Common mistakes in filing tax return
Famous quotes suggest it is better to do things right the first time. It is more time-consuming and costly to do back jobs or fixing errors. IRAS observed common mistakes that companies make in filing tax returns and as a response, they educate companies on the significance of adherence to tax policies and how to properly file tax returns. IRAS may impose penalties according to the provisions in the Singapore Income Tax Act if these companies that do not adhere to tax policies.
Take note of the following common mistakes that companies make in filing tax returns:
- Understatement of Company Income – To avoid penalties, companies must properly account and report all its income and appropriate invoices for products/good that have been sold or services that have been provided. Official receipts must be supported by correct invoicing and must be recorded while preparing their accounts. Any omission or error of any receipt or invoice issued which results to understatement of earning are punishable under the Law.
- Declaration of Deduction Against Non-Deductible Expenses – All expenses or costs that are not related to the business like personal expenses of the company director on entertainment or vacation, must properly be classified as private expenses and should not be included in the Form c/Form C-S claims.
Excluded also are the vehicle expenses such as insurance, repair and maintenance, parking fees, ERP fees, petrol, and the like of private In-plate cars with non Q-plate cars and business service vehicles with Q-plate cars.
Other personal deductions of the company’s directors and shareholders that are not allowed are stipulated in Section 1 of Singapore Income Tax Act are as follows:
- Travelling expenses with families during holidays or special events, and the like;
- Parties, social gatherings ad celebrations, meals, and the like;
- Gifts for families and relatives, for self, for friends, and the like;
- Personal and family’s credit card expenses;
- Domestic and residence’s telephone bills, family member’s telephone bills, utility bills, internet bills, and the like;
- Domestic or residence’s renovation expenses, maintenance and repair expenses, monthly or quarterly contributions to sinking funds, mortgage loan interests, property tax, and the like;
- Domestic helper’s salaries and levy;
- Domestic or household purchases like electrical appliances, groceries, furniture and fittings, and the like;
- Children’s educational expenses like tuition and school fees, purchases of books and school supplies, school uniforms, and the like;
- Personal membership and/or entrance fee, club subscription fees to gym, fitness centers, sports club, country club, yacht club, and the like;
- Personal and family life insurance policy, education, home fire insurance, and the like.
- Remuneration Claims to Related Parties – Section 14(2) of SITA states that remunerations that are paid to related parties such as shareholders and/or directors’ family members, should be deducted for tax purposes. Claims should be in accordance to the services rendered and similar to an independent employee with the same experience and qualifications for the same services.
- Claims of Incurred Expenses –
- All claims of purchases and expenses should be in accordance to the actual amount incurred and supported with official receipts and invoices;
- Projected purchases and expenses without approval and official receipts are not allowed;
- All claims on public transportation and entertainment must be supported by complete documents and official receipts
- Unable to Maintain Business Records for Previous 5 Years – It is wrong to discard the company’s records once they receive Notice of Assessment. Official records and documents must be kept for a period of five years, whether an assessment has been issued or not. During a tax audit, the Comptroller may ask for these records for the IRAS to determine the company’s income and business expenses that are allowed.
In Corpworldbiz, we help our clients to prepare their tax computations and file their tax returns. Should you have any queries in regards to our tax computation and filing services, feel free to contact us today.