All borrowing costs are now deductible

Current tax treatment

When is interest expense tax deductible?

Under section 14(1)(a), only interest expenses incurred on capital employed in acquiring income chargeable with tax is allowable against the income earned.

Only interest expenses, incurred on loans that are used to buy assets that make income that are taxable by IRAS, are therefore tax-deductible.

Thus if you used company's loan facilities to buy "Mona Lisa" for your own enjoyment, then the interest expenses are not tax deductible. But if you charge entrance fees on people who come and see the painting, it would deductible against the income you generated.

Are other borrowing costs tax deductible against chargeable income too?

Under current treatment, the answer is NO.

New tax treatment

What is the effective date?

From Year of Assessment 2008.

What has changed?

Besides interest expense, the other borrowing costs will also be granted tax deduction under section 14 (1) (a). Examples of such borrowing costs are listed below:-

1. Guarantee fees
2. Bank option fees
3. Discounts on notes and bonds
4. Premiums on redemption of notes or bonds
5. Prepayment fees/ early redemption fees
6. Extension fees
7. Increased costs due to any upward interest rate adjustments when
   certain event occurs as specified in the loan agreement
8. Interest rate cap rate premiums
9. Interest rate swap payments
10. Conversion fees
11. Cancellation fees

Why the change?

The people, who are "sufferring" from paying the bankers so many types of fees in different names all these years, have successfully persuaded the Authority to accept theses expenses as tax deductible.

On what basis?

The Authority now accepts the argument that all fees payable to the bank to secure a loan facility are part of "interest rate" payable. Without charging all these "miscellaneous" fees, the banks would ask for a higher interest rate from the borrowers anyway.

Last words - So the next time you are going to pay anything to the bank, please make sure they name the fees as one of the above 11 acceptable names above.

GST Advance Ruling System (GST ARS)

What is that?
When you seek guidance from Comptroller of Goods and Services Tax (“CGST”) in writing, CGST's reply in writing becomes an authority you can rely upon ie. legally binding.

The actual definition:-
An advance ruling is a written interpretation the CGST gives to a specific person, stating how specific provisions of the GST Act will apply for a particular business arrangement or a specific transaction.

You would not ask ARS to be applied on daily-bread-and-butter issues where they are sufficiently covered/explained under existing terms.

You would use ARS for complex business arrangement or a transaction that is never or not commonly done in Singapore before.

So what had CGST been doing in the past?
Just provide guidance that are not legally binding to entrepreneurs seeking affirmation that they are not breaking any laws or impact their bottomline estimation.

What is this applicable?
The new section 90A, together with a new Fifth Schedule, will be enacted and effective from 1 July 2007.

Any fees payable?
Of course, this is Singapore, you know. Albeit on a cost recovery basis.
From a fixed application fee, to possible hourly rate, any disbursements, fees payable for expertise needed but not available in IRAS etc etc.