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1 Issue 2 of 2006 Carry-Back Relief System (prepared by Noraini Awaludin) In his 2005 Budget Speech, the Minister for Finance announced the introduction of the carry-back relief system from the Year of Assessment Under the carry-back relief system, any person carrying on a trade, business, profession or vocation may carry back for one year his current year unabsorbed wear and tear allowances and unabsorbed trade losses ( qualifying deductions ) up to an aggregate of $100,000 to set off against his assessable income of the immediate preceding Year of Assessment ( YA ). The one-year carry-back of unabsorbed wear and tear allowances and trade losses takes effect from the YA 2006 which means that qualifying deductions arising from YA 2006 can be carried back for set-off against assessable income of the immediate preceding YA ie. YA2005 (subject to a limit of $100,000 and satisfaction of the conditions stipulated). (con t on pg 2) IN THIS ISSUE: Carry-Back Relief System Office of a Secretary Residential Property (Amendment) Act 2006

2 2 (con t from pg 1) Prior to Introduction of Carry-Back Relief System The unabsorbed wear and tear allowances and unabsorbed trade losses can be set-off against future profits as long as the continuity of shareholders test is satisfied there is no substantial (i.e. more than 50 per cent) change in the shareholding composition at relevant dates. In addition, the unabsorbed wear and tear allowances can only be set off against future profits from the same trade (ie. the same business test). The relevant dates for the utilisation of unabsorbed trade losses are as follows: the last day of the year in which the trade loss was incurred; and first day of the YA in which the unabsorbed trade loss is used for set-off against taxable income. The relevant dates for the utilisation of unabsorbed wear and tear allowances are as follows: the last day of the year in which the wear and tear allowances arose; and the first day of the YA in which the unabsorbed wear and tear allowances are used for set-off against taxable income. Persons Eligible for Carry-Back Relief System The carry-back relief system is available to any person who carries on a trade, business, profession or vocation. This would include companies, individuals who are sole-proprietors, partners of a partnership (including a limited liability partnership) and bodies of persons, trustees of trusts and executors of estates. Conditions Governing the Carry-Back Relief The carry-back of qualifying deductions is subject to the following conditions: 3.1 Same Business Test The unabsorbed wear and tear allowances are available for carry-back only when the same business test is satisfied. This means that the current year (ie. YA 2006) unabsorbed wear and tear allowances arising from a trade or business which just commenced in YA 2006 would not be available for carry-back to the YA Quantum of Qualifying Deductions to be Carried Back The qualifying deductions of an eligible person available for carry-back to set off against his taxable income of the immediate preceding YA would be the lower of: the actual amount of such qualifying deductions (not exceeding $100,000); or the assessable income of the immediate preceding YA. 3.3 Order of Set-Off The current order of set-off of unabsorbed wear and tear allowances and unabsorbed trade losses is as follows: Unabsorbed wear and tear brought forward from prior YA. Current year s unabsorbed wear and tear allowance. Unabsorbed trade losses brought forward from prior YA. Current year s unabsorbed trade losses. Unutilised donations brought forward from prior YA. Current year s unutilised donations. (con t on pg 3)

3 3 (con t from pg 2) With regard to the carry-back relief system, only the current year unabsorbed wear and tear allowances and unabsorbed trade losses are available for carry-back. The order of set off is as follows. Current year unabsorbed wear and tear allowance. Current year unabsorbed trade losses. Further, the carry-back relief system is effected after any transfer, under the group relief system. Specific Conditions Applicable to Companies 4.1 The carry-back of qualifying deductions is subject to the shareholding test at the relevant dates being satisfied. The relevant dates for the carry-back of unabsorbed wear and tear allowances are as follows: The first day of the year in which the unabsorbed wear and tear allowances arose; and The last day of the YA in which the unabsorbed wear and tear allowances are used for set-off against taxable income. The relevant dates for the carry-back of unabsorbed trade losses are as follows: The first day of the year in which the trade loss was incurred; and The last day of the YA in which the trade loss is used for set-off against taxable income. 4.2 For a company which has chargeable income in respect of normal and concessionary tax rates, the adjustment factor stipulated under Section 37B of the Income Tax Act will be applied within the company for set off across income chargeable under the two different tax rate categories. Specific Conditions Applicable to Individuals 5.1 The carry-back relief system is effected after any unabsorbed wear and tear allowances or losses transferred to spouse. 5.2 Personal reliefs eg. income relief, working mother relief and the deduction for CPF contributions by self-employed, which are computed based on earned income are to be adjusted accordingly based on the revised earned income of the individual in that YA after taking into account the amount carried back as well as any excess qualifying deductions transferred to him by his spouse. (con t on pg 4)

4 4 Where facts are few, experts are many. Donald R. Gannon (con t from pg 3) Specific Conditions Applicable to Partners of Limited Liability Partnership ( LLP ) Where qualifying deductions are carried back to the immediate preceding YA, the capital contribution of the LLP partner at the end of the current YA will be taken into account with regards to relevant deduction restriction. Specific Exclusions 7.1 The carry-back of qualifying deductions which arose from trade or activity wholly exempt from tax can only be carried back and set off against exempt income of the same trade or activity and not against income from other trade or activity. 7.2 The carry-back relief system is not available where there are rules restricting the deduction of current year unabsorbed wear and tear allowances and trade losses of specific categories of activity or trade. This includes income from finance leases (entered into on or after 1 April 1990) and income from business of hiring out motor cars. 7.3 The carry-back relief system is not available to companies or trustees which are subject to tax under Section 10E of the Income Tax Act. 7.4 Losses which arose from eligible investors in approved start-up companies under the Enterprise Investment Incentive Scheme would not qualify for the carry-back relief system. Procedure to Elect for Carry-Back Relief System 8.1 Companies, bodies of persons, trustees and executors must elect for the carry-back relief system, if they wish to, no later than the time of lodgment of their return of income for the current YA. 8.2 Individuals must elect for the carry-back relief system, if they wish to, no later than 30 days from the date of the Notice of Assessment for the current YA.

5 5 Office of a Secretary (prepared by Rowena Chuang) Pursuant to Section 171 of Singapore Companies Act, Cap. 50, the secretary: 1. must be appointed within 6 months from the date of incorporation 2. shall be a natural person who has his/her principal place of residence in Singapore i.e. he/she must be: (a) a Singaporean; OR (b) a permanent resident ; OR (c) an Employment Pass Holder. The secretary of a private company may not be a professionally qualified person. However, the directors of the company are required to take all reasonable steps to ensure that company secretary so appointed by them possesses the requisite knowledge, experience and of a good reputable standing to faithfully serve his/her secretarial role in the Company. The secretary of a public company must comply with section 171(1AA) of the Companies Act i.e. must possess at least one of the following qualifications: on 15 May 1987 held the office of secretary in that company and continued to hold that office on the date of commencement of the Companies (Amendment) Act 2003; for at least 3 years in the period of 5 years immediately preceding his/her appointment as secretary, held the office of secretary of a company; (con t on pg 6)

6 6 (con t from pg 5) is a qualified person under the Legal Profession Act (Cap. 161), a public accountant, a member of the Singapore Association of the Institute of Chartered Secretaries and Administrators, or a member of such other professional association as may be prescribed; or is, by virtue of such academic or professional qualifications as may be prescribed, capable of carrying out the functions of a secretary. The general scope of work of a company secretary includes: 1. establishment and maintenance of all necessary company registers and statutory records. 2. arrangement for meetings of shareholders and directors including the sending out of notices, preparation of agendas, arranging for proxies, compilation of minutes, etc. 3. arranging for issues relating to changes in Memorandum and Articles of Association, name of company, shares, officers, bank accounts, charges, registered office, common seals, official seals etc. 4. lodgment of statutory forms and documents with the Accounting & Corporate Regulatory Authority. 5. in the case of a public company, the scope of work is wider, including liaising with the relevant stock exchange and ensure compliance with stock exchange requirements pertaining to announcements, corporate governance, disclosure, etc. 6. acting as an intermediary and focal point of communication between the directors and other officers (e.g. auditors & tax agent) of the company. The above list is not exhaustive and it serves only as a general guide. Please note that a sole director of the Company cannot act as its secretary.

7 7 MAY th Deadline for CPF contribution 15th Withholding tax compliance due for specified payments to non-residents made in April 31st ECI filing deadline for companies with financial year ending in February when did you last review your remuneration package to maximise tax savings? is withholding tax draining your cashflow? can the procedures be better structured to reduce the tax exposure?

8 8 Did You Know? (prepared by Tan Ching Chek) Residential Property (Amendment) Act 2006 The Residential Property (Amendment) Act 2006 (the Amendment Act ) came into operation on 31 March The Amendment Act has, amongst other matters, repealed the annual requirement of submitting a duly executed statutory declaration by a Singapore Company with regards the particulars of the nationality of all its members and directors. Notwithstanding this, the Controller may at any time require a Singapore Company which has been issued the clearance certificate to produce its register of members and directors for his inspection if the Controller desires to ascertain whether the Singapore Company has ceased to be a Singapore Company. If you need any further information on the Amendment Act, you may wish to contact the following persons: Michelle Lo, DID : or Tan Ching Chek, DID : Writer s Caveat These articles have merely attempted to provide a broad overview on the subject matters. It is not in any way intended to be comprehensive and no specific action should be taken on the basis of the above without consulting your professional advisors. Published by: BSL Corporate Services Pte Ltd (Company Reg. No C) 220 Orchard Road #05-01 Midpoint Orchard Singapore Tel: Fax: main@bslcs.com.sg URL: A member of AGN International Ltd, a worldwide association of separate and independent accounting and consulting firms