IRAS has revised the tax computation on rental income to allow indirect expenses capped at 5% only with effect from assessment take place in September 2006. On micro view, each mcst is advised to take step as suggested in our circular, but on macro view, all mcsts affected by the change should pool their resources together to appeal for review of fair basis for claim of deductible expenses.

In September 2006, some of our clients have received tax computation by IRAS on income deriving from common property such as Car Park Rental, Base Station, TOL License, Kiosk, Advertisement and promotion etc.. is allowed only 5% as deductible indirect expenses. The year of assessment affected is from YA 2006.

The IRAS has applied the principle that –

In respect of expenses incurred in the production of rents where the expenses can be properly identified ( direct or acceptable basis)should be allowed to offset the income.
With regard to expenses incurred for work involved in the collection of rents where the taxpayer has difficulty in determining the amount incurred for the production of income, the rule has fixed the deductible expenses should be equal to 5% of the rental income.

In the past, MCSTs generated income from rents were using Value or Size-based to proportionate the claim of related expenses which have been accepted by IRAS all there years.

The sudden change of ruling has affected those MCSTs that have generated income from the rents by paying income tax many times more than expected, as such some have faced difficulty to foot out a huge sum within 30 days from the notice of assessment received.

To react when Notice of Assessment is received, if disagreed with the computation, we would like to advise the MCST to file Notice of Objection as soon as possible stating the ground of objection and file revised computation after extracting those identifiable expenses incurred in the production of rental income.

The suggested basis of claiming of deductible expenses is attached for your reference. For future tax planning purpose, please negotiate with your suppliers to split the portion of services applicable to rental and non-rental activity to substantiate your claim.


15 November 2006	Issue 02/2006

Dear Valued Clients, IRAS has revised the tax computation on rental income to allow indirect expenses capped at 5% only with effect from assessment take place in September 2006. On micro view, each mcst is advised to take step as suggested in our circular, but on macro view, all mcsts affected by the change should pool their resources together to appeal for review of fair basis for claim of deductible expenses. In September 2006, some of our clients have received tax computation by IRAS on income deriving from common property such as Car Park Rental, Base Station, TOL License, Kiosk, Advertisement and promotion etc.. is allowed only 5% as deductible indirect expenses. The year of assessment affected is from YA 2006. The IRAS has applied the principle that – In respect of expenses incurred in the production of rents where the expenses can be properly identified ( direct or acceptable basis)should be allowed to offset the income. With regard to expenses incurred for work involved in the collection of rents where the taxpayer has difficulty in determining the amount incurred for the production of income, the rule has fixed the deductible expenses should be equal to 5% of the rental income. In the past, MCSTs generated income from rents were using Value or Size-based to proportionate the claim of related expenses which have been accepted by IRAS all there years. The sudden change of ruling has affected those MCSTs that have generated income from the rents by paying income tax many times more than expected, as such some have faced difficulty to foot out a huge sum within 30 days from the notice of assessment received. To react when Notice of Assessment is received, if disagreed with the computation, we would like to advise the MCST to file Notice of Objection as soon as possible stating the ground of objection and file revised computation after extracting those identifiable expenses incurred in the production of rental income. The suggested basis of claiming of deductible expenses is attached for your reference. For future tax planning purpose, please negotiate with your suppliers to split the portion of services applicable to rental and non-rental activity to substantiate your claim. We are offering the tax appeal service for the tax computation mistake based on a chargeable or variable rate to be agreed. If you wish to have more understandings on the above preposition, please contact: Mr Tan Chin Ren at office Tel: 6533 7393 Ext. 129 , HP: 97513490 or email at tancr@tanchan-cpa.com.
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