 16(1)
of the Interpretation Act. Hence, the gains
from ESOPs granted prior to 1 Jan 2003 continue
to be subject to the repealed section. |
8. Tax treatment of trusts
|
(a)
One respondent commented that a restriction of
distribution within the year of receipt may cause
injustice in a situation where the income is
earned at the end of the year and there is insufficient
time for the trustee to make any distribution
to the beneficiaries before year-end. It is also
inconsistent with the existing section 35(9)
of the ITA which allows distribution up till
31 March of the relevant year of assessment.
MOF’s
response: The Income Tax (Amendment) Bill reflects
the policy intention that only
distributions within the year of receipt will
be eligible for pass-through treatment. However,
IRAS is prepared to be flexible in administering
this rule in the situation stated in the comment.
Further details will be released in the circular
on taxation of trust income. |
9. MOF thanks all who have responded for their comments.
We will continue the practice of consulting the public
before finalising the amendments to our income tax
laws.
|
