Loss Carry Back System

What was then?
Companies can either carry forward their unutilised capital allowances (CAs) and trade losses to offset future incomes (i.e. loss carry-forward) or transfer these unutilised CAs and trade losses to offset profit in related companies as part of group relief.

What was wrong?
These schemes may not provide adequate or timely support to smaller businesses that run into cash flow problems, particularly during a cyclical downturn.

What is the solution?
Starting YA 2006, a one-year carry-back of current year unutilised CAs and trade losses will be introduced.

The main features of the scheme are:

a) Only current year unutilised CAs and trade losses will be allowed to be carried back for one YA immediately preceding the YA in which the CAs were granted or the trade losses incurred.

b) Up to $100,000 of current year unutilised CAs and trade losses can be carried back.

c) The carry-back system will be available to all businesses, including sole proprietors and partnerships.

d) The current requirements for carry-forward of unutilised CAs and trade losses will similarly apply when these amounts are carried back i.e. no substantial change in shareholding and nature of business.

A blanket exemption for estate duty?

To minimise estate duty - invest in residential real estate given the exemption granted for value up to $9mio - was the advice given in last week's article.

This is a heavy weightage on property as an asset class. Why? To encourage home ownership? To encourage you to stay in Singapore or to discourage you from leaving? To hold up property prices? Don't think so.

Tan Peng Boon, in today's Sunday Times, suggested a blanket exemption of up to $9.6mio in term of all assets instead of the current sublimits applied on residential properties and other assets.

Perhaps this is a convenient compromise for the government to hold on to this tax for a few more years.

Till death do your money part as taxes?

Insurance proceeds, as you probably know, are NOT automatically exempt from death duty.

While there is an exemption threshold for residential property of up to $9 million, any payouts from mortgage protection plans taken up on the properties will be taxed should the mortgagor or borrower and policy owner die.

I didn't know that until I read today's BT on "Of Death and Taxes".

I bought the standard MDTA ie. mortgage decreasing term assurance to cover my property loan exposure. The plan's death benefit would go to pay down any outstanding home loan. But didn't know it would be taxable.

So what are the possible solutions?
All the solutions except for (d) essentially try to play with this specific rule:-

"The exemption threshold for financial assets is $600,000.
Insurance policies structured as trust policies under Section 73 of the Convenyancing and Law of Property Act are automatically exempt BUT each policy will be subject to the $600,000 threshold."

Briefly they are:-
a) Enter into a "cross life" arrangement ie. you buy for me and I buy for you.
b) Assign the policy to the mortgagee bank.
c) Take a joint life policy.
d) Set up a trust. (Not advisable.)

So much for now.

QAF and S44A

P/S - Singapore River on Sunday last.

QAF, the company best known for Gardenia bread, told its shareholders that they will receive 973 PSC shares and 284 Zhongguo Jilong shares as dividends for every 1,000 QAF shares held.

Advantages to shareholders
- Allow them to seek tax credits if the corporate tax is higher than personal income tax rate.
- Shareholders have the flexibility to sell the new shares received for cash.

Advantages to QAF
- goodwill with its shareholders
- no impact on its cashflow