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Singapore Revises Carry Back Relief e-Tax Guide

Thursday, May 29, 2014

The Inland Revenue Authority of Singapore (IRAS) has issued a revised e-Tax Guide providing details on Singapore's carry-back relief system, with relevance for taxpayers who have unabsorbed capital allowances or unabsorbed trade losses from a trade, business, or profession.

IRAS points out that, to help small businesses cope with cash-flow problems, especially in a cyclical downturn, a carry-back of qualifying deductions (QD) was introduced from the 2006 year of assessment (YA). The Guide applies for that year until 2008YA, and again from 2011YA. It does not apply to 2009YA and 2010YA when temporarily enhanced measures were in place. This enhancement increased the cap for the qualifying deductions (QD) from SGD100,000 (USD79,500) to SGD200,000, and increased the number of YAs to which the qualifying deductions may be carried back from one to three YAs.

Under the currently applicable system, a taxpayer may only carry back current year QD and deduct them against assessable income for the immediately preceding YA, and the maximum amount of QD that can be carried back has returned to SGD100,000. The QD will be deducted in the order of any current year's unabsorbed CA, followed by any current year's trade losses.

Subject to conditions, the carry-back relief is available to any person who carries on a trade, business, profession, or vocation. That person may be a company; an individual sole-proprietor or partner of a partnership; a body of persons, such as clubs and associations; and a trustee of trusts or executor of estates.

The carry-back of unabsorbed CA is subject to the "same business" test, which seeks to determine whether the person applying the relief continues to carry on the same trade, business, or profession for which the original CA were granted.

A company claiming QD will also have to satisfy the shareholding test, which computes the percentage of the shareholdings of a company (or its ultimate parent company) that is held by the same persons as at the relevant dates. If the percentage is 50 percent or more, there is no substantial change in the shareholders and the company is said to have satisfied the test. IRAS may waive the shareholding test if it is satisfied that a substantial change in the shareholders has not been for the purpose of deriving any tax benefit or obtaining any tax advantage. However, if IRAS grants the waiver, the taxpayer can still only deduct the QD against the income from the same trade or business for which the CA was granted, or to which the trade loss relates.

In addition, a limited partner's share of CA and trade losses from a limited liability partnership or limited partnership may be allowed against the partner's income from other sources, and a company can elect to carry back its QD after transferring its loss items under the group relief system, if applicable. For group relief purposes, loss items refer to the unabsorbed CA and trade losses for the current year that can be transferred by a company to another company of the group.

The excess of a taxpayer's QD that is not carried back can still be carried forward in the usual way for deduction against future taxable income, if the same business test (and shareholding test for a company) is satisfied.