On 8 October 2018, the Inland Revenue Authority of Singapore (IRAS) issued an e-Tax guide that provides guidance on tax treatments for entities adopting Financial Reporting Standard 116 (FRS 116) Leases or Singapore Financial Reporting Standard (International) 16 (SFRS(I) 16) Leases.
The e-Tax guide is relevant in complying with the requirements in FRS 116 / SFRS(I) 16 for recognition, measurement, presentation and disclosure of leases within the scope of FRD 116 or SFRS(I) 16.
It outlines the tax treatment regardless of whether the relevant leases is accounted for under FRS 116, SFRS(I) 16 or the FRS for Small Entities:
Lessor – The existing tax treatment for lessors is retained given that there is no change in accounting treatment for lessors, i.e, the tax treatment for lessors would depend on whether the relevant lease is classified as operating lease or finance lease.
Lessee – A lessee is allowed tax deductions on the contractual lease payments incurred, except under circumstances where a sale is regarded to have taken place. Where a lease arrangement giving rise to a Right-Of-Use (“ROU”) asset meets the definition of a finance lease under Section 10D(3) of the Income Tax Act and is to be regarded as a sale agreement, the lessee is eligible to claim interest expense and capital allowances on the relevant asset. To determine if a finance lease for tax purposes is to be regarded as a sale agreement, reference should be made to the
conditions in paragraphs (a) to (e) of Regulation 4(1) of the Section 10D Regulations.
Withholding tax – Withholding tax obligations would continue to be determined based on the legal characterisation of the payment, and subject to the provisions in Sections 12(6) and (7) of the Income Tax Act, notwithstanding the change in the accounting treatment
This e-Tax Guide is available for downloading from the IRAS’s website.
Source: IRAS, 9 October 2018