TAX FILING OBLIGATIONS OF A REAL ESTATE AGENT & THE PRODUCTIVITY & INNOVATION CREDIT SCHEME 03 April 2013
Our sharing today is about Obligations as a Self- Employed Person Filing Income Tax Return Making Trade Adjustments to Arrive at Adjusted Profit / Loss Avoiding Common Errors Useful Tips Seeking Assistance Productivity and Innovation Credit Scheme Record Keeping Practices Penalties Reporting Rental Income 2
Obligations as a Self-Employed Person 3
Who is a Self-Employed Person? Sole proprietors of registered businesses and persons exercising profession or vocation Partner of a partnership business (normal partnership, limited liability partnership, limited partnership) 4
As a Real Estate Agent... You are considered a self-employed person You are required to declare your income in a 2- line or 4-line statement under business income and NOT as employment or other income You can claim expenses that you need to earn your income 5
Obligations as a Self-Employed Person Comply with income tax law Report complete & accurate business income Keep proper records & accounts for 5 years File form B / P on time 6
Obligations as a Self-Employed Person Register for GST If your business revenue exceeds $1 million a year, or you expect your revenue to exceed $1 million a year Contribute to Medisave account Singapore Citizen or Singapore Permanent Resident Earn a yearly net trade income of more than $6,000 IRAS will issue a Notice of Computation (NOC) to inform you of your Medisave contributions 7
Filing Income Tax Return 8
Filing Income Tax Return What is a 4-line Statement? Revenue Total payments / fees / commissions received or receivable for services provided before deducting any expenses Gross Profit / Loss For trading business: Revenue Cost of Goods Sold For a service business: Same as Revenue Allowable Business Expenses Expenses incurred wholly and exclusively in the production of your income Adjusted Profit / Loss Gross Profit Allowable Business Expenses 9
Filing Income Tax Return How to Report Your Income Revenue < $100,000 Report 2-line statement Revenue Adjusted Profit / Loss Revenue < $500,000 Report 4-line statement Revenue Gross Profit / Loss Allowable Business Expenses Adjusted Profit / Loss Revenue > $500,000 Report 4-line statement Submit Certified Statement of Accounts (SOA) Profit & Loss Accounts Balance Sheet Certified means that the SOA must be signed by the soleproprietor / precedent partner certifying that accounts are true and correct 10
Filing Income Tax Return Allowable Business Expenses Expenses must have been incurred in the production of income Expenses must be related to the business Allowable Business Expenses Allowed by tax law (i.e. not prohibited by law) 11
Filing Income Tax Return Examples of Allowable Business Expenses Staff costs if you employ someone Salary, bonuses, allowances Compulsory employer s CPF Running costs Rental for premises Utilities, electricity, telecommunications Cost of travelling by public transport Advertising, printing, stationery and postage Entertainment of clients Upkeep of premises and equipment Repair and maintenance of assets Book-keeping fees Expenses allowed by tax laws / tax concessions Capital allowances on fixed assets Pre-commencement revenue expenses 12
Filing Income Tax Return Allowable Business Expenses Capital Allowances Write-off over working life of asset 3-year writeoff 1-year writeoff Commercial vehicles All assets (from YA 2009) Computers and automation equipments Office Equipment Furniture Assets costing not more than $5,000 each, capped at $30,000 per Year of Assessment (from YA 2013) 13
Filing Income Tax Return Allowable Business Expenses Pre-commencement Revenue Expenses What is it? Concession for Enterprise Development enhanced in 2011 You can claim pre-commencement revenue expenses incurred one year prior to the deemed date of commencement of business Deemed date of commencement of business = first day of the accounting year in which it earns its first dollar of business receipt 14
Filing Income Tax Return Allowable Business Expenses Pre-commencement Revenue Expenses Application Your business was set up on 1 December 2010 Your accounting year ends on 31 December The first dollar of business receipt was earned on 1 Feb 2012 Deemed date of commencement of business is 1 Jan 2012 You can claim pre-commencement revenue expenses from 1 Jan 2011 Business set up Deemed Date of Commencement 1 st dollar of business receipt Accounting year-end 1 Dec 2010 1 Jan 2011 1 Jan 2012 1 Feb 2012 31 Dec 2012 Revenue expenses deductible (Without 2011concession) Revenue expenses deductible (With 2011 concession) 15
Filing Income Tax Return Disallowable Expenses Personal and private expenses Prohibited by tax law Capital expenses Disallowable Expenses Non- business expenses 16
Filing Income Tax Return Examples of Disallowable Expenses Capital expenses Cost of fixed assets Hire-purchase instalments Private & personal expenses Your own salary / CPF / Medisave Your own medical expenses and medical expenses of family members Entertainment of family members and friends with no business element Entrance fee and subscription fees to country clubs Upkeep of private premises and equipment Expenses prohibited by tax law Expenses incurred in respect of private car (even if the car is used for business) Non-business expenses Donation Fines and penalties 17
Making Trade Adjustments to Arrive at Adjusted Profit / Loss 18
Making Trade Adjustments to Arrive at Adjusted Profit / Loss Adjusted Profit VS Net Profit? Why the need to compute adjusted profit? The following may have been included in the profit and loss account: Non-trade income Expenses that are not deductible for income tax purposes Therefore, adjustments have to be made to the accounting net profit / loss to: Exclude the non-trade income Add back disallowable expenses to arrive at the adjusted profit / loss 19
Making Trade Adjustments to Arrive at Adjusted Profit / Loss Net profit per accounts Less: Income from separate source / Non-taxable income Interest Rental Profit on sale of fixed assets Add: Disallowable Expenses Donations Depreciation Entertainment (private) Excess employer CPF contributions Fines and Penalties Fixed assets written off Medical expenses exceeding 1% of total remuneration Motor vehicle expenses (private) Sole-proprietor s salary / Allowance / CPF / Medisave Less: Capital Allowances Adjusted Profit / Loss 20
Making Trade Adjustments to Arrive at Adjusted Profit / Loss Template for Computation of Adjusted Profit / Loss Sample in the previous slide Available at the centre page of the Guide on Filing of Income Tax Return issued with the paper Income Tax Return Form B Available at IRAS website www.iras.gov.sg 21
Making Trade Adjustments to Arrive at Adjusted Profit / Loss www.iras.gov.sg 22
Making Trade Adjustments to Arrive at Adjusted Profit / Loss 23
Avoiding Common Errors 24
Avoiding Common Errors Common error: Incorrect categorisation of income Self-employed income incorrectly reported under Employment or Other Income Avoiding the error To declare 2 or 4-line statement under Trade if the taxpayer is carrying on a trade, business, profession or vocation 25
Avoiding Common Errors Common error: Understatement of income Revenue / sales is reported net of expenses Amounts used to pay for private expenses are deducted from sales Avoiding the error Report gross revenue sales Claim expenses as separate items 26
Avoiding Common Errors Common error: Income to be taxed as separate source is reported as trade income Example: Rental income declared as trade income Avoiding the error Report separate sources of income 27
Avoiding Common Errors Common error: Poor or incomplete record-keeping resulting in estimated expenses being claimed No records maintained No invoices issued for services rendered No receipts are kept for purchases and expenses Estimated amounts are claimed Misconception that records can be discarded once a Notice of Assessment is received Avoiding the error Keep complete records of all expenses claims (e.g. date incurred, amount, purpose, payee s name) Keep receipts and documents for 5 years Report actual amount of sales Claim actual amounts incurred 28
Avoiding Common Errors Common error: Claiming private expenses Private expenses are included in business expenses claims Examples: Your course fees included in course fees for staff Your medical fees included in medical fees for staff Private meals / personal golf sessions / club membership fees included in entertainment claims Overseas travelling expenses that is not incurred in the production of income Avoiding the error Do not claim private expenses 29
Avoiding Common Errors Common error: Claiming expenses incurred on the usage of private car Hire purchase installments, interest on motor vehicle loan, parking, repairs, ERP and petrol are claimed Not allowable even if incurred in the course of business Specifically prohibited under Section 15(1)(k) of the Income Tax Act Avoiding the error Do not claim expenses incurred on private car 30
Avoiding Common Errors Common error: Incorrect classification of expenses Examples Gifts and donations are lumped together in the profit & loss accounts Vehicle instalments and private car expenses charged as motor vehicle upkeep Purchase of fixed assets included in repairs and maintenance Donation included in general or miscellaneous expenses Avoiding the error Do not lump expense items of different nature together in the accounts Add back disallowable expenses to the net profit to arrive at the adjusted profit 31
Avoiding Common Errors Common error: Claiming your own salary, bonus, allowances, CPF, Medisave contributions and income tax as business expenses Drawings are not allowable as a business expense Avoiding the error Exclude your own salary, bonus, allowances, CPF, Medisave contributions and income tax as business expenses Add back the amounts to the net profit to arrive at the adjusted profit 32
Avoiding Common Errors Common error: Claiming capital expenses Capital expenses such as the following are claimed: Purchase of fixed assets Hire-purchase instalments Loan repayment Fixed assets written off Legal fees for purchase of properties Avoiding the error Exclude capital expenses Add back the capital expenses to the net profit to arrive at the adjusted profit 33
Avoiding Common Errors Common error: Claiming expenses that are shared with related companies The business and related companies each claiming the same expenses, resulting in double-claim For example: Rent of premises Secretarial services Avoiding the error Claim only if the business actually incurred the costs Must be supported by documents (e.g. tenancy agreement) 34
Avoiding Common Errors Common error: Making unsubstantiated claims of payments to related parties or suppliers Related parties payments are claimed but the claims cannot be substantiated with valid commercial reasons Payments to family members who help out with the business are claimed, but the payments are large amounts of salary instead of reasonable amounts as compared to the salaries of full-time employees Avoiding the error Claim expenses incurred for your business based on actual amounts instead of disproportionate amounts Claim only if the business actually incurred the costs Must be supported by documents like agreements or contracts 35
Reporting Rental Income 36
Hmm..Is my rental income received from my property taxable?? 37
Reporting Rental Income What kind of income received from renting property is taxable? Rental received from property Rental of Furniture & Fittings Service Charges from Tenant 38
I have incurred expenses for renting out my property. Can I claim for it?? 39
Reporting Rental Income To qualify as an expense, certain conditions need to be fulfilled: Incurred wholly and exclusively in the production of the rental income Personal & private expenses not allowable Expenses that are capital in nature are not allowable 40
Reporting Rental Income Types of common allowable expenses: Cost of securing subsequent tenant Maintenance Fire insurance Allowable Expenses Repairs Property tax Mortgage loan interest 41
Reporting Rental Income Types of common disallowable expenses: Renovation Principal repayment First time agent s commission Disallowable Expenses 42
How do I report the rental income from my property? Well should there be more than 1 owner for the property, the rental income should be divided between the co-owners based on their legal ownership when filing the tax returns. 43
Useful Tips 44
To Check on the Return Status Service Details Check if you need to file Where 1. @ mytax Portal - Select "e-file Form B / B1" using your SingPass or IRAS PIN 2. Via SMS service Filetax<space>NRIC / FIN to 9116 4900 (from 1 March 2013) 45
Filing Income Tax Return Click to enter my Tax Portal page 46
Filing Income Tax Return Select My Personal Tax Matters and login using either SingPass or IRAS PIN You may apply for SingPass or IRAS Pin here 47
Filing Income Tax Return SingPass login page IRAS PIN login page 48
Filing Income Tax Return Form B Click on Begin e-filing for YA 2013 49
Filing Income Tax Return Form B Click to enter Self-employed income section 50
Filing Income Tax Return Form B Choose Real Estate Agent / Agency from drop-down list Key in accounting period Enter Trade Income 51
Filing Income Tax Return Form B Click to enter Rent from Property section 52
Filing Income Tax Return Form B Enter property address Enter rental income and expenses Enter your share of net rent (eg. 50%) 53
Filing Income Tax Return Form B "Save as draft" facility If you are not able to complete your filing at one session, please save the return as draft and the draft will be retained in the portal for 14 days. You can access the draft and make the necessary amendments before you submit your return. Remember to print Consolidated statement Acknowledgement page 54
Filing Income Tax Return Form B Timeout Do not leave your filing session idle for more than 20 minutes. Otherwise, the session will experience timeout and you have to log in to the portal again. If you are unable to complete your filing, always save your changes as 'draft' and logout from the portal. Re-filing If you need to make changes to your previous filing, please do so within 14 days of your previous submission or before the filing deadline, whichever is earlier. You can only re-file once. Your previous filing will be cancelled upon successful transmission to IRAS. There will be no option to save your refiling as a draft. If you are unable to re-file and you need to make amendments, you can email the full details to taxqueries@iras.gov.sg. Please remember to give your name, tax reference number and contact number in your email. 55
Wherever you are. Whatever you do. A gentle reminder to e-file your Income Tax Returns by 18 th April 2013! 56
Seeking Assistance 57
Help Channels Service Details Self help (Record keeping guide) Email Contact http://www.iras.gov.sg > For sole-proprietors / self employed > Keep proper records & accounts > Record Keeping Guide for GST/non-GST registered Businesses se@iras.gov.sg mytax Mail (a secure email system) Income Tax Integrated Phone Service 1800-356 8300 Operating Hours: Mondays to Fridays, 8am to 5pm SMS Return My Call Service Send an SMS Call <followed by your name> (Example Call John Tan ) to 9107 6902. Our officer will contact you by the next working day. Goods & Services Tax Integrated Phone Service Taxpayer Services Centre 1800-356 8633 1st Storey, Revenue House 55 Newton Road, Singapore 307987 (Located opposite Novena MRT Station) Operating Hours: 8am to 5pm (Mon to Fri) 8am to 1pm (Sat) 58
mytax Mail mytax Mail is a secure email system for taxpayers to correspond with IRAS. Taxpayers including authorised company staff and tax agents of businesses can log into mytax Mail using their SingPass or IRAS PIN to enquire about their tax matters. mytax Mail : Entry Point 59
mytax Mail 60
mytax Mail Log-in Page 61
IRAS Website (www.iras.gov.sg) 62
E-Filing Assistance Service Details When Where E-Filing Service Centre @ RH Bring along: 1. Your NRIC / FIN card 2. Your SingPass or IRAS PIN 3. All documents and income details relevant for your filing, for example: a. Statement of accounts of your business b. Form IR8A (from your employer, if you are also an employee) c. For child relief claims Birth certificate / NRIC number d. For parent / grandparent caregiver relief claims NRIC number of parents / parents-in-law Date 1 Mar to 18 Apr 2013 Time Mon - Fri: 8am to 5pm Sat: 8am to 1pm Revenue House 1 st Storey 2 nd Atrium 63
E-Filing Assistance Service Details IRAS e-filing Services Centres (External) When 11 March to 18 April 2013 At Bedok CC Mon to Fri 11am to 7pm Sat 9am to 2pm CPF Service Centres Mon to Fri 8am to 5pm Sat 8am to 1pm CPF Main Office Closed on Saturdays Where Bedok CC 850 New Upper Changi Road, S(467352) (Nearest MRT Station: Bedok) CPF Main Office 79 Robinson Road S(068897) (Nearest MRT Station: Tanjong Pagar) CPF Tampines 1 Tampines Central 5, S(529058) (Nearest MRT Station: Tampines) CPF Woodlands 900 South Woodlands Drive, Woodlands Civic Centre, S(730900) (Nearest MRT Station: Woodlands) CPF Bishan 3 Bishan Place, S(579838) (Nearest MRT Station: Bishan) CPF Jurong 21 Jurong Gateway Road, S(608546) (Nearest MRT Station: Jurong East) 64
E-Filing Assistance Service Details When Where Volunteer e-filing Service Centres 23 CitizenConnect Centres (Community Clubs) where volunteers will help in e-filing. Bring along: 1. Your NRIC / FIN card 2. Your SingPass or IRAS PIN 3. All documents and income details relevant for your filing, for example: a. Statement of accounts of your business b. Form IR8A (from your employer, if you are also an employee) c. For child relief claims Birth certificate / NRIC number d. For parent / grandparent caregiver relief claims NRIC number of parents / parents-in-law Dates 23 Mar to 14 Apr 2013 (Saturdays and Sundays) Time 2pm to 6pm 23 Community Clubs all around Singapore 65
E-Filing Assistance Community Club Address Bukit Batok East 23 Bukit Batok East Ave 4, S(659841) Changi Simei 10 Simei Street 2, S(529915) Choa Chu Kang 35 Teck Whye Avenue, S(688892) Eunos 180 Bedok Reservoir Road, S(479220) Fuchun 1 Woodlands Street 31, S(738581) Gek Poh Ville 1 Jurong West St. 74, S(649149) Kallang 45 Boon Keng Road, S(339771) Kim Seng 570 Havelock Road, S(169640) Marine Parade 278 Marine Parade Road, S(449282) Pasir Ris East 1 Pasir Ris Drive 4, #01-08, S(519457) Sengkang 2 Sengkang Square, #01-01 Sengkang Community Hub, S(545025) Tampines East 10 Tampines Street 23, S(529341) Tanjong Pagar 101 Cantonment Road, S(089774) The Frontier 60 Jurong West Central 3, #01-01, S(648346) The Serangoon 10 Serangoon North Ave 2, S(555877) Thomson 194 Upper Thomson Road, S(574339) Toa Payoh Central 93 Toa Payoh Central, S(319194) Ulu Pandan 170 Ghim Moh Road #01-01, S(279621) West Coast 2 Clementi West Street 2, S(129605) Woodlands 1 Woodlands Street 81, S(738526) Yew Tee 20 Chua Chu Kang Street 52 #01-01, S(689286) Yio Chu Kang 50 Ang Mo Kio Street 61, S(569163) Zhenghua 1 Segar Road, S(677638) 66
Productivity and Innovation Credit (PIC) Scheme 67
Keeping Proper Records 68
Keeping Proper Records Revenue amounts being incorrect & under-declared Penalties being imposed Failure to keep proper records Expenses claimed being disallowed 69
Keeping Proper Records Source Documents Any other records related to business Types of Records Bank Statements Accounting Records & Schedules 70
Keeping Proper Records As a real estate agent/agency, what are the types of records I need to maintain? Purchases / Expenses Revenue / Fees collection Assets & Stock Business Records 71
Keeping Proper Records Revenue / Fees Collection Records of commission earned from property related transactions; e.g. bank commission, sub-agent commission, rental commission, referral fee Receipt book Invoices issued Customer s records Refunds made to customers 72
Keeping Proper Records Purchases / Expenses To obtain invoices / receipts when paying for purchases / expenses. Good practice to arrange such payment through the business bank account. Cash receipts to be retained even though the amount is small. To provide description if receipt does not indicate items bought. When receipt is not issued, to prepare payment voucher with acknowledgement. To also maintain purchase / expense record book with details. For GST registered businesses, to maintain proper tax invoices as required. To refer to GST e-tax guide. 73
Keeping Proper Records Assets Need to prepare a fixed asset schedule at the time the asset is purchased or when the business is started. The asset cost is capital in nature & not tax deductible. However, you may claim capital allowances as well as the Productivity & Innovation Credit (PIC). 74
Keeping Proper Records To maintain separate bank accounts for business & private purpose. The business bank account should be used solely for business purpose. To retain the bank statements / passbook of your business bank accounts. 75
Keeping Proper Records Manual Records Electronic Records Recording of your business transactions in a physical form Such transactions to be supported by source documents Through the use of a computer and/or accounting software Source documents must be kept to substantiate the business transactions 76
Keeping Proper Records Good record keeping practice is an important part of your business Better internal control of your business An essential source of evidence to detect business losses, internal fraud & theft Reduces cost & effort during collation of information Under the Income Tax Act, you are required to keep the business records for at least 5 years with effect from 1 Jan 2007 77
Keeping Proper Records Category of taxpayers for Record Keeping Source Documents Requirements Record Type Item No Documents Required GST-Registered Non-GST Registered Businesses Businesses 1 Serially numbered receipts issued or cash register tapes or invoices issued 2 Tax invoice/simplified tax invoice issued INCOME RECORDS (Records of each sales transaction) BUSINESS EXPENSE RECORDS (Records of each business expense transaction) PURCHASE RECORDS (Records of each purchase transaction) 3 Rental Agreement signed by both landlord and tenant 4 Books to record goods taken for private usage 5 Credit notes for returned goods 6 Documents relating to exports 7 Evidence that payment have been received (e.g. bank statement) 8 Invoice received or Receipt received 9 Payment made to individuals/companies for services rendered and the relevant contracts/agreements on the provision of services 10 Payment vouchers for staff remuneration 11 Employer s CPF contributions 12 Payment evidence (e.g. bank statement) 13 Tax invoices received, Invoices received or Receipt received 14 Documents relating to imports 15 Payment evidence (e.g. bank statement) OTHER RECORDS (FOR GST PURPOSES) 16 Business goods which were put to non-business use 17 Disposals of business goods, whether or not for a consideration 18 Removal of goods from customs-licensed warehouse 78
Keeping Proper Records ACCOUNTING RECORDS AND SCHEDULES Record Type Item No Documents Required Category of taxpayers for Record Keeping Requirements GST-Registered Non-GST Registered Businesses Businesses 1 Stock List 2 Sales Record Book / Sales Listing ACCOUNTING RECORDS AND SCHEDULES 3 Purchase Record Book / Purchase Listing 4 General Ledgers 5 Balance Sheet, Profit and Loss Statement 6 GST account summary of input and output tax, including GST refunded to tourists BANK STATEMENT 7 Bank statements; with separate bank accounts for personal and business purposes (Recommended) Record Type Item No Documents Recommended GST-Registered Businesses Non-GST Registered Businesses 1 Detailed schedules of Public Transport expenses ACCOUNTING RECORDS AND SCHEDULES 2 Detailed schedules of Travelling expenses 3 Detailed schedules of Entertainment expenses 4 Fixed asset Schedules 5 Records of Capital Allowances Note: The required records are mandatory records that businesses must keep for tax purposes. The recommended records are records that the businesses are advised to keep as good practices, and these should be available, or able to reproduce upon request by the Comptroller of Income Tax or/ GST 79
Keeping Proper Records Set up good filing system for your paperwork from the start of your business Make sure records can be understood by anyone Obtain the necessary source documents at time of transaction Enter transactions accurately & regularly to keep records up to date Record business expenses separately from personal expenses 80
Keeping Proper Records Record Keeping Self-Assessment Toolkit Easy-to-use toolkit to help businesses perform selfassessment of existing record keeping standards Easy-to-understand tips for improvements 81
Keeping Proper Records 1 These information can be found in our website 2 3 Visit our website at www.iras.gov.sg Follow the link : Home > About IRAS > Taxpayer Compliance > Record Keeping Essentials for Businesses 82
Keeping Proper Records 1. Use Accounting Software SMEs can get a subsidy of up to 70% of the cost of using accounting software (capped at $2,000 wef 1 Jul 2012 per SME) under IDA s isprint (Packaged Solutions) scheme 2. For more information, please contact IDA at : 6211 1212 or ida_isprint@ida.gov.sg 83
Penalties 84
Penalties FAILURE TO KEEP PROPER RECORDS Liable to: a fine not exceeding $1,000 and in default of payment ; to imprisonment for a term not exceeding 6 months Records cannot be discarded once Notice of Assessment is received Need to retain records for 5 years whether or not an assessment was finalised The Comptroller may request documents in the course of audit 85
Penalties FAILURE TO FURNISH AN INCOME TAX RETURN Liable to: a fine not exceeding $1,000 and in default of payment; to imprisonment for a term not exceeding 6 months Not submitted after conviction, a further penalty of $50 for each day return is outstanding Penalties can amount to 2 times the tax undercharged if returns outstanding for 2 years or more 86
Penalties FURNISHING AND INCORRECT RETURN Penalties amount to 2 times tax undercharged, for errors made due to negligence or without reasonable excuse Serious cases of omissions or errors may result in prosecution 87
Penalties TAX EVASION Liable to: a penalty of 3 times the amount of tax evaded; and Wilfully evades, or assists others to evade a fine not exceeding $10,000; OR to imprisonment for a term not exceeding 3 years; OR fine and imprisonment 88
THANK YOU! All policies presented at IRAS presentation on 3 Apr 2013 are correct to the best of the speaker s knowledge as at the date of presentation. However, IRAS reserves all rights to make changes in any of its policies at any time and without further notification. 89