ACC213 Copyright 2012 SIM University Page 1 of 8

Examination J uly Semester 2012

ACC213

Examination July Semester 2012

Introduction to Income Tax

Friday, 16 November 2012 10:00 am 12:00 pm

____________________________________________________________________________________

Time allowed: 2 hours
____________________________________________________________________________________

INSTRUCTIONS TO STUDENTS:

1. This examination contains FOUR (4) questions and comprises EIGHT (8)
printed pages (including cover page).

2. You must answer ALL questions.

3. All answers must be written in the answer book.

4. Included as an Appendix on Page 7 and 8 is a list of selected personal reliefs that
you may use.

At the end of the examination
Please ensure that you have written your examination number on each answer book
used.

Failure to do so will mean that your work cannot be identified.

If you have used more than one answer book, please tie them together with the string
provided.



THE UNIVERSITY RESERVES THE RIGHT NOT TO MARK YOUR
SCRIPT IF YOU FAIL TO FOLLOW THESE INSTRUCTIONS.

ACC213 Copyright 2012 SIM University Page 2 of 8
Examination J uly Semester 2012
Question 1

a) Inland Revenue Authority of Singapore (IRAS) requires that the Estimated
Chargeable Income of a Company be filed within 3 months from its accounting
year end in order to benefit from the IRAS instalment plan for income tax
payment. Explain the rationale for this policy. Suggest an improvement for tax
revenue collection.
(7 marks)

b) Section 10 of the Singapore Income Tax Act (ITA) lays the rules and scope of
Singapores modified-territorial tax system. As such, tax is generally imposed
on foreign income which has been received in or remitted into Singapore. Read
the below-mentioned case carefully and assess the tax liabilities of Mr X.

Case

Mr X is a citizen of a socialist country who receives various types of income from his
country. Mr X does not declare any of his income and hence is not taxed by his
country. Mr X is not a tax resident of Singapore.

Mr X uses his income to buy raw materials through an affiliated company in his
country and ships them to Singapore to be sold at a total cost of S$100,000 to three of
his wholly-owned companies. These companies were set up purely for the purpose of
benefiting from the IRAS full tax exemption scheme.

Mr Xs three companies in Singapore then resell the raw materials to third parties in
Singapore for profits.

As a result of the above operations, each of Mr Xs three companies had to pay tax of
S$17,000 for the year of assessment (YA) 2011.

Mr X resident rate in his country is 20%. Corporate income tax is 17% for YA 2011.

Explain the implications of Mr Xs actions with respect to IRAS, paying particular
attention to Sections 10, 33, 96 and 96A of the ITA. Estimate the tax penalties imposed
on Mr X, if applicable.
(18 marks)


Question 2

You are the tax consultant for Mr Wu, a 40 year old Chinese National. He is an
employee of a Chinese listed company posted to work in Singapore for a period of 180
days per year for the next consecutive three years, with effect from 1
st
J anuary 2010.

He owns two private residential properties in Singapore which have similar annual
values. Both properties are currently tenanted and their 3-year tenure tenancies are
expiring on 31
st
December 2010. He has renewed one of the two tenancies with the
same terms and conditions as before. He intends to use one of the properties for his
personal accommodation needs during his stay in Singapore.

ACC213 Copyright 2012 SIM University Page 3 of 8
Examination J uly Semester 2012

His personal, employment and expenditure details for the calendar year ended 31
st

December 2010 are forecasted as follows:

Employment & Personal Details
Description S$ Remarks
Total remuneration 180,000 To remain unchanged till Year of Assessment 2015.
Total transport and
accommodation
allowances
60,000
Employer pays employee a fixed sum of S$5,000 per
month to cover all of employees personal transport and
accommodation needs. All other travel, transport and
accommodation expenses incurred in the course of
employment are fully reimbursed by the employer.
Total rental income 240,000 Rental income derived from two identical properties.
Fire insurance paid 5,000 For two identical private properties.
MCST maintenance
paid
20,000 For two identical private properties.
Cost of tenancy
renewal
10,000 For one private property.
Cost of refurbishment 25,000 Incurred for his personal accommodation needs.
Total value of stock
options awarded
800,000
Based on 400,000 stock options valued @ S$2 each
awarded on 31
st
October 2006.
Employee satisfied all vesting conditions imposed by
employer as at 31
st
October 2009.
Employer does not impose selling restrictions.
Employee exercised 200,000 stock options on 1
st

December 2010 when open market price of stock was
S$6. Exercise price of stock option is S$2.
Dependants n.a. No dependants

a) Categorise Mr Wus income into that which is taxable and that which is exempt.
Estimate his tax payable for the Years of Assessment 2011 to 2014.
(23 marks)

b) Identify how he can reduce his overall tax liabilities for the Years of
Assessment 2012 to 2014 without breaching the provisions of the Singapore
Income Tax Act.
(2 marks)

All relevant supporting computations, schedules or assumptions must be shown for
marks to be awarded.











ACC213 Copyright 2012 SIM University Page 4 of 8
Examination J uly Semester 2012
Question 3

To attract and retain foreign talent in Singapore, IRAS has implemented three schemes
to assist them in reducing their overall tax liability while working in Singapore. These
three schemes are the Area Representative Scheme, Dual Employment Scheme and Not
Ordinary Resident Scheme.

J ane is a 45 year old employee of a US multi-national corporation (the corporation)
listed on the New York Stock Exchange. She is the Head of Marketing for the
corporations Asia Pacific Region (Apac). She was posted to Singapore on 1
st

J anuary 2010 to set up the corporations regional headquarters. As such, she had spent
more than 183 days in Singapore for the Year 2010. However, she is unsure if she
would spend more than 183 days in Singapore for the subsequent year.

You are the tax consultant for J ane. Her personal and employment details for the
calendar year ended 31
st
December 2010 were as follows:

Employment & Personal Details
Description US$ Remarks
Total remuneration 240,000
Remuneration is credited into J anes Citibank N.A.
account in New York, USA.
Total hardship
allowances
72,000
Allowances are credited into J anes Citibank N.A.
account in New York, USA.
J ane uses the allowances mainly for rent of a private
apartment and finance lease payments for a private car.
All other expenditures incurred in the course of
employment are fully reimbursed by the employer.
Dependants n.a.
Spouse is not a dependant.
Sister is a dependant and is not employed.
Two children: first child is 18 years old & married and
second child is 5 years old.
All dependants are able-bodied and staying together.

Additional information:

1) She spent 100 days outside Singapore in YA2011 for business reasons and is
expected to do so for YA2012.

2) Her posting to Singapore is expected to stretch beyond YA2016.

3) Average USD/SGD used by IRAS for Year 2010 is 1.2556.

a) Demonstrate the calculation of J anes income tax by:

(i) Explaining which of the three schemes implemented by IRAS would she
be under? Give a reason for your answer.
(2 marks)

(ii) If she qualifies for the scheme mentioned under part (i) in the year of
assessment (YA) 2011 and subsequently fulfils the IRAS Administrative

ACC213 Copyright 2012 SIM University Page 5 of 8
Examination J uly Semester 2012
Concession, which is to be taxed at resident rate for YA2012 and
YA2013, how would her income be taxed for YA2014 to YA2017 if she
continues to work in Singapore for less than 183 days a year for
YA2014 to YA2017?
(2 marks)

(iii) Estimate her tax payable for the Year of Assessment 2011.
(11 marks)

b) Alexandra is a freelance tax advisory who speaks at many tax forums and
seminars. He was recently invited to Singapore to speak at a tax forum
organised by the Singapore Tax Academy. He will be paid fees for speaking at
the forum and per-diem allowances. On top of that, hotel accommodation for a
week and airfare to Singapore will be provided. Demonstrate the calculation of
his tax liability in Singapore, clearly stating what will be taxed and what tax
benefits and concessions he can enjoy.
(10 marks)

All relevant supporting computations, schedules or assumptions must be shown for
marks to be awarded.



ACC213 Copyright 2012 SIM University Page 6 of 8
Examination J uly Semester 2012
Question 4

Sally and Tammy started a retail business outlet together in the form of a partnership.
Profits and losses are shared equally between them but Tammy does not draw a salary.
Instead of taking a bank loan, capital was raised by borrowing from friends. In 2009,
their business incurred a loss. Upon finalisation by the Comptroller, each partners
share of the business loss and unabsorbed capital allowances for YA 2010 was $5,200
and $4,500, respectively.

Business improved in 2010, reflecting its performance in the following profit and loss
account for the year ended 31 December 2010:-






















Separately, Sally also received other income from providing freelance business
consultancy services of $6,500 during the year.

Capital allowances for the year 2010 were calculated to be $12,500.

Compute the allocation of profits to the partners in 2010 and the assessable income of
Sally and Tammy.
(25 marks)




----- END OF PAPER -----
$ $
Sales

45,000
Less: COGS

(12,500)



Gross profit

32,500
Less: Expenses


Depreciation 5,200


Salary - Sally 4,500


Telecom 400


Postage 230


Bad debts written off 340


Interest - Borrowings 1,200


Transport 750




12,620



Net profit

19,880


ACC213 Copyright 2012 SIM University Page 7 of 8
Examination J uly Semester 2012
Supplementary instructions

The following information on personal reliefs and tax rebates can be used when
answering the questions.

Selected Personal Reliefs, Tax Rebates & Tax Rates for Year of Assessment 2011

1. Earned income relief:
Age Normal Handicapped
Below 55 years $1,000 $2,000
55 to 59 years $3,000 $5,000
60 years and above $4,000 $6,000

2. Spouse relief:
Normal Handicapped
Wife or husband $2,000 $3,500

3. Parent/Handicapped Parent relief:
Normal Handicapped
Staying with Parent $7,000 $11,000
NOT staying with Parent $4,500 $8,000

4. Married/Divorced/Widowed Woman Foreign Maid relief:
Twice the amount of foreign maid levy paid in 2010 up to a maximum of $6,360

5. NSman relief:

Key Appointment Holders Non-key Appointment Holders
Active NSman $5,000 $3,000
Non-active NSman $3,500 $1,500

Key or Non-key Appointment Holders
Spouse of operationally ready NSman $750
Each parent of operationally ready NSman $750

6. CPF relief:

Employee Contribution Employer Contribution
Capped at $15,300 $11,093

7. Life Insurance relief:
Premiums paid on own life and wifes life insurance policies restricted to 7% of capital
sum insured. No relief given if total employees CPF contributions >$5,000.

8. Child relief:
Qualifying child relief (QCR): each qualifying child $4,000
Handicapped child relief (HCR): each qualifying child $5,500
Working mothers child relief (WMCR):

ACC213 Copyright 2012 SIM University Page 8 of 8
Examination J uly Semester 2012
1
st
child 15% of mothers earned income
2
nd
child 20% of mothers earned income
3
rd
child and beyond 25% of mothers earned income
Maximum per child (QCR/HCR +WMCR) $50,000
Total WMCR capped at 100% of mothers earned income

9. Course Fees relief:
Up to $5,500 for eligible fees incurred on courses studies or seminars and conferences
attended

10. One-off Personal Tax rebate:
All tax residents are granted an income tax rebate of 20%, capped at $2,000.
This tax rebate is computed based on the tax payable after double taxation relief (DTR)
and other credits, but before set-off of the Parenthood Tax Rebate.

11. Parenthood Tax rebate:
1
st
child $5,000
2
nd
child $10,000
3
rd
child and beyond $20,000 per child

12. Individual Income Tax rates:
Rate (%) Gross Tax Payable ($)
First $20,000
Next $10,000
0
3.5
0
350
First $30,000
Next $10,000
-
5.5
350
550
First $40,000
Next $40,000
-
8.5
900
3,400
First $80,000
Next $80,000
-
14
4,300
11,200
First $160,000
Next $160,000
-
17
15,500
27,200
First $320,000
Above $320,000
-
20
42,700
-




----- END OF SUPPLEMENTARY INSTRUCTIONS -----