The Board of Review addressed what is the appropriate determination of “residue of expenditure” (ROE) available for the taxpayer’s ships and whether it is a requirement that the taxpayer include the 20% initial allowance in calculating the notional capital allowances under Section 19 of Singapore’s tax law for purposes of arriving at ROE.
ROE is available under Section 13A(11) and is essentially the remaining balance of the ships that qualifies for capital allowance treatment after the notional capital allowances have been deducted from the cost for the period when the ship was registered.
The taxpayer (a company incorporated in Singapore) was found to have engaged in prohibited shipping activities in 2010, and as a result, had to de-register two ships. With this de-registration, the tax exemption under Section 13A(11) no longer applied for the two ships. The taxpayer asserted that the notional capital allowances would not include the initial allowance—having the effect of increasing the ROE (which is available for the capital allowances claim over the remaining useful life of the ship). The tax authority, however, countered that the notional capital allowances must be deducted from the costs and include the initial allowance with the effect of reducing the ROE.
The Board held that a literal reading of Section 13A(11) must be applied and that as such, all capital allowance under Section 19—including initial allowance and annual allowances—must be included in ascertaining ROE of the ships.
Read a June 2020 report [PDF 311 KB] prepared by the KPMG member firm in Singapore
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