Tax Obligations Of Self-Employed Persons
Tax Obligations of Self-Employed Persons
Agenda Obligations as a Self-Employed PersonKeeping Proper RecordsFiling Income Tax ReturnsAvoiding Common ErrorsReporting of Rental IncomeSeeking AssistancePenaltiesIRAS’ Voluntary Disclosure Programme2
Obligations as aSelf-Employed Person
Who is a self-employed person?Sole proprietor of registered businessPartner of a partnership business(normal partnership, limited liabilitypartnership, limited partnership)Person exercising profession or vocation4
Know Your Tax ObligationsComply withIncome TaxLawsReport a complete& accurate set ofbusiness incomeKeep properrecords & accountsfor at least 5 yearsSubmit Form B/ Pon timeRegister for GST if your business revenue: exceeded 1 million a year, or is expected to exceed 1 million a year.5
Medisave Contributions Compulsory to contribute to Medisave if:You are aselfemployedpersonYou are aSingaporeCitizen orPermanentResidentYour yearlynet tradeincome ismore than 6,000 IRAS will issue a Notice of Computation (NOC) to inform you ofyour Medisave contributions.6
Keeping Proper Records
Types of RecordsSource DocumentsAccounting Records & SchedulesBank StatementsAny other supporting recordsrelating to your business8
Business RecordsIncome RecordsExpense RecordsAssetsSeparate Bank Account9
Income RecordsRecords of commission earned from property related transactions, e.g.bank commission, sub-agent commission, commission from developer,rental commission, referral fees and so on. Source documents will include:Receipt BookInvoices IssuedCustomers’ recordsRefunds made tocustomers10
Expense RecordsTo obtain invoices / receipts when paying for expenses.Good practice to arrange such payment through the business bank account. When receipt is notissued, to preparepayment voucherwithacknowledgementTo also maintainexpense recordbook with details Receipts to beretained eventhough the amountis small For GST-registeredbusiness, tomaintain proper taxinvoices as required To providedescription ifreceipt does notindicate itemsbought Refer to GST e-TaxGuide11
AssetsAssetsPrepare a fixed assetschedule at the time youstart your business to recordthe assets purchased.Keep documents such ascontracts of sales andinvoices.12
Bank Account Maintain separate bank accounts for business andpersonal purpose. The business bank account should be used solely forbusiness purpose. Retain all business related bank statements.13
How to Keep RecordsManual RecordsRecording your businesstransactions in aphysical form.Electronic RecordsThrough the use of acomputer and/oraccounting software.Source documents must be kept tosubstantiate the business transactions.14
Benefits of Record Keeping Better internal control of your business. Make better business decisions. An essential source of evidence to detect businesslosses, internal fraud and theft. Reduce cost and effort required for tax filing.Under the Income Tax Act, you are required tokeep the business records for at least 5 years witheffect from 1 Jan 2007.15
Types of Records to Keep16
Types of Records to KeepNote: The “required records” are mandatory records that businesses must keep for tax purposes. The“recommended records” are records that the businesses are advised to keep as good practices, and theseshould be available, or able to reproduce upon request by the Comptroller of Income Tax and/or GST.17
Simplified Record Keeping Introduced on 1 Jan 2014 Assist small businesses to make record keeping easier Small businesses that qualify will only need to keepbusiness records (e.g. registers, listings) and not sourcedocuments (e.g. receipts and invoices)18
Conditions for Simplified Record Keeping Annual revenue 200,000 for the past 2 financial years Business assets 100,000 at the end of latest financialyear Must not be an investment holding or propertydevelopment business Business is a sole-proprietorship or partnership that is notGST-registeredwww.iras.gov.sg Businesses Self-employed / Sole-proprietors /Partners Learning the Basics Keeping Proper Records and Accounts Guides on Record Keeping19
In Summary Set up good filing system for your paperwork fromthe start of your business. Make sure records can be understood by anyone. Obtain the necessary source documents at time oftransaction. Enter transactions accurately & regularly to keeprecords up to date. Record business expenses separately from personalexpenses20
e-Learning on Record KeepingIRAS has produced a three-part record keeping video series: Part 1 : Keeping Tax Records the Healthy Way Part 2 : Keeping Proper Records Part 3 : Commonly Made Mistakeshttps://www.youtube.com/watch?v kY--ejKVZeQhttps://www.youtube.com/watch?v omTRjzThtOkhttps://www.youtube.com/watch?v jaMC875DQ8c21
More InformationVisit www.iras.gov.sg Businesses Selfemployed/ Sole-proprietors / Partners Learning the Basics Keeping ProperRecords and AccountsTo gauge the effectiveness of your recordkeeping:From the link above, go to “Record KeepingSelf-Assessment Toolkit”22
Filing Income Tax Returns
Tax Treatment of Commission incomeTreatment governed under the Income Tax Act Section 10(1)(a) provides that income tax is payable onincome earned from any trade, business, profession orvocation carried on or exercised. Salespersons/agents are considered as self-employedpersons since they earn income from the carrying on of atrade or business.24
Tax Treatment of Commission incomeContract for Service Signed between agency and salesperson Salespersons are liable to carry out the agency workTypes of Income earned Commission earned by providing services to clients Over-riding commission earned from the downline salespersonsfor the coaching or support services providedLiability to Income Tax The above income should be declared and subject to tax inthe hands of the salesperson/agents.25
Types of FormsYou will need to report your business income in asummarised 2 or 4 line statement in either Form B or Form P.26
How to Report Business IncomeRevenue or 200,000Revenue 200,000 but 500,000Revenue or 500,0002-Line Statement4-Line Statement4-Line Statement1st LineRevenue1st LineRevenue2nd LineAdjusted Profit/ Loss2nd LineGross Profit/ Loss3rd LineAllowable BusinessExpenses4th LineAdjusted Profit/ LossCertified Statementof Accounts(i.e. Profit & Loss Accountand Balance Sheet)To be signed by the soleproprietor/precedentpartner certifying thataccounts are true andcorrect.27
Pre-filled Commission Income From YA 2015, commission income information receivedfrom commission-paying organisations will be pre-filled inthe online tax returns of commission earners. Information may not be pre-filled for:- co-broking income, income from referrals, banks, etc. Responsibility for full and complete filing still lies withcommission earners. They will have to declare incomefrom sources which are not pre-filled.28
Allowable ExpensesMust be related toyour businessMust be incurredduring the basis periodin the production ofincomeAllowableExpensesAllowed by tax laws29
Allowable ExpensesExamples of Allowable Business Expenses:Rental paid forbusiness premisesBusinessentertainmentAdvertising,printing &stationeryEmployee’sremunerationBusiness relatedoverseas travellingexpensesPublic transportexpensesCapitalallowances onfixed assetsRenovation andrefurbishment ofbusiness premisesPrecommencementrevenue expensesUpkeep of businesspremises &equipment30
Capital AllowanceOne-year write-off Computers andautomation equipment Assets costing not morethan 5,000 each Capped at 30,000 perYear of AssessmentThree-year write-off All assetsWrite-off overworking life of asset Q-plate cars (COEissued before 1 Apr1998)Vans, pick-ups, trucks,lorries, busesOffice equipmentFurnitureFor more information, visit www.iras.gov.sg Businesses Companies Workingout Corporate Income Taxes Claiming Allowances Capital Allowances31
Disallowable ExpensesCapital in naturePersonal and privatein natureDisallowableExpensesProhibited by tax laws32
Disallowable ExpensesExamples of Disallowable Expenses:Maintenance cost forprivate carsPersonal medical fees,income tax & insuranceof sole proprietor /partnerRepayment of loantaken for businesspurposeFood for personalconsumption &household expensesFines for breach of lawCost of fixed assetspurchasedEntertainment expensesfor family & friendsSalary paid to soleproprietor/ partnerDonations & gifts tonon-customersPersonal & Private ExpensesCapital Expenses33
Avoiding Common Errors
Incorrect Categorisation of IncomeErrorSelf-employed incomeincorrectly reported under“Employment” or “OtherIncome”.Correct WayTo declare 2 or 4-line statementunder “Trade” if you are carryingon a trade, business, professionor vocation.35
Understatement of IncomeErrorReported net commission (afterdeducting expenses) asrevenue.Correct WayReport gross commission asrevenue. Expenses should bereported separately.36
Understatement of IncomeErrorBonus commission paid directlyby developers not beingdeclared.Correct WayAs this is income earned fromrendering services, it forms partof your trade income earned,which is to be reported togetherwith other gross commissionreceived.37
Incorrect Claim of ExpensesErrorsCorrect WayClaim private and domesticClaim only expenses incurred forexpenses as business expensesyour business.e.g. Food for personalconsumptions and medical fees.Claim expenses in respect ofprivate-plated cars (E or S-platecars).These expenses are notdeductible even if incurred forbusiness purpose.Claim estimated expenses.Claim expenses based onactual amount incurred.38
Incorrect Claim of ExpensesErrorCorrect WayUnsubstantiated claims ofpayments to related parties orsuppliers. Claim expenses incurred foryour business based onactual amounts.E.g. Paying family members whoare hired to help out with thebusiness large amounts of salaryinstead of reasonable amountsas compared to the salaries offulltime employees. Amount claimed shouldcommensurate with theactual services performed.39
Failure to Keep RecordsErrorsFailing to keep and retainsufficient records for IRAS toascertain income & allowablebusiness expenses.Misconception that records canbe discarded once a Notice ofAssessment is received.Correct Way To retain business records for 5years. For e.g. invoices,receipts, etc. for the year2016 should be retained for 5years till 31 Dec 2021. The Comptroller may requestfor these documents in thecourse of audits.40
Reporting of Rental Income
Rental Income Any rent payments received when you rent out yourproperty are subject to income tax and must bedeclared in your income tax return. As a real estate salesperson, you may receive rentalincome from your property or you may be providingadvice to your client on how they should report theirrental income.42
Rental Income Rental income refers to the full amount of rent andrelated payments received, which includes:Rental of PremisesRental of Furniture & FittingsService Charges/ Maintenance43
Filing of Rental IncomeHow do I report the rental income from myproperty?Should there be more than 1 owner for theproperty, the rental income should bedeclared based on each of the co-owners’share of legal ownership when filing the taxreturns.44
Rental ExpensesTo qualify as a tax deductible expense, theconditions are as follows:Incurred solely for producing the rental incomeIncurred during the tenancy periodMust not be private in natureMust not be capital in nature45
Allowable Rental ExpensesCost CommonAllowableExpensesRepairsProperty TaxMortgageLoan Interest46
Simplified Claim for Rental Expenses From YA 2016, you will be able to enjoy the convenience ofpre-filled rental expenses. Deemed rental expenses based on 15% of gross rent will bepre-filled in your electronic tax form. In addition, you can still claim mortgage loan interest. For tenanted residential property only.47
Simplified Claim for Rental Expenses Alternatively, you can opt to claim the amount of actualexpenses incurred. If you have more than one tenanted residential property andopt to claim actual rental expenses, you need to apply thistreatment consistently to all your tenanted properties.Property Aclaimed 15%deemed expensesProperty Bclaimed actualexpensesBoth propertiesORclaimed 15%deemed expensesBoth propertiesclaimed actualexpenses48
Simplified Claim for Rental ExpensesThe deemed expenses option is not applicable under the followingcircumstances: You did not incur any deductible expense (apart frommortgage loan interest) in respect of the rental income derived;or You derived the rental income through a partnership inSingapore; or You derived the rental income from a property held under atrust.49
Disallowable Rental ExpensesFirst rincipalrepaymentRenovation50
Penalties
Penalties Penalties may be imposed for the followingoffences: No proper record keeping Failure to submit income tax return Furnishing an incorrect return Tax evasion Penalties vary from a fine to imprisonmentdepending on the nature and severity of offence
IRAS’ Voluntary Disclosure Programme
Voluntary Disclosure ProgrammeIRAS’ Voluntary Disclosure Programme (VDP) encourages taxpayersto come forward voluntarily to correct their errors for reduced penalties.Timely voluntary disclosures madewithin the 1-year grace periodfrom statutory filing dateNo penalty imposedVoluntary disclosures made afterthe 1-year grace periodReduced penalty of 5% p.a. onincome tax underchargedFor more information, visit www.iras.gov.sg About Us Taxes in Singapore Helping and Encouraging Compliance IRAS’ Voluntary Disclosure Programme54
Voluntary Disclosure ProgrammeFor cases alreadyunder IRAS' query,audit orinvestigation,taxpayers’disclosure mustNOT be under thescope of query,audit orinvestigationCooperationreceived fromtaxpayers tocorrect mistakesmade in pastreturnsDisclosures mustbe made BEFOREIRAS’commencementof audit/investigation orletter of queryrelating to theassessmentQualifyingConditions55
Voluntary Disclosure ProgrammeHow toInform IRASEmail: iit compliance@iras.gov.sg56
Thank YouThe information presented in the slides aims to provide a better general understanding oftaxpayers’ tax obligations and is not intended to comprehensively address all possibletax issues that may arise. This information is correct as at the date of presentation. Whileevery effort has been made to ensure that this information is consistent with existing lawand practice, should there be any changes, IRAS reserves the right to vary its positionaccordingly.57
2-Line Statement 1st Line Revenue 2nd Line Adjusted Profit/ Loss 4-Line Statement 1st Line Revenue 2nd Line Gross Profit/ Loss 3rd Line Allowable Business Expenses 4th Line Adjusted Profit/ Loss 4-Line Statement Certified Statement of Accounts (i.e. Profit & Loss Account and Balance Sheet)
Stamp Duty 83 Tax Payments and Tax Return Filing 85 Monthly tax obligations, Annual tax obligations, Early tax refunds Accounting for Tax 91 Tax Audits and Tax Assessments 93 Tax Collection Using Distress Warrant 100 Tax Dispute and Resolution 102
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