Amongst other responsibilities such as hosting AGMs and filing annual returns, an essential part of corporate compliance is the filing of taxes. This is not something that should be taken lightly, given that filing an incorrect tax return is an offence.
Given the importance of filing taxes accurately, this article will discuss 4 common mistakes that companies should avoid when filing their taxes. This article also mentions certain prerequisites for tax filing that companies should take note of, such as the need for a CorpPass account, and which form to use when filing their taxes.
1. Failure to Keep Proper Records and Accounts
Companies are required to keep proper records of their financial transactions, along with any relevant supporting documents. Documents such as accounting records, bank statements, and any other records of transactions connected with the company’s business must be kept as well.
These financial records and documents should be kept for at least 5 years. This is to allow the Inland Revenue Authority of Singapore (IRAS) to review these documents in the future if needed.
Companies who fail to keep proper records and accounts may over- or under-declare their income when filing their taxes. As a result, there may be a miscalculation in the amount of corporate tax they have to pay.
Penalties for tax return errors
Companies may be penalised for errors in their tax returns, regardless of whether they had any intention to evade taxes.
If the company unintentionally made an error in their tax return, with no intention to evade taxes, they may face:
- A financial penalty of up to 200% of the amount of tax undercharged;
- A fine of up to $5,000; and/or
- Imprisonment of up to 3 years.
If there is no evidence that the company intended to evade taxes, IRAS will also take its individual circumstances into consideration when deciding on its penalty.
On the other hand, where the tax return error had been made with the intention to evade taxes, the company may be punished more harshly, by way of:
- A penalty of up to 400% of the amount of tax undercharged;
- A fine of up to $50,000 or more; and/or
- Imprisonment of up to 5 years.
2. Wrongful Tax Deduction Claims on Private Motor Car Expenses
Motor vehicle expenses incurred on goods and commercial vehicles such as vans, lorries and buses are tax-deductible. Some examples of such expenses are repairs, maintenance, parking fees and petrol costs.
However, no deduction is allowed on motor vehicle expenses incurred on S-plated cars, RU-plated cars and company cars (excluding Q-plated cars registered before 1 April 1988), whether these expenses are directly or indirectly incurred. This is even if such cars are used solely for business purposes.
Claims in relation to transportation services and private hire expenses
It is important to note that expenses incurred on transportation services are not the same as expenses incurred to hire a private motor car.
Expenses incurred on transportation services will qualify for tax deductions only if such expenses were incurred for business purposes. Examples of such expenses include payments for services to commute from one place to another, without the passenger having any control or possession of the motor car(e.g. bookings for SZ-plated or S-plated cars via mobile applications such as Grab).
On the other hand, expenses incurred to hire SZ-plated or S-plated motor cars (i.e. where the hired car is at the hirer’s full disposal) will not qualify for tax deduction. Expenses incurred in offering private-hire car services are also not tax-deductible, unless the company is in the business of hiring out cars or providing driving lessons.
3. Wrongful Tax Deductions Claims on Inflated Payments to Related Parties
Companies, especially those which are family-owned, often claim tax deductions for expenses which do not qualify for tax deductions. Such tax deductions include:
Personal expenses incurred by company directors
Personal expenses refer to money spent on unofficial business activities, or money spent for reasons entirely unrelated to the business (e.g. for a club membership). Tax deductions cannot be claimed for these expenses.
Excessive payments to family members or other related parties
This refers to unjustified remuneration to related parties (e.g. family members such as parents, children, spouses or siblings). Tax deduction can only be claimed for salaries pegged at market rates and which are not excessive compared to the salary earned by an unrelated employee with similar qualifications and skills, performing the same job.
4. Wrongful Tax Deduction Claims Under the PIC Scheme
Under the Productivity and Innovation Credit (PIC) Scheme, qualifying companies can choose between a 400% tax deduction and a cash allowance of up to $400,000 for business expenditures that fall under the Six Qualifying PIC Activities, from the Years of Assessment (YAs) of 2011 to 2018.
Take note that tax deductions cannot be claimed under the PIC Scheme for:
- Equipment not found in the PIC IT and Automation Equipment List (IRAS may allow exceptions on a case-by-case basis)
- PIC expenditures that had previously been converted to cash. Companies cannot claim the tax deduction if they have already opted for and received a cash payout in relation to their expenditure.
The PIC Scheme expires after YA2018, so any expenditure incurred after YA 2018 is not eligible for tax deduction.
Has Your Company Registered for CorpPass?
From 1 Sep 2018, CorpPass will be the only login method for online transactions with the Government, which includes the filing of corporate tax.
Companies must first be authorised to access IRAS’ digital services via CorpPass before they can log into myTax Portal to file corporate tax.
Use the Right Form to File Your Tax
There are two types of forms that companies can use to declare their income for the purpose of filing their income taxes – Form C-S and Form C.
Companies must ensure that the correct form is completed accurately and that it gives a full and true account of the companies’ income. This is even if they are making losses.
What is the difference between Form C-S and Form C?
The difference between the two forms is that Form C-S is a simplified tax returns form – it is 3 pages long, with half as many pages as that of Form C. Companies that are eligible to file Form C-S also do not have to submit their financial statements and tax computations, though IRAS may request for such documents.
To be eligible to file Form C-S, companies must:
- Be incorporated in Singapore;
- Have an annual revenue of S$5 million or less;
- Derive income that is taxable at the prevailing corporate tax rate of 17%; and
- Not be claiming any of the following in that YA:
- Carry-back of Current Year Capital Allowances/Losses
- Group Relief
- Investment Allowance
- Foreign Tax Credit and Tax Deducted at Source
Companies that do not qualify for the filing of Form C-S have to submit Form C instead, together with their financial statements, tax computation and supporting schedules.
Compulsory e-Filing for Form C-S/C
It is compulsory for the following companies to e-file Form C-S/C in these years of assessment:
- YA2018: Companies with revenue more than $10 million in YA2017
- YA2019: Companies with revenue more than $1 million in YA2018
- YA2020: All companies
Filing Due Dates
The annual filing due dates for Form C-S/C are:
- E-Filing: 15 Dec
- Paper Filing: 30 Nov
Companies may log into the myTax Portal to start filing their taxes here.
The information in this article was contributed by Lancaster Lee from tax advisory firm One Tax CM Pte Ltd. He may be contacted at firstname.lastname@example.org.