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Principles of Taxation Seminar 1

Jurisdiction

Need to establish nexus between


o The state and the person whose income is to be taxed and/or
Nexus established if the person is the resident of the country based on tax laws of the
country
o The state and the income to be taxed
Nexus established if source of income is located within the geographical boundaries of the
country
Source of income The originating cause of the income receipt AKA the activity that
gives rise to the income
Source and residence are used in combination to define the income tax jurisdiction
2 common jurisdictional models
o Territorial tax system Only tax income sourced within the state (narrow)

Within the state


(Domesticsourced)
Outside the state
(Foreign-sourced)
Worldwide tax system (wide)
Within the state
(Domesticsourced)
Outside the state
(Foreign-sourced)

Resident
Taxed

Non-resident
Taxed

Not taxed

Not taxed

Resident
Taxed

Non-resident
Taxed

Taxed

Not taxed

Base

Tax base = Income


*Fundamental issue Income vs capital gains
Income tax liability = Tax base x Income tax rate

Allocation

Most income tax system assess income and collect tax on an annual basis
Tax year may be defined differently in different states

Person

Individuals, partnerships, companies, trusts, etc. differ in their legal and economics
characteristics
*Fundamental issue Identity of person to be taxed and timing of tax imposition

Cross-Border Linkages

Double taxation
Ta

Foreign
income

Ta

Malaysia
Singapore
Company
Double taxation is avoided when either the state of source of income or the state of residence of
the person provide relief from double taxation
If there is a tax treaty between the 2 states, tax relief will be given according to the tax treaty
Provision in tax treaty prevails over the provision in the countrys tax laws

Tax expenditures AKA tax preferences / incentives

Promote economic, social or other objectives in the following ways:


o Exclusions from income tax base
o Abatement against the income tax liability
o Postponement or deferral of income tax liability

Tax administration

How do we go about collecting tax from tax payers?


Administrative procedures required to:
o Structure the tax imposition and collection process
o Define the rights and obligations of the tax payers and the tax authority

____________________________________________________________________________________________________________
Section 10(1) Charging Section
Income tax shall, subject to the provisions of this Act, be payable at the rate or rates specified hereinafter
for each year of assessment upon the income of any person accruing in or derived from Singapore or
received in Singapore from outside Singapore in respect of
(a) gains or profits from any trade, business, profession or vocation, for whatever period of time such
trade, business, profession or vocation may have been carried on or exercised;
(b) gains or profits from any employment;
(c) [deleted]
(d) dividends, interest or discounts;
(e) any pension, charge or annuity;
(f) rents, royalties, premiums and any other profits arising from property; and
(g) any gains or profits of an income nature not falling within any of the preceding paragraphs.
Jurisdiction
Income accruing in or derived in Singapore
o Refers to Singapore-sourced income (SSI)
o Taxed on accrual basis
Income received in Singapore from outside Singapore
o Refers to foreign-sourced income received in Singapore (FSI)
o Taxed on receipt basis Taxable only upon receipt into SG
*Exemption of tax for FSI received in SG *refer to Sem3*:
For individuals S13(7A)
by a resident individual on/after 1.1.2004 (except through a partnership); or
by a non-resident individual
*partnership outside scope of AC2301
For companies S13(8) to (11)
Certain FSI received in SG are tax-exempt for resident companies, subject to certain
conditions
For non-resident company that does not carry on a business in SG Does not have a
source of trade or business in SG
Base
What is to be taxed? Income (excludes capital gains)
Capital gains are not taxed in Singapore
*Income Receipts vs Capital Receipts (PMA Test)
Income: Receipt obtained from the sale (including compensation received for the loss,
destruction or giving up) of an asset or advantage
that does not form part of the profit-making apparatus

that is in the nature of circulating capital


that, may be described as the fruit
is an income generation process income is a product of capital
Capital: Receipt obtained from the sale (including compensation received for the loss,
destruction or giving up) of an asset or advantage
that forms part of the profit-making apparatus
that is in the nature of fixed capital
that, may be described as the tree
retained and used in the income generation process to produce income

Statutory Income, Assessable Income, Chargeable Income

Income tax base = Chargeable income


2 concepts for the computation of chargeable income statutory income and assessable income
Compute SI first, derive AI from SI, then from AI arrive to get CI
Statutory income
o excludes non-taxable receipts (i.e. FSI not received in SG, capital gains) and income that are
tax exempt under ITA
o is a net concept deductions are allowed for each source of income but some deductions are
prohibited under ITA
o is also net of capital allowance
o comprises of income from the 6 categories heads of charges listed in S10(1)

Allocation

Basis of assessment (Tax Year) Year of Assessment (YA) and its related basis period
o YA 1 Jan to 31 Dec every year i.e. YA 2016: 1.1.2016 to 31.12.2016
o Basis period Period you earn the income
o 2 bases of assessment
Preceding Calendar Year (PCY) YA 2016 BP: 1.1.2015 to 31.12.2015
Preceding Accounting Year (PAY) YA 2016 BP: 1.4.2014 to 31.3.2015 (assume 31 mar acc
yr end)
o Companies adopt PAY basis for all income (trade + non-trade)
o Individuals adopt
PAY basis for trade income
PAY basis for non-trade income derived from his business
PCY basis for non-trade income derived from his personal asset
Timing of tax exposure
o SSI Taxable in the BP when it accrues to or is derived by the person
When there is legal entitlement to receive the income
When obligations to earn the income are fulfilled or performed
o FSI Taxable in the BP when it is received or deemed received in Singapore
Deemed received Deemed remittance under S10(25)

Person

Individual, company, a body of persons, but not a partnership


o Company incorporated in Singapore or elsewhere (SG-incorporated and foreign companies)
o Body of persons does not include company or partnership
o Income of partnership is allocated to the partners and are taxable at the partners level

Tax Rate

Resident individuals Progressive tax rate *non-examinable


Non-resident individuals Generally 20% with exceptions, based on type of income
Corporate (both resident and non-resident) Flat rate