April 15 filing - when to consult a tax specialist?

Today, many SME tax firms struggle to provide quality services to Sole-proprietors and Partnerships due to the relatively high tax compliance burden when compared to private limited companies.  It is not unusual to find that Sole-proprietors and Partnerships simply adopt the easy way out when it is due date to file Form B or Form P.  They simply take the áccounting net profit' and file it as the ádjusted net profit' without undergoing the process of preparing a tax computation to account for tax allowable expenses and non taxable income.  Firstly, this is not right.  Secondly, there could be huge tax savings if a tax specialist is consulted.  Some of the possible tax savings could arise from:

- Capital allowances and business losses claim

- Transfer between married couples

- Loss carry back system.

Capital allowances claim

Cost of purchase and depreciation on fixed asset is not a tax allowable expense. In the computation of the adjusted profit, it has to be added back. However, you can claim capital allowances (i.e. tax depreciation) on the wear and tear of fixed assets purchased and used in the business. In the year the fixed asset is disposed off, you can also claim balance allowances on the remaining tax carrying value over the sale proceeds. Without a proper tax computation, a Sole-proprietor or Partnership business could miss out of claiming tax deductions on substantial allowances, especially in capital-intensive industries. 

Business losses

If you incur business losses after deducting allowable expenses and capital allowances claimed, such losses can be used to offset against other sources of income besides your business income (such as passive sourced interest, dividend and rental income). For unutilised balances, they can be carried forward to setoff against future income subject to certain tax rules. This is also applicable for capital allowances balances that are not fully utilised in a year.
In this regard, you should be keeping track of your unutilised balances of business losses and capital allowances so that in the year when your business turns profitable, a claim to offset the current taxable profits can be made. One point to note – once the business source ceases, the unutilised capital allowances will be forfeited, but not the unutilised business losses.
It is common that business owners are concerned with paying taxes on the current year taxable profits and forget that there are unutilised balances from the previous year to be brought forward. Such balances could reduce the tax bill significantly.

Transfer between married couples

With effect from year of assessment 2005, a married couple would be allowed to transfer the excess of unutilised capital allowances, business losses between each other if there are remaining amounts that cannot be completely offset against the income of the respective spouse for a particular year. In the case where both spouses are deriving rental income, a transfer of rental deficit is given by concession. However, the transfer is strictly limited to the amount of rental income the transferee is earning and cannot be setoff against other sources of income (like employment). Interestingly, the election is not made at the time of submission of tax returns but has to be made before the end of 30 days from the date of notice of assessment of the individual or his/her spouse, whichever is the later. The election once made is irrevocable. There is no prescribed form for the election of transfer. However, both spouses must furnish in writing their names, identification numbers and signatures if they wish to elect for transfer of their excess qualifying deductions and rental deficit.
Considering that business losses and capital allowances can be carried forward infinitely subject to conditions, this may not necessarily be a tax saving option. However, such transfers would reduce the amount of net cash payable to the Inland Revenue Authority of Singaore, and improve the Sole-proprietor's or Partnership's cash-flow.

Carry back system

With effect from year of assessment 2006, all businesses are allowed to carry back their current year unutilised business losses or capital allowances to offset against the preceding taxable year. This feature is further enhanced for the years of assessment 2009 and 2010 whereby the balances can be carried back for 3 years of assessment with the limit increase from $100,000 to $200,000 per year. Undoubtedly, this refund feature allows businesses making losses in the recession years to manage their cash-flow. However, as it is on a due claim basis (i.e. the relief is given only if the Sole-proprietor or Partnership makes a claim for it), it is not widely used as small business owners are not aware of it.