How To Prepare A Tax Computation
Requirement to Submit Tax Computation to IRAS
A tax computation consists of the tax adjustments made to the accounting profit so as to compute income tax liability. Non-deductible expenses, non-taxable income, further deductions like S14Q deductions for renovations and refurbishments, and capital allowances, are common tax adjustments.
Tax computation should be prepared on an annual basis before the submission of the corporate income tax return (Form C-S/ C). Financial statements, tax computation and supporting schedules are to be submitted together with Form C. For Companies eligible to file Form C-S, the same documents are required to be prepared and submitted to IRAS on a case-by-case basis.
What income is taxable?
Taxable income refers to gains or profits from any trade or business; income from investment such as dividends, interest and rental; royalties, premiums and any other profits from property; and other gains that is revenue in nature.
Income is taxable when it is accrued in or derived from Singapore or received in Singapore from outside Singapore.
To learn more, visit IRAS website on taxable and non-taxable income or watch this video on the Taxability of Income (5m 44s).
Deductible expenses and common tax reliefs and deductions
Deductible business expenses are those 'wholly and exclusively incurred in the production of income' and must satisfy all these conditions:
Expenses are solely incurred in the production of income.
Expenses are not a contingent liability, i.e. it does not depend on an event that may or may not occur in the future. In other words, expenses must be incurred. An expense is 'incurred' when the legal liability to pay the expenses have arisen, regardless of the date of actual payment of the money.
Expenses are revenue, and not capital, in nature.
Expenses are not prohibited from deduction under the Income Tax Act.
Non-deductible business expenses include personal expenses such as travel or entertainment not related to the running of the business, and capital expenses such as expenses incurred to incorporate a company and purchase of fixed assets.
To learn more, visit IRAS website on deductions for different types of expenses. You may also watch this video on the Tax Deductibility of Expenses (4m 59s)
Tax reliefs to ease tax liability
Tax reliefs for companies include:
Tax Exemption Scheme for New Start-Up Companies;
Partial Tax Exemption for all companies; and
Deduction of Expenses Incurred Before Commencement of Business.
To learn more, visit IRAS website on tax reliefs available to ease tax liability.
Common filing mistakes to avoid
Erroneous claims of non-deductible expenses:
Interest expenses relating to assets that did not generate earnings, or investments that yield exempt dividends
Expenses relating to S-plated cars bought for company
Under-declaration of income
Under-declaration of income or over-declaration of expenses due to inadequate retention of business records
Useful tools to prepare tax computation
Refer to IRAS’s Basic Corporate Tax Calculator to prepare your tax computation. Explanatory notes to guide you through tax computation and validation checks against common errors are included in the calculator.
Speak to your accountant
We understand that keeping track of tax matters on top of managing your daily business operations can be overwhelming at times. If you have any queries, feel free to drop us a message or email us and let us know how we can assist you. Our general response time is one business day.
The above article is written based on information from IRAS website accessed on 2 June 2021.
