Singapore Issues Revised E-Guide On Tax Treatment Of Trusts
Monday, January 9, 2012
The Inland Revenue Authority of Singapore (IRAS) has published a revised version
of its e-guide on the income tax treatment of trusts, following the several
new provisions included in the Income Tax Act (ITA) after the publication of
its first e-guide on this topic in 2006.
In the e-guide, the IRAS points out that, currently, the ITA has specific provisions
that deal with the tax treatment of various types of trusts, including real
estate investment trusts, approved unit trusts, foreign trusts, and registered
business trusts. It is confirmed that the tax treatment of trusts which is specifically
provided in the ITA will continue to be governed by the latter’s respective
It is pointed out that the ITA provides that the income of a trust is the statutory
income of the trustee and is chargeable to tax on the trustee. Where a beneficiary
is entitled to the trust income or a share of it, the beneficiary may be taxed
on the entitlement, and allowed a credit for tax already imposed at the trustee
On the other hand, the IRAS may also agree not to charge the trustee with any
tax on the trust income to which the beneficiary is entitled, and subject the
beneficiary to tax on the distribution received (“tax transparent treatment”).
The e-guide confirms the changes made to the tax treatment of trusts following
questions that were raised in the past. For example, there were requests for
the extension of concessions and exemptions currently available to various income
types derived directly by taxpayers to trust distributions received by beneficiaries.
The first change therefore enables such beneficiaries, who are residents of
Singapore and entitled to the trust income, to be accorded the concessions,
exemptions and foreign tax credits as if the beneficiaries had received the
trust income directly. The IRAS employs the tax transparency treatment such
that no tax is imposed at the trustee level and the beneficiaries are subject
to tax on the distributions received.
While trusts are increasingly being employed as vehicles to carry on trade
or business, it was also considered necessary, from a policy viewpoint, to harmonize
the tax treatment of trusts used for such purposes with that of a company.
A second change in the e-guide therefore ensures that the income from a trade
or business carried on by the trustees is subject to a final tax at the trustee
level. Distributions made out of such income are in the nature of capital and
are not subject to any further tax in the hands of the beneficiaries.