Taxation is the process of reforming tax, which is mostly based on the income of an individual or an organization. Taxation system differs on the basis of country as they follow their own set of rules. Based on the taxation system of Singapore, this report projects rulings of 3 major cases that were ruled under the norms and regulations of Taxation Policy of the respective country. The purpose of this report was to highlight how income an capital differs from each other as well as how they are used by the Singaporean Courts in ruling the cases, in addition to the taxation laws. Rulings of the three cases whther they are taxable or non taxable has also been portrayed in this paper.
Smith & Son v Moore (1921) 12 TC 266
Analyzing the case of Son v Moore, the distinctions on separating the income and capital was made by the court through the application of case-by-case in accordance to the common tax law of Singapore. The section 15(1)(c) of the of Tax law was implemented by the court in making the distinction on which item should be considered as an accrued income for tax liability purpose in order to distinguish the circulating capital sale and a business fixed asset sale so that a tax of £30,000 would be deducted from Smith & Son (Ooi, Aw & Yap 2018). Instead of distinguishing the income and capital in this case, sensing an absence of income and capital has been considered. However, the court identified that the price if £30,000 was already paid by John Smith and Son under the unexpired contract.
ABD Pte Ltd v CIT
The approach of distinguishing income and the capital is not always possible through the application of case by case method and tax legislation. Hence, the case of ABD Pte Ltd v CIT a distinction was made by the High Court, which followed 5 guidelines of Whiteman, especially imposed upon the income tax. One of the guidelines highlights that the payments on selling the assets are considered to be capital receipts of a prima facie. The other guidelines further signified that receiving payment in terms of destructing the apparatus of the other party, thereby making a profit is also considered to be the capital nature receipt and payments in terms of trading receipts are further regarded as revenue character. The fourth guideline projects that the payments received in return for the obligation of substantial restrictions in terms of a trader’s activity are imposed on a capital account by the court. Additionally, the fifth guidelines followed by the court in making distinction states that any recurrent nature payments are most often perceived as revenue receipts (Ooi, Aw & Yap 2018). In this case, the deductibility was implemented indistinguishing the income and capital. While doing this, the taxability of the receipt was widely implemented for making distinctions.
In the case of Pinetree Resort v CIT (Supra), the court made an appeal that the entry fee was accrued as an income each time when a member joined the club and took membership. This has been made in order to distinguish the capital and income easier and distinctive. Since the entry and membership fee has been identified for being paid in installments over several months, the courts still consider it in assuming that the overall fee would eventually be charged as entry and membership fee. Through this approach, the court seeks to present their decisions and actions to be legal (Ooi, Aw & Yap 2018).
One of the examples can be stated as the case of GBU v CIT, where s10(1) of the ITA of Chapter 134 highlighted that the tax should only be payable in the form of income to a person receiving it or maybe outside Singapore. These rights can only be received under the section 10(1)(a) up to the section 10(1)(g) of the ITA. The situation, nature of transactions along with the ability to distinguish the income and capital, which is non-taxable are not always the same. Even in case of any section of the ITA, there are no limited circumstances except in section 13Z of the ITA. The court projected various factors, which could help in considering the profit from the transaction should be referred whether as the capital gain or the income for the purpose of the tax. Thus, due to this problem, a dispute was witnessed among the taxpayers and the authority of tax, which continued until it reached the court of Singapore. Under this case, the CIT stated that the acquired shares were used for the purpose of making profitable schemes so that it would be referred as a profit under the section 10(1)(g) of the ITA (EY, 2018).
The case of CIT v BBO can be cited as an example, as it was the first case to be ruled out by the court of Singapore based on the treatment of income tax. This income tax treatment was made on the investment gains, which were received by the insurance companies. This process of a ruling by the court revolved around the major issue of not being able to identify whether the gains were generated from the disposal of insurance, which was to be considered as a revenue (income) or as capital. This also involved an identification of whether the identified revenue or capital was liable as the tax income or not. Analyzing and observing the transaction involved between the two parties (CIT and BBO), the court was able to identify that the shares were received and kept by the insurance company as one of their strategy relating to corporate group preservation. Later on, it was also identified that the shares were the capital assets, whereas the gains that were obtained from its disposal were non-taxable in nature. In this case, the Singaporean court concluded that the taxation of the companies, especially the insurance, financial, and banking companies could not be determined with the application of regulatory frameworks. Major reasons behind this was the fact that the frameworks were further shaped according to intricate policy, which had a minimum or no association with the taxation. This case ruling involved the implementation of section 17(1) of the Insurance Act of Singapore (IRAS 2015; Allen & Gledhill LLP 2014; Ming, Ho & Ping 2014; Tann 2014).
In the case, Smith & Son v Moore, the ruling method for distinguishing income and capital by the court of Singapore were done by implementing a case by case method. Additionally, it also involved the application of the common tax law of the country for ruling out this case. Section 15(1)(c) of the tax regime in Singapore was considered for making a distinction of the fixed capital sale of the business and circulating capital sale in terms of income as well ass capital. In addition, Tax law’s section 15(1)(c) of Hong Kong was further implemented by the Singaporean court for a ruling since it was not possible for ruling the case as per the tax regime of Singapore (Deloitte 2014; Deloitte 2014; CPA n.d.).
With respect to the case of ABD Pte Ltd v CIT, the application of Whiteman’s 5 essential guidelines for distinguishing the two factors (income and capital) were initiated by the court of Singapore. Since the approach of distinguishing the income and capital are not always possible through the application of the case-by-case method and tax legislation, a distinction by the High Court followed the 5 guidelines of Whiteman, especially imposed on the income tax in ruling out this case. This was also done for differentiating the income and capital factor. Revenue is assumed as an income, as the trend of expenditure of the taxpayer is involved in this case (Deloitte, 2018).
The case of CIT v BBO was ruled out by the court of Singapore, as the accrued income was received by the club for each entry along with the membership. Section 15(1)(c) of the income tax law was considered by the court for distinguishing the two main factors, income, and capital. Income was further considered as an overall fee of the entry and membership along with the capital as investments held by the insurers. The principles implemented in the case of BBO for the purpose of determining the tax treatment for distinguishing between the income and capital factor was performed by the court of Singapore. Thus, in this case, the ITA and section 17(1) of the Insurance Act were considered by the court of Singapore for ruling this case (EY, 2016; Wong, 2014; Taxsg, 2014).
A Singaporean tax resident taxpayer is planning to sell his condominium (property) for $1million, can be considered to be the income on the basis of 6 badges of trade. In Singapore, tax is not imposed on any sale of properties or shares or maybe intangible assets. So in this case, a taxpayer can experience an income of $1 million without having to pay any tax (MAZARS, 2018). Since the sale does not exceed $1 million, the taxpayer may not need to register under the goods and services tax (GST) at the time of selling residential property is being sold. Even if the price exceeded, the taxpayer will not have to register the GST service. Perhaps, the taxpayer should seek a ruling from the GST comptroller by submitting the transactions of the property sale. Through this approach, the property seller can earn a capital income with an amount greater than $1 million after 12 months without paying any tax as well. Profit from the transaction of property sale can be achieved by the property seller (3ECPA, 2018).
Conclusion
It is understood that the Court of Singapore follows a unique approach in ruling out the cases associated with the business and corporations while involving income and capital. The application of income tax law, insurance acts, and various principles may be implemented by the court depending on the type of cases or when the cases do not state income and capital. The evevry ruling of these type of cases needs to meet the legislative norms and legal practices for making a distinct decision in all the cases. Every decision on business cases associated with income as well as capital is justified and acceptable when legal requirements are met in ruling process of the Court in Singapore. Thus, it can be stated that tax regime are imposed on the income, howeverit is not imposed on gainsthat are derived from capital. Henc, this the key differenc between income and capital. In Smith & Son v Moore case, the amount of £30,000 was cosidered for as the fixed capital of the appellant (Moore) by the court. In this case the court gave the verdict that Smith & Son did not had to pay the tax of £30,000 (Crown n.d). In terms of ABD Pte Ltd v CIT case, the court further did not issue any taxation or deduction upon the ABD Pte Ltd on the basis of section 14(1) of the Act. The other case of Pinetree Resort v CIT (Supra) undergo the ‘Nexus test’, as the court was unable to make decision under the taxation laws.
References
3ECPA, 2018, Tax Planning for Investment Property in Singapore, Tax Planning for Investment Property, viewed 19 December, 2018 <https://www.3ecpa.com.sg/resources/singapore-taxation/tax-planning-for-investment-property-in-singapore/>.
Allen & Gledhill LLP, 2014, CIT v BBO [2014] SGCA 10, Lexology, viewed 19 December, 2018 <https://www.lexology.com/library/detail.aspx?g=675a9793-b975-42c6-8800-db166f98c6b8>.
CPA, No Date, Hong Kong Tax / Inland Revenue Ordinance Glossary, Profits and Tax, viewed 19 December, 2018 <https://www.hktax.net/>.
Deloitte, 2014, ‘Corporate tax alert stay informed of new developments’, Corporate Tax, pp. 1-5.
Deloitte, 2018, Distinction Between Capital and Revenue, News Feed, viewed 19 December, 2018 <https://www.taxathand.com/article/2024/Singapore/2014/Distinction-between-capital-and-revenue>.
EY, 2016, ‘Tax treatment of insurers’ gains derived from disposal of investments’, Tax Update, pp. 1-5.
EY, 2018, GBU v CIT, You and the Taxman, Issue 4, viewed 18 December, 2018 <https://www.ey.com/sg/en/services/tax/ey-you-and-the-taxman-issue-4-2017-gbu-v-cit>.
IRAS, 2015, ‘Income tax: Tax treatment of gains derived from the disposal of investments of insurers’, IRAS e-Tax Guide, pp. 1-9.
MAZARS, 2018, Capital Gains Tax, There is No Capital Gains tax in Singapore, viewed 19 December, 2018 <https://www.mazars.sg/Home/Doing-Business-in-Singapore/Corporate-Taxation/Capital-Gains-Tax>.
Ming, W, C, Ho, D, & Ping, C, K, 2014, ‘Singapore corporate tax alert’, Deloitte, pp. 1-4.
Ooi, V, Aw, I & Yap, J 2018, ‘Singapore income taxation’, Research Collection School of Law, pp. 1-17.
Singapore Academy of Law, 2018, Ch. 28 Income taxation, Singapore Law Watch, viewed 18 December 2018, <https://www.singaporelawwatch.sg/About-Singapore-Law/Commercial-Law/ch-28-income-taxation>.
Tann, R, 2014, ‘Court of appeal clarifies income tax treatment of insurance company investment gains’, Tax/Insurance, pp. 1-3.
Taxsg, 2014, Court of Appeal: Comptroller of Income Tax v BBO [2014] SGCA 10, Revenue Law-Income Taxation, viewed 19 December, 2018 <https://taxsg.com/2014/02/17/court-of-appeal-comptroller-of-income-tax-v-bbo-2014-sgca-10/>.
WONG, 2014, ‘Court of appeal disagrees with IRAS on tax treatment of investment gains by insurance companies’, Case Watch, pp. 1-6.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download