Things to look out for Tax Filing in 2008.
March 30th, 2008 by ALVIN SOONG
WHAT INDIVIDUALS SHOULD WATCH:
THE Inland Revenue Authority of Singapore IRAS will be looking into those with rental property and property agents this year, followed after the propoerty boom in 2008. They have advocated to the public to own up to past mistakes. TAXPAYERS are encouraged to step forward and voluntarily disclose any past errors in their tax returns, as doing so will attract lower penalties, said the Inland Revenue Authority of Singapore (Iras). The longer you take to own up, the more severe the penalty. For instance, the penalty imposed on those who own up to past tax filing mistakes is charged at an incremental rate of 10 per cent a year, subject to a maximum of 30 per cent. If you don’t own up and the errors are discovered by Iras, penalties of up to two times the tax undercharged may be imposed.
In cases of tax evasion, the penalty payment is three times the amount of tax that has been undercharged. In addition, the taxpayer could be fined up to $10,000 or jailed up to three years or both.
1) Rental income, expense claims
FAILURE to report the gross rental income collected is a very common mistake. In most cases, taxpayers omit the income they get for furniture and fittings.
In a tenancy agreement, the gross rent is usually broken down into various components: rent for premises, rent for furniture and fittings, and service charges. When declaring rental income, taxpayers need to give the gross or total figure.
Other mistakes include reporting rental income based on estimates as well as incorrect expense claims. Taxpayers should note that expenses such as mortgage interest incurred on personal loans are not allowable. You can claim interest only on your mortgage loan.
Non-tax-deductible expenses include the cost of renovation, depreciation of furniture and fittings, and the legal costs incurred to secure the first tenant.
Deductible expenses are interest on your mortgage loan, property tax, fire insurance, commission paid to get a subsequent tenant, and expenses on repairs and maintenance.
Taxpayers should provide a working computation of how they arrived at the net rental income, with details of deductible expenses for each property.
In order to substantiate the income declared and expenses claimed, taxpayers should keep supporting documents such as tenancy agreements, mortgage interest statements, and invoices and receipts showing the expenses incurred.
Case study
Businessman Patrick Soon (not his real name) rented out a property, but did not declare the rental from the furniture and fittings. He thought he needed to declare only the rental for the premises. He also claimed for personal medical and overseas travel expenses against his rental income. After factoring in the rental for furniture and fittings and disallowing the private expenses, Iras found his additional taxable income came to about $100,000 a year. Additional tax and penalties were also imposed, according to Iras.
2) Parent relief
TAXPAYERS can claim this relief if they supported their parents, grandparents or great-grandparents in the previous year. Common problems include duplicate claims and non-eligibility because of the dependant’s income level or age. Like many taxpayers, you might not be aware that this relief can be claimed only if the following conditions are met:
The dependant must have been 55 or above in the previous year; His or her annual income (including dividends, interest and pensions) did not exceed $2,000 in the previous year;
He or she lived in Singapore in the previous year; If he or she did not live in your household, you incurred $2,000 or more to support him or her; and
No one else is claiming this relief in respect of the dependant.
Case study
Ms Margaret Ang (not her real name) claimed the relief for both her parents, who had lived in her household for assessment years 2005 to 2007.
Iras found her father’s income had exceeded $2,000 in each of the years from 2004 to 2006. The relief in respect of her father had to be withdrawn; only that in respect of her mother was allowed.
3) Child relief for working mums
WORKING mothers who were married, divorced or widowed in the previous year can claim this relief. However, some do not realise they cannot do so if their children are not Singapore citizens.
Case study
Ms Selina Lee, a non-Singapore citizen, claimed the relief for her three children for assessment years 2005 to 2007. The relief was withdrawn when Iras discovered that all three children are not Singapore citizens.
4) WHAT TO AVOID IF YOU ARE SELF-EMPLOYED
MISTAKES made by sole proprietors and those in partnerships include reporting of income under an incorrect category and wrongful claiming of expenses. Many also keep incomplete records, for example, they don’t always hang on to receipts for public transport and entertainment expenses, which must be incurred for business purposes only.
Case study
Mr Robert Chan (not his real name) is a real estate agent who earns commission income. In his tax returns for assessment years 2005 and 2006, he claimed substantial deductions for transport expenses.
Subsequent checks by Iras revealed some of these expenses were incurred in respect of his private car, so the deductions were not allowed. However, the remaining claims were allowed after he was able to produce receipts to show that they were public transport expenses incurred in the course of his business.
Mr Chan had also claimed entertainment and gift expenses based on estimates. Without enough documents to substantiate the claims, those expenses that could not be fully substantiated were disallowed as deductions.
The additional taxable income totalled $126,000 for the two assessment years.
