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ACC3004 Taxation

Diploma in Accounting

January 2023 Semester

Continuous Assessment 1 (Individual Assignment: 100 marks)

30% of Final Grade

Learning Objective:

· Understanding the tax residence rules and the application of the rules

· Reading and comprehending information provided to prepare a tax computation for tax resident individuals in accordance with tax rules and concessions.

· Maximizing deductions of expenses, personal reliefs, etc available to individuals.

[All amounts provided in the information are in Singapore dollars]

Sonia Tan is a 50-year-old Singaporean.  She is married to Terrence Ho, a citizen of Country X.  The couple have been living in Country X with their children, 19-year-old Timothy and 18-year-old Samantha, in Country X for the past 15 years.  The children hold Singapore citizenship. Timothy enlisted with the Singapore Armed Forces in September 2021 after completing his pre-tertiary education in England.  Due to their son’s National Service commitment, the family decided to move back to Singapore in July 2021.  However, in order not to interrupt Samantha’s pre-tertiary education, Terrence and Samantha only moved to Singapore in 2022, entering Singapore on 15 July 2022.  

Sonia has been working for Micro Inc (“Micro”), a company tax resident in Country X for the past 10 years. She secured the position of chief technical director at Micro’s Singapore subsidiary, Microsystems (Singapore) Pte Ltd (“MSS”) in preparation for the family’s move back to Singapore. Sonia received the following employment benefits/income and incurred the expenses given under (j) below for the year ended 31 December 2022:

a. Monthly salary of $35,000.

b. Entertainment allowance for the year of $10,000 which was paid to her on a quarterly basis.

c. Sonia was provided with a car for her use by her employer effective from 1 October 2021. The car costs $200,000 (not inclusive of COE of $80,000) and has a PARF value of $70,000. The insurance, road tax and maintenance expenses for the car is paid for by MSS and totalled $14,000 for year 2022.  

d. Sonia is paid a monthly transport allowance of $200 which she uses to cover the petrol and other daily running expenses of the company car provided (see also (j) below).

e. As part of her employment package with MSS, Sonia was granted the option to purchase 30,000 shares in Micro at $20 per share. On 16 July 2022, she exercised the option and bought 10,000 Micro shares at the above option price when the actual market price was $26.50.

f. Sonia was provided with accommodation in a company owned apartment until she and her family can move into their own home.  The fully furnished accommodation has an annual value of $66,000.  The apartment was previously rented out by MSS at a monthly rent of $10,000

g. MSS reimbursed the medical and dental expenses for Sonia ($2,900) and her family ($4,500). Sonia’s expenses are covered under the company’s medical and dental policy for employees but that for her family (up to $3,000 per family member) is a privilege that Sonia negotiated into her employment contract with MSS.

h. Sonia incurred car hire charges of $5,000 while on an overseas business trip. The hire charges were reimbursed by her employer.

i. The company paid for the following overseas trips during the year:

- air tickets costing $3,000 to Country Y to attend a business conference as well as for customer visits; and

- air tickets costing $15,000 for Sonia to fly to Country X to attend her daughter’s graduation from high school.

j. Sonia incurred the following expenses which were not reimbursed by her employer:

- business entertainment expenses of $9,000;

- taxi fares of $1,500 for trips to/from business entertainment venues to home; and

- car running expenses (like petrol, parking, ERP, etc) totalling $800 for business-related trips using the company car provided.

k. Sonia and her employer, MSS, make CPF contributions within the statutory limits.

In addition, Sonia derived the following other benefits and gains in the year ended 31 December 2022:

l. Sonia had rewarded with 40,000 stock options for excellent work performance while working for Micro.  During the year 2022, Sonia exercised her options and purchased 10,000 shares in Micro at the option price of $15.  The market value of the shares on the same day was $25.

m. Sonia remitted to Singapore $200,000 of her savings amassed during her years of working with Micro and which were kept in a bank account in Country X. The money remitted was used to finance her acquisition of shares in Micro.

n. Sonia also has the following receipts in the year 2022:

- Dividends paid by Singapore tax resident companies of $44,500.

- Interest income of $10,000 from HSBC Bank, an approved bank in Singapore.

- Interest income of $6,000 from a loan to a company in Singapore.

Sonia and Terrence jointly own an apartment in central Singapore that has always been rented out.  Their tenant moved out on 31/10/2022. For the year 2022, the income and expenses from the apartment are as follows:

· Gross monthly rental: $7,000

· Fire insurance and property tax (annual): $9,000

· Monthly maintenance fee: $1,000

· Replacement of air-conditioners (the new equipment has improved functions compared to the old air-conditioners that were replaced) in January 2022): $15,100

· Mortgage repayment (monthly): $3,200 (comprising capital repayment of $2,000 and interest of $1,200)

Renovations commenced after the tenant moved out as the family will be moving in thereafter.  The renovations are scheduled to be completed in the first quarter of year 2023.

Terrence is 56 years old and was an investment banker in Country X. After moving to Singapore, he secured a one-year employment contract with Citibank Singapore and commenced work on 1 November 2022 under an Employment Pass issued by the Ministry of Manpower. He derived the following employment income:

o. Monthly salary of $40,000.

p. He will be given a one-month bonus if he completes his one-year employment contract.

q. He is provided with a monthly transport allowance of $3,000 which he utilized on the following travelling expenses:

- monthly hire charges of $2,000 for the use of a private hire car (the hire commenced on 1 November 2022);

- car running expenses totalling $1,600 for petrol, car park and ERP charges incurred in the 2-month period of which $1,400 was for daily commute to work and $200 for client meetings; and

- taxi fares of $400 for business-related trips.

Other information:

r. Sonia has hired a foreign domestic helper at a monthly salary of $1,100 to help with domestic chores.  The total foreign maid levy paid by Sonia for year 2022 is $720.

s. Sonia’s parents moved in to live with Sonia in 2021. Sonia’s father, a retiree, won a lottery cash prize of $50,000 in year 2022. Sonia’s mother is a housewife and derives no income.

t. Sonia and Terrence are not entitled to claim the parenthood tax rebate on their children.

Requirements:

Part I

Explain the tax residence status of Terrence for YA 2023 using the tests of residence and relevant administrative concession.  Terrence had worked in Singapore 20-plus years ago before relocating back to Country X with Sonia and the children following a promotion.  He visited Singapore occasionally in the interim years and is currently applying for permanent residence status as the couple is considering retirement in Singapore. You should address if Terrence is able to qualify as tax resident for YA 2023 under the respective test of residence and how he may qualify under the relevant administrative concession. In this regard, your answer should address the following:

A) Explain if Terrence has satisfied the qualitative test and state the reason(s) for your answer. (3 marks)

B) Explain if Terrence has satisfied the quantitative test and state the reason(s) for your answer. (8 marks)

C) Identify and explain which administrative concession can be used to determine the tax residence status of Terrence. (7 marks)

Clarity of answer. (2 marks)

(Total = 20 marks)

Part II

Determine the taxable net rental income from the jointly owned property using the format provided in Appendix 1. (15 marks) 

Part III

Prepare the YA 2023 tax computation for Sonia and Terrence in the format provided in Appendix 2 (you are to treat both individuals as tax resident in Singapore).  If benefits are to be pro-rated based on usage, please use the actual number of days to pro-rate (there are 28 days in February 2022 and 365 days in the calendar year 2022).

Where an item of receipt is not brought to tax (or conversely an item of expense is not claimed for deduction), please insert in “0” (zero) in the tax computation and state the reasons separately – e.g., not taxable as not remitted to Singapore or not deductible as capital in nature.

Sonia and Terrence would like to maximise any claims for deduction to achieve an overall lower tax liability.  You are to consider all relevant personal tax relief and where it is not available, please insert in “0” (zero) in the tax computation and state the reasons why the claim is not admissible – e.g., income in excess of $4,000. (65 marks)

Appendix 1

* You are to ascertain the net taxable rental income using the most appropriate basis of claiming expenses.

Appendix 2