Common mistakes made by salespersons in their Income Tax Returns – Property for rent in Singapore

Common mistakes made by salespersons in their Income Tax Returns – Property for rent in Singapore

1. (a) Incorrect Reporting of Revenue – property for rent in Singapore

Some real estate salespersons made mistakes in declaring their revenue. Some common mistakes observed are:

– Failure to declare all commission income received from real estate agencies

– Failure to report all co-broking or sub-agent commission income received

– Failure to report all referral fees or bank referral fees received

– Failure to register as a GST registered-trader when the gross revenue exceeds or expected to exceed one million dollars

– Reporting of takings based on estimates

Real estate salespersons must maintain a full and complete record of income received. All commission statements received must be kept and all other sources of income such as referral fees and co-broking commission should be duly recorded. Property for rent in Singapore.

In addition, a real estate salesperson is required to compulsorily register with IRAS as a GST-registered person if his/her gross revenue exceeds one million dollars or he/she expects his/her revenue for the next 12 months to exceed one million dollars. Property for rent in Singapore.

(b) Incorrect Claims of Expenses

(i) Motor Vehicle Expenses

Claims of motor vehicle expenses, including petrol, repair & maintenance, insurance, parking fees, CBD charges and hire purchase interest, in respect of private vehicles (E or S-plate cars) are specifically prohibited under Section 15(1)(k) of the Income Tax Act. These expenses are not deductible even if they are incurred in the course of business. Property for rent in Singapore.

(ii) Estimated Expenses

Some real estate salespersons do not retain records; hence they estimated the expenses without any valid basis. They should only make claims of expenses based on actual amounts incurred for their business, supported with receipts and invoices. Expenses based on estimates are not acceptable for Income Tax purposes. Property for rent in Singapore.

(iii) Private/Domestic Expenses

Some real estate salespersons made incorrect claims of private/domestic expenses like club membership subscriptions, personal insurance, medical fees, private travel, domestic telephone charges etc, against the business income. These expenses are not deductible for Income Tax purposes. Also, Medisave and voluntary CPF contribution should not be included as a deduction. Such contributions will be allowable as tax reliefs. Property for rent in Singapore.

(iv) Public Transport and Entertainment Expenses

Some real estate salespersons made claims for transport and entertainment expenses, without maintaining proper records to substantiate their claims. In order to support their claims, they must keep complete records and proper receipts to show that the expenses are incurred for income-producing purposes. Property for rent in Singapore.

To maintain proper records for transport and entertainment expenses, real estate salespersons may wish to create a log book, stating the following details, property for rent in Singapore:

(v) Expenses paid to related parties

Some real estate salespersons paid excessive salary and bonus to related parties such as his or her spouse, parents, siblings, etc for services rendered in their businesses. They are reminded that salary and bonus paid should commensurate with the services rendered and should be in line with market rate (arms-length transaction). Payment or salary vouchers should be acknowledged and retained. Property for rent in Singapore.

There are also instances whereby some real estate salespersons included salaries, allowances or CPF paid to related parties such as his or her spouse, parents, siblings, etc in their payroll when these related parties are not working for them. In such cases, salaries, allowances or CPF paid are not claimable for Income Tax purposes. Property for rent in Singapore.

(c) Incorrect Categorisation of Income

Some real estate salespersons incorrectly reported their income under Employment or Other income. As real estate salespersons are carrying on a profession under Section 10(1)(a) of the Income Tax Act, they are to declare their income under the category “Trade” in the Income Tax Return. They also need to prepare the 4-line statement*, stating the revenue, gross profit, allowable business expenses and adjusted profit/(loss). (*4-line statement is required if gross commission is more than $100,000. If gross commission is less than $100,000, only a 2-line statement i.e. gross commission and adjusted profit/loss need to be declared.) Property for rent in Singapore.

The incorrect categorisation of income will affect the amount of Medisave that the real estate salespersons need to contribute to CPFB as a self-employed. Medisave contributions are compulsory for all self-employed persons who are Singapore citizens or permanent residents. Property for rent in Singapore.

(d) Purchase of fixed assets

Many real estate salespersons incorrectly claimed the purchase of fixed assets as revenue expenses against their business income. For Income Tax purposes, the purchase of fixed assets and depreciation on fixed assets cannot be claimed as a revenue expense. Property for rent in Singapore.

However, capital allowances are allowed to be claimed against the business income, using one of the following methods, where applicable:

(i) One-year write-off

This method applies to a) the purchase of computers and automation equipment and b) assets costing no more than $5,000 acquired from the year 2012, subject to the condition that the claim for 100% write-off of all such assets must be capped at $30,000 per year of assessment. Property for rent in  Singapore.

(ii) 3-years write-off

Generally, all assets qualify for a three-year write-off with effect from YA2009. Property for rent in Singapore.

(iii) Straight Line Method

Initial allowance at 1/5 of the original cost is allowable in the year of purchase. Annual allowance on the balance of the cost (cost less initial allowance) is computed based on the number of years of working life of the asset. Each type of assets has its number of years of working life specified under the Income Tax Act. Property for rent in Singapore.

(e) Failure to Keep Proper Records

Some real estate salespersons have failed to keep and retain sufficient records to enable us to ascertain their income and allowable business expenses. Some have the misconception that they do not need to keep records or could discard their records once they have received their Notice of Assessments. Property for rent in Singapore.

For income tax purposes, they are required to keep proper records and accounts of their business transactions for 5 years with effect from 1 Jan 2007. They can be penalised or denied claim of expenses if they fail to keep proper records. Property for rent in Singapore.

The set of accounts and other records must be supported by proper documents, such as invoices, receipts, payment vouchers and statements, in order for IRAS to ascertain their income and allowable business expenses readily. The records should be retained for the requisite period whether or not the assessment has been raised. The Comptroller may request for these documents in their course of audits. Property for rent in Singapore.

(f) Omission of rental income, director’s  fees etc

Some real estate salespersons may not report other sources of income like rental income and director’s fees in their Income Tax Returns. Under the Income Tax Act, these are taxable items. Property for rent in Singapore.

2. IRAS would like to bring to your attention that under the Income Tax Act, any person who negligently or without reasonable excuse makes an incorrect Income Tax Return may be liable to a penalty equal to double the amount of tax undercharged and may be sentenced to imprisonment not exceeding 3 years or to both. For more serious cases whereby a person wilfully with intent makes false declaration or falsifies his accounts, he may be liable to a penalty of up to three times the tax undercharged and may be sentenced to imprisonment not exceeding 5 years or to both. Property for rent in Singapore.

3. Real estate salespersons are therefore encouraged to review their past records to ensure that there had been no omissions or errors that had resulted in tax being undercharged. When omissions or errors are detected, they can make a voluntary disclosure to IRAS which will result in lower penalty as long as the disclosure is truthful and complete. If real estate salespersons would like to voluntarily disclose past errors in their tax returns, they can approach IRAS by sending an email via myTax Mail using SingPass or IRAS PIN at mytaxmail.iras.gov.sg >>> New Enquiry >>> Individual >>> Locals (Singaporeans/Singapore PR) >>> Voluntary disclosure. For further clarifications, they can also contact IRAS through their compliance hotline at 6351 3122 or 6351 3121. The compliance hotline operating hours are from 8am to 5pm (Monday to ! Friday). Property for rent in Singapore.

4. In addition, IRAS would like to also request that real estate salespersons inform foreign property owners who have tenanted their Singapore properties through them of their obligation to notify IRAS in writing of their mailing address at which they would like IRAS documents to be sent to. The foreign property owners are required to include their personal particulars, passport / income tax reference number (if any) and the full address of the tenanted property in their notification to IRAS. In cases where the real estate salespersons have been authorised to handle their foreign clients’ income tax matters, to forward the Letter of Authority signed by their clients for IRAS’ records. Property for rent in Singapore.

Source: IRAS

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