COR167e: “Eagle Eye” is a Practicing Lawyer and Runs a Sole-proprietorship Law Firm: Managing Your Personal Finances Assignment, SUSS, Singapore

CASE STUDY

WEALTH PROTECTION – TAX PLANNING

“Eagle Eye” is a practicing lawyer and runs a sole-proprietorship law firm. She is a member of the Law Society. As a member of the Law Society, she is required to pay subscription fees amounting to $100 annually. She also subscribes to various journals and pays subscription fees of $500 a year.

In view of the depressed property market, she recently upgraded from a condominium to a semi-detached property and took up a loan to finance the purchase. She incurred a $6,500 interest on her property loan.

“Eagle Eye” has four children aged 9, 11, 15, and 22 as of 1^st January 2019. “Eagle Eye’s” eldest child is studying nuclear engineering in the UK on a $65,000 a year scholarship. This course is not available in Singapore and one of the conditions of the scholarship is that “Eagle Eye’s” eldest child is not allowed to work in the UK.

“Eagle Eye” grossed $200,000 from her sole proprietorship business. She contributed $12 to SINDA and received $1,300 in interest ($500 from POSB and $800 from UOB Bank).

WEALTH ACCUMULATION – INVESTMENT PLANNING

“Eagle Eye” is considering buying a brand-new car. The selling price of the brand-new car is $52,750 and there are 2 different payment schemes available to “Eagle Eye”:

“Eagle Eye” owns the following investment assets:

WEALTH GIVING – ESTATE PLANNING

“Eagle Eye” and her husband “Kind Eye” live at Pine Grove Condominium, a leasehold property at Pine Grove Road. The property is registered under “Eagle Eye’s” name.

“Eagle Eye’s” second sister, “Sharp Eye,” who is 38 years of age, is a private banker with Supreme Bank.

“Eagle Eye” had written a Will prior to her marriage to “Kind Eye” and had nominated her parents as nominees for her CPF monies.

Question 1 WEALTH PROTECTION – TAX PLANNING

1(a) Select the CORRECT answer for the following statements:

1. CPF contribution is an effective tax planning tool to reduce the individual’s tax burden. The advantages are

I. The statutory contributions by the employer are excluded from the employee’s taxable income

II. The statutory contributions by the employee are tax-deductible against the employee’s taxable income

III. Withdrawals from CPF on retirement are exempt

IV. Interest earned on the CPF is subject to tax but not the foreign dividends received

1. I, II, and III only
2. II and III only
3. II and IV only
4. II, III, and IV only

2. What is tax evasion?

1. Restructuring or not paying tax liability by means of lawful methods
2. Reducing or not paying tax liability by means of lawful methods
3. Reducing or not paying tax liability by means of unlawful methods
4. Paying your tax liability as required by the tax laws

3. “Blessed Eye” has just completed his diploma course and started his business of selling chicken rice at Bedok Hawker center in April 2019. He has prepared his accounts for the period ending 31 Dec 2019 and found that his business is profitable. Which of the following should “Blessed Eye” do?

I. He must submit his estimated chargeable income by 31 March 2020

II. He must submit his tax return (Form B) by 15 April 2020

III. If he has not received his tax return by 31 March 2020, he should notify IRAS by 14 April 2020

IV. If he has not received his tax return by 15 April 2020, he should notify IRAS by 30 April 2020

1. I and II only
2. II and III only
3. I, II, and III only
4. II and IV only

4. How long must a taxpayer carrying on a trade, business, profession, or vocation keep his accounting records?

1. He must keep his accounting records for a period of 7 years from the year of assessment to which any income relates.
2. He must keep his accounting records for a period of 6 years from the year of assessment to which any income relates.
3. He does not need to keep his accounting records if the tax matters have been agreed upon by IRAS.
4. He does not need to keep his accounting records if his business suffered a loss.

5. What are the recovery actions that can be taken by IRAS for non-payment of income tax by the taxpayer?

I. Issue a directive to the employer for compulsory deduction of tax from the taxpayer’s salary.

II. Issue a directive to the employer to stop paying salary to the taxpayer.

III. Appoint collecting agents such as banks, debtors, and lawyers to recover for IRAS the amount of money due by the agent to the taxpayer.

IV. Prevent a taxpayer from leaving Singapore until he has settled his tax.

1. I, II, and III only
2. II and III only
3. I, III, and IV only
4. III and IV only

6. Which is the basis year for Year of Assessment 2019?

1. 1st January 2018 to 15th April 2019
2. The calendar year 2019
3. The calendar year 2018
4. 16th April 2018 to 15th April 2019

7. “Cheerful Eye” is employed in Singapore and earns a monthly salary of $8,000. To meet his housing loan, he has decided to contribute a monthly sum from his CPF of $1,600 (i.e. $8,000 @ 20%). Calculate the tax deduction that can be claimed by “Cheerful Eye” on his monthly contribution.

600. “Cheerful Eye” is able to claim a tax deduction of $1,600.
601. “Cheerful Eye” is able to claim a tax deduction of $1,280.
602. “Cheerful Eye” is able to claim a tax deduction of $1,200.
603. “Cheerful Eye” is not able to claim any tax deduction.

8. Which of these ladies is/are entitled to claim foreign maid levy relief?

I. Juliet is married and has elected for a separate assessment.

II. Kathy is not resident in Singapore.

III. Destiny is divorced and her two young children live with her.

1. I and II only
2. II and III only
3. I and III only
4. I, II, and III only

1(b)(i) Are “Eagle Eye’s” subscription fees to Law Society and various journals deductible against her gross income? Why or why not?

1(b)(ii) Can “Eagle Eye” claim the interest expense (i.e. $6,500/-) incurred in respect of the property loan against her income from the sole proprietorship? Briefly explain your reason(s).

1(c)(i) Calculate and illustrate “Eagle Eye’s” child relief for Year of Assessment 2020?

1(c)(ii) Calculate and illustrate “Eagle Eye’s” Year of Assessment 2020 tax payable.

Question 2 WEALTH ACCUMULATION – INVESTMENT PLANNING

2(a)(i) Calculate “Eagle Eye’s” monthly installment if she purchases the brand-new car using payment scheme B.

2(a)(ii) For the purchase of the brand-new car, calculate to demonstrate “Eagle Eye’s” savings as a percentage of the selling price for Payment Scheme B if she chooses Payment Scheme A.

2(b)(i) What is the overall weighted average expected return on “Eagle Eye’s” investments?

2(b)(ii) Briefly describe and explain the difference between “Capital protected funds” and “Capital Guaranteed funds.”

2(c) What is the difference between bonus shares and rights shares?

Question 3 WEALTH GIVING – ESTATE PLANNING

3(a) Place a tick on the “YES” column if the statement is a characteristic of the Probate process.

3(b)(i) List four benefits of writing a Will.

3(b)(ii) Is “Eagle Eye’s” Will valid after her marriage? Explain why or why not.

3(c)(i) When should “Eagle Eye” review her Will? List four reasons.

3(c)(ii) Indicate four kinds of problems relating to the beneficiary that an executor may face when trying to distribute assets to beneficiaries.