ACC213: Desmond, aged 32, is a Singaporean and non-key Appointment Holder in National Service (“NS”): Introduction to Income Tax Assignment, SUSS, Singapore

Question 1

Desmond, aged 32, is a Singaporean and non-key appointment holder in National Service (“NS”). After graduating from SUSS, he started his employment with WT Engineering Ltd (“WTEL”), a Multinational Corporation in Singapore and listed on Singapore Exchange. In May 2016, he accepted a secondment offer to work as Assistant Financial Controller for WTEL’s wholly-owned subsidiary in Ireland (“WIL”) for 3 years from August 1, 2016.

Desmond is married to Diana, a Malaysia citizen working in Ireland since 2015. Diana had an average monthly employment income of Euro 3,000 while working in Ireland. As the couple is expecting their first child in November 2019, Desmond decided not to extend his overseas secondment and returned to Singapore to continue his employment with WTEL. Diana resigned from her job and the couple arrived in Singapore on July 26, 2019.

Desmond received the following from WIL in 2019:

• Monthly salary and accommodation allowance of (equivalent) S$7,500 and

S$2,500 respectively from January – July 2019.

• A special and appreciation bonus amounting to S$18,000 for his outstanding

performance during the 3 years with WIL and this was credited to Desmond’s

UOB bank accounts in Singapore on August 7, 2019.

• Desmond was granted (group) employee share option to purchase 15,000 shares (“Tranche A”) in WTEL, for his performance with WIL. The stock option was awarded to him on December 10, 2018 at an exercise price of 2.53 per share. Though Desmond had met all the conditions for the award, he decided not to exercise an option before he left for Singapore.

Desmond’s employment term and conditions with WTEL are as follows:

• A one-off relocation allowance (from Ireland to Singapore) of $1,000.
• Monthly salary of $8,700 with effect from August 1, 2019.
• A monthly transport allowance of $500 with effect from August 1, 2019.
• A contractual bonus of $15,000 in December 2019.
• Reimbursement of medical treatment. This benefit is available to all employees

of WTEL and Desmond was reimbursed for an amount of $300 in October 2019

for the health supplements purchased.

• Per diem allowance of $150 per day for business travelling to countries in Asia.
• In September 2019, he travelled to Beijing for 10 days for business purposes.

There is no requirement to prove the actual amount of expenses incurred for official purposes overseas.

Additional information:

(1) Desmond’s parents both aged above 60, are retirees and live in their own HBD executive apartment in Singapore. They jointly owned a shoebox condominium for investment purposes. The unit was rented out at a monthly rental of $1,000 for a tenure of 15 months and the tenancy agreement ended on July 31, 2019. The condominium was left vacant for 6 months before a new tenant moved in with an agreed monthly rental of $800. They have no other income in 2019. Upon return, Desmond and Diana temporarily stayed at his parents’ HDB executive flat while looking for their new home. Desmond gave his parents a monthly allowance of $600 in 2019.

(2) Diana stayed at home after she arrived in Singapore with Desmond. Their child was born on October 30, 2019 and is a Singapore citizen by birth. Diana’s mother who is a Malaysian and lives in Johor Babur (Malaysia), arrived in Singapore on November 1, 2019 to take care of Diana and the baby for 2 months. Desmond gave her an allowance of $1,500 during her stay in Singapore.

(3) To celebrate the arrival of baby, Desmond received a cash gift of $250 from WTEL and a total of $300 from his colleagues and friends in Singapore.

(4) Desmond exercised the share option (re Tranche A above) to purchase 15,000 shares in WTEL on August 25, 2019 on meeting all the conditions of the award. TWEL share price on August 25, 2019, was $3.10 per share. Desmond sold $10,000 shares in WTEL (out of the 15,000 shares purchased) at $3.50 per share on December 15, 2019, and made a gain of approximately $5,500.

(5) Desmond received a pro-rata discretionary performance bonus of $7,500 on March 15, 2020, for his satisfactory performance for the financial year ended December 31, 2019, after he returned to WTEL in August 2019.

(6) Desmond received a one-tier dividend of $500 on September 30, 2019, for his shareholding in WTEL and earned an interest income of $850 from UOB, an approved bank in Singapore in 2019.

(7) Desmond performed reservist in the last 2 weeks of December 2019.

(8) Desmond bought his personal Honda Civic through hire purchase and made monthly instalment payment of $700 for 36 months with effect from September 1, 2019. He spent an average of $200 per month for the petrol and parking fees when he used the car for business purposes.

(9) Desmond made a cash donation of $300 to Singapore Children’s Society, an approved institution of a public character, on December 23, 2019.

Required:

(a) Apply the relevant tests of residence, determine the tax residence status of Desmond

and Diana for Year of Assessment 2020 and indicate the basis to support the position you have adopted.

(b) Based on the answer in part (a) above, compute Desmond’s minimum tax payable for Year of Assessment 2020 using an appropriate format for tax computation and indicating “0” on items which do not require tax adjustment(s) or are not taxable.

(c) Briefly explain (in not more than 500 words) the tax treatment of the following items

which you have adopted in the answer in part (b) above with reference to the applicable

source rule (for taxation) and the relevant income tax concept(s):

(i) The special and appreciation bonus which was paid by WIL and credited to

Desmond’s UOB bank accounts in Singapore on August 7, 2019;

(ii) The gain from the exercise of the share option on August 25, 2019;

(iii) Gain from the sales of WTEL shares; and

(iv) Contractual bonus as opposed to the discretionary performance bonus received.

(d) Desmond received a Notice of Assessment for Year of Assessment 2020 on August 20, Desmond noted there are errors in the assessment raised by IRAS and the tax assessed was overstated. Discuss the course of action which Desmond should consider upon the receipt of this Notice of Assessment. 

Question 2

Part I

Victoria, a Briton aged 39, is a violinist based in Singapore since 2016. She is married to Melvin, a very successful Singaporean businessman in 2017 and they have a daughter aged 3, a Singapore citizen by birth. Victoria has an 8-year old son, a Briton, from her previous marriage and he lives in London with Victoria’s parents who help to take care of him. Victoria is an independent (freelance) violinist and she has the following contracts with the various organisations in Singapore for the year ended December 31, 2019:

In addition to the above, Victoria provides private violin lessons to individuals at her residence. She received a total fee of S$10,000 for the year ended December 31, 2019. Separately, Victoria has taken an advice from a good friend and invested in a unit of a private condominium in Singapore in November 2017. She is the sole owner of this property and it is her first investment in real estate in Singapore.

(1) The unit was tenanted out for a year for a monthly rental of $1,200 with effect from March 1, 2018.

(2) The tenancy agreement ended on February 28, 2019 and was left vacant.

(3) She paid a commission of $1,500 to another housing agent and a new tenancy agreement for a monthly rental income of $1,350 was signed with a new tenant for 12 months with effect from May 1, 2019. (4) Victoria incurred the following expenses/expenditure in respect of the condominium unit for the year ended December 31, 2019

Additional information:

(1) Victoria paid an annual membership fee of $500 to International Violin Society for Many renowned violinists are members of this violin society.

(2) Victoria spent a monthly average of $600 for travel by taxi between home and schools/theatre for the lessons and performances.

(3) She spent $2,500 on a gown (which was specially designed solely for performance purpose) before the performance in November 2019.

(4) Victoria makes monthly income remittance of S$1,000 to her parents’ bank account with a bank in London. This is to support the living of her son and parents.

(5) Victoria bought 3 return air-tickets at $7,000 to bring her son and parents to Singapore in December 2019 for a 3 weeks holiday in Singapore. They stayed with the couple throughout the 3 weeks in Singapore.

(6) Melvin is a key appointment holder in National Service (“NS”) and performed NS reservist for 2 weeks in August 2019.

(7) The couple agreed that Victoria will claim the full amount of personal relief, if applicable.

Required:

Compute the minimum tax payable by Victoria for Year of Assessment 2020 using an appropriate format for tax computation and indicating “0” on items which do not require tax adjustment(s) or are not taxable.

Part II

In a casual gathering with Britons working and living in Singapore, Victoria realized that since the year of assessment 2017, she had made errors in her past tax returns which resulted in tax under-assessed. She heard of the penalties imposed for errors in tax returns and was worried.

Required:

As a tax advisor, discuss the best course of action Victoria should consider (among the various IRAS programmes made available according to its belief about taxpayers) under her circumstances. Your answer should include the rationale for the recommendation, how Victoria can qualify and benefit from the IRAS programme and the probable penalties to be imposed