tax obligations of a tuition centre / agency operator · for a service business like tuition...

Tax Obligations of a

Tuition Centre / Agency Operator

Copyright @ IRAS 2017. All Rights Reserved

Presentation Topics at a Glance

� Obligation as a self-employed individual

� Keeping proper records

� Filing Income Tax Returns

� Avoiding common errors

� Seeking assistance

� Penalties

� Voluntary disclosure

2

Copyright @ IRAS 2017. All Rights Reserved 3

Obligation

as a

Self-Employed

Individual


Who are the self-employed?

Sole proprietors of registered businesses and persons exercising profession or vocation

Partner of a partnership business (normal partnership, limited liability partnership, limited partnership)


Obligation as a Self-Employed Individual

Comply with income tax

law

Keep proper records &

accounts for 5 years

File form B / P on time

Report a complete & accurate set of business

income

Register for GST if you meet the registration criteria


Obligation as a self-employed individual

Medisave Contributions

As a Self-employed

As a Singapore citizen or Singapore permanent

resident

Earn a yearly net trade income of more than $6,000

• Net trade income refers to your gross trade income less all allowable business expenses, capital allowances and trade losses as determined by IRAS

IRAS will issue a Notice of

Computation (NOC) to

inform you of your medisavecontributions


Keeping

Proper

Records


Keeping Proper Records

Types of

Records

Source Documents

Bank Statements

Accounting Records & Schedules

Any other records related to business


As a tuition

centre/agency

operator,

what are the

types of

records I need

to maintain?


Business records

Assets & Stock

Purchases /Expenses

Revenue / Fees

collection



Revenue / Fees Collection

Records of the tuition

fees / commission from tuition

fees collected; Sale of books/test

papers etc

Receipt bookInvoices issued

Returned goods

Goods taken for private

use

Customer’s / student’s records

Refunds made to customers

/ students



Purchases / Expenses

Cash receipts to be retained even though the amount is

small.

To provide description if receipt does not indicate items

bought.

When receipt is not issued, to prepare payment voucher with

acknowledgement.

To also maintain purchase/expense record book

with details.

For GST registered businesses, to maintain proper tax invoices as

required.

To refer to GST e-tax guide.

To obtain invoices/receipts when paying for purchase/expenses.

Good practise to arrange such payment through the business

bank account.



Assets

Need to prepare a fixed asset schedule at the time the asset

is purchased or when the business is started.

Please refer to sample Fixed Asset Schedule – Appendix 6

of the Guide.

The asset cost is capital in nature & not tax deductible.

However, you may claim capital allowances as well as

the Productivity & Innovation Credit (PIC).

Stocks

Refers to anything purchased for the purpose of sale such as

educational / assessment books.

Encouraged to carry out a physical stock count at the end

of the accounting year.

To refer to sample stock list at Appendix 7.



To maintain separate bank accounts for business &

private purpose.

The business bank account should be used solely for

business purpose.

To retain the bank statements / passbook of your business

bank accounts.



Manual Records

Recording of your business transactions

in a physical form

Such transactions to be supported by

source documents

Electronic Records

Through the use of a computer and/or

accounting software

Source documents must be kept to substantiate

the business transactions



Good Record keeping practice is an important part of your business

Better internal control of your business

An essential source of evidence to detect business losses, internal fraud & theft

Reduces cost & effort during collation of information

15

Under the Income Tax Act, you are required to keep the business records for at least 5 years with effect from 1 Jan 2007



Source Documents

Category of taxpayers for Record Keeping

Requirements

Record Type Item No Documents RequiredGST-Registered

Businesses

Non-GST Registered

Businesses

INCOME RECORDS

(Records of each

sales transaction)

1Serially numbered receipts issued or cash register tapes or invoices issued

� �

2 Tax invoice/simplified tax invoice issued �

3 Rental Agreement signed by both landlord and tenant � �

4 Books to record goods taken for private usage � �

5 Credit notes for returned goods � �

6 Documents relating to exports � �

7Evidence that payment have been received (e.g. bank statement)

�

BUSINESS EXPENSE

RECORDS

(Records of each

business expense

transaction)

8 Invoice received or Receipt received � �

9

Payment made to individuals/companies for services rendered and the relevant contracts/agreements on the provision of services

� �

10 Payment vouchers for staff remuneration � �

11 Employer’s CPF contributions � �

12 Payment evidence (e.g. bank statement) �

PURCHASE

RECORDS

(Records of each

purchase transaction)

13Tax invoices received, Invoices received or Receipt received

� �

14 Documents relating to imports � �

15 Payment evidence (e.g. bank statement) �

OTHER RECORDS

(FOR GST

PURPOSES)

16 Business goods which were put to non-business use �

17Disposals of business goods, whether or not for a consideration

�

18 Removal of goods from customs-licensed warehouse �



ACCOUNTING RECORDS AND SCHEDULES

Category of taxpayers for Record Keeping

Requirements

Record Type Item No Documents RequiredGST-Registered

Businesses

Non-GST Registered

Businesses

ACCOUNTING

RECORDS AND

SCHEDULES

1 Stock List � �

2 Sales Record Book/ Sales Listing � �

3 Purchase Record Book/ Purchase Listing � �

4 General Ledgers � �

5 Balance Sheet, Profit and Loss Statement � �

6GST account summary of input and output tax, including GST refunded to tourists

�

BANK

STATEMENT7

Bank statements; with separate bank accounts for personal and business purposes

� � (Recommended)

Record Type Item No Documents RecommendedGST-Registered

Businesses

Non-GST Registered

Businesses

ACCOUNTING

RECORDS AND

SCHEDULES

1 Detailed schedules of Public Transport expenses � �

2 Detailed schedules of Travelling expenses � �

3 Detailed schedules of Entertainment expenses � �

4 Fixed asset Schedules � �

5 Records of Capital Allowances � �

Note: The “required records” are mandatory records that businesses must keep for tax purposes. The “recommended records” are records that the businesses are advised to keep as good practices, and these should be available, or able to reproduce upon request by the Comptroller of Income Tax or/ GST



Set up good filing system for your paperwork from the start of your business

Make sure records can be understood by anyone

Obtain the necessary source documents at time of transaction

Enter transactions accurately & regularly to keep records up to date



• These information can be found in our website

• Visit our website at www.iras.gov.sg

• Follow the link : Home > About IRAS > Taxpayer Compliance > Record Keeping Essentials for Businesses


Filing

Income

Tax Returns


Filing Income Tax Returns

You will need to report your Tuition business income in a summarized 2 or 4-line statement in

your Form B or Form P


Filing Income Tax ReturnsFor a partnership :

The precedent partner has to report the business income in theForm P. He/She is also required to inform all the partners of their share of income from the partnership;

The precedent partner is:

- Partner who, among all the partners present in Singapore, is the first named in the partnership agreement.

- If there is no partnership agreement, the precedent partner is a partner who is agreed upon and appointed by the other partners to be the precedent partner.



For a Partner:

� Check with precedent partner on share of income from partnership

� Report share of partnership income under “Partnership” in the “Trade, Business, Profession or Vocation” section of Form B



REVENUE

< or = $100,000

REVENUE

< or = $100,000

2-line Statement

1st line – Revenue

2nd line – Adjusted Profit/Loss

REVENUE

< $500 000

REVENUE

< $500 000

4-line Statement

1st line - Revenue

2nd line -

Gross Profit/Loss

3rd line - Allowable Business Expenses

4th line - Adjusted Profit/Loss

REVENUE

> or = $500,000

REVENUE

> or = $500,000

4-Line Statement +

Submit certifiedStatement of Accounts

(i.e. Trading, Profit & Loss Account and Balance Sheet )

To be signed by the sole-proprietor /

precedent partner certifying that

accounts are true and correct



The 4-Line Statement

1. RevenueTotal payments/fees/commissions received or receivable for

services provided before deducting any expenses.

2. Gross Profit / Loss

For a service business like tuition centre, this is the same as

Revenue. Should a tuition centre sells assessment/

teaching books or materials, the gross profit / loss is

Revenue less Cost of Goods Sold.

3. Allowable

Business Expenses

4. Adjusted Profit/

Loss

Expenses incurred in the course of business.

Gross Profit – Allowable Business Expenses


Allowable Expenses

Must be related to

your business

Must be incurred during the

production of income

ALLOWABLE EXPENSES


Copyright @ IRAS 2017. All Rights Reserved27

Allowable Business Expenses (common examples)

Rental paid for business premises

Business entertainment

Advertising, printing & stationery

Upkeep of business

premises & equipment

Employee’s salary, bonus &

allowances

Business related overseas travelling expenses

Public transport usage

Capital allowances on

fixed assets



Disallowable Expense

Capital in nature

Personal and private in nature

Pre –Commencement

expenses

DISALLOW-ABLE

EXPENSES


Copyright @ IRAS 2017. All Rights Reserved29

Disallowable Expenses (common examples)

Maintenance cost of private

cars

Personal medical fees, income tax &

insurance of SP/Partner

Entertainment expenses for

family & friends

Food & household expenses

Repayment of loan taken for

business purpose

Cost of fixed assets

purchased

Registration fee for

business

Renovation of business premise

Pre-commencement

expense




Enhancement to Concession for

Enterprise Development

Expenses incurred before the start of business operation are not allowable as they are not incurred in the production of income.

Introduction of Concessionary treatment:

With the current concession, revenue expenses incurred one accounting year before the *deemed Date of Commencement (DOC) are deductible.

* The first day of the accounting year in which a business earns its first dollar of

business receipt. This is different from the date of incorporation of business.





2011 Enhancement to Concession

• Revenue expenses incurred in one accounting year before the deemed Date of

Commencement are deductible • Expenses treated as incurred on the deemed date of commencement• Deductible against business income derived during basis period in which the

business derives its first dollar of business receipt

With effect from Year of Assessment 2012


Example:Mr Lim registered a tuition centre on 1 Dec 2014 to carry on abusiness. Its accounting year ends on 31 Dec. The businessearned its first dollar of business receipt on 5 Feb 2016. It incurredrevenue expenses such as rental expenses, utilities, etc on:(i) 15 Dec 2014(ii) 1 March 2015





With Effect from Year of Assessment 2012

Revenue expenses incurred 15 Dec 2009 / 1 Mar 2010

First dollar

earned

5 Feb 2011 31 Dec 2011

Revenue expenses deductible without

concession

01 Jan 2011

Deemed DOC

Revenue expenses deductible with the

2011 enhancement; Hence, revenue

expenses incurred on 1 Mar 2010 is

deductible.

i) 15 Dec 2009


Enhancement to Concession for Enterprise Development

Not deductible as the

period does not fall

within the concession

criteria

01 Jan 2010

ii) 01 Mar 2010



More details on this concession can be found in our website by following this pathway :www.iras.gov.sg < For companies < Preparing tax computation < What can be deducted < Business expenses < Tax treatment of specific expenses < Expenses incurred prior to commencement of business>.




Avoiding

Common Errors


Common Errors to Avoid

Incorrect categorization of income

Nature of error made Correct way of reporting

Self-employed income incorrectly reported

under “Employment” or “Other Income”

To declare 2 or 4-line statement under “Trade” if you are carrying on a

trade, business, profession or vocation



Understatement of income


Collections were used to pay for the purchases or

expenses (both private and

personal) & were not recorded

Report gross revenue collection

in full & as far as possible, to pay for

expenses via cheque

Case Study


38


Ms Janet is a junior college student who enrolled in RH Tuition Centre for “A Maths” in June 2015. The period of tuition is from June 2015 to May 2016 .

She paid the full amount upon

enrolment :

Registration fee - $25

Books + materials - $75

June 2015 to Dec 2015 -$720;

Jan 2016 to May 2016 - $540

Total amount paid - $1,360

Case Study


The question isRhow would Ms Wong, the sole-proprietor of RH Tuition Centre update her record for Year of Assessment 2016 in respect of Janet’s tuition

fees received?

Case Study

To record

$820 in

here (part

of fees

collection

for the year

ended 31

Dec 2015) –

Recognition

of income

since the

registration,

enrolment,

materials &

lesson has

been

utilised.

41

Case Study

NAME OF BUSINESS: RH Tuition Centre

BUSINESS ADDRESS : 32 Jln Angklong, Singapore 121432

FOR PERIOD FROM 01012015 to 31122015

(enter date in dd-mm-yy)

$ $

Revenue from sale of books/materials - A 75Service Fees received (Turnover) - B 745

Less: Cost of Goods sold - C

Gross Profit (C) = A+B-C

Less: Allowable Business Expenses

(please ensure that you do not claim non-allowable expenses)

Rental Charges

Advertising promotion

Insurance

CPF Contributions

Salaries & wages

Other Running Expenses

(please indicate the nature and breakdown below)i)

ii)

iii)

iv)

Total Allowable Business Expenses

Adjusted Profit

SUMMARY

4-line Statement

$

Turnover Name of taxpayer:

Gross Profit Signature :

Allowable Business Expenses Contact Number :

Adjusted Profit/Loss

STATEMENT OF ACCOUNTS



42

Case Study RH Tuition Centre

Balance Sheet for the Year Ending 31.12.2015

ASSETS

Current Assets

Cash

Accounts Receivable

Inventory

Prepaid Expenses

Total Current Assets

Fixed Assets

Land, Buildings

Furniture & Fixtures

Equipment

Total Fixed Assets

Total Assets

LIABILITIES

Current Liabilities

Accounts Payable

Taxes Payable

Accurals

Deferred Income

Total Current Liabilities

Long Term liabilities

Mortgages Payable

Equipment

Total Long Term Liabilities

TOTAL LIABILITIES

OWNER'S NET WORTH

Total Liabilities and Net Worth

To record

balance

amount of

$540 in here



Incorrect claims of personal and private expenses


Private and domestic expenses were claimed as business expenses

To claim only expenses incurred for your

business



Claiming estimated expenses


Estimated amounts are being recorded for both

revenue & expense amount

Estimated amounts are inadequate and not

acceptable for Income Tax purposes; To claim

expenses based on actual amounts.



Claiming private motor vehicle expenses


Expenses in respect of private-plated cars (E or S-plate cars) are being

claimed

These expenses are not deductible even if it is incurred for business

purposes


Seeking

Assistance


Service Details Contact

Self help (Record keeping guide) http://www.iras.gov.sg > For sole-proprietors / self

employed > Keeping proper records and accounts >

Basic Record Keeping Guide for Small businesses

Email [email protected]

Income Tax Integrated Phone Service 1800 356 8300

Goods & Services Tax Integrated Phone

Service

1800 356 8633

Taxpayer Services Centre 1st Storey, Revenue House

55 Newton Road, Singapore 307987

(Located opposite Novena MRT Station)

Operating Hours:

8am to 5pm (Mon to Fri)

8am to 1pm (Sat)

47

You may seek assistance from:


Penalties


Penalties

• Penalties may be imposed for the following offences:

� No proper record keeping

� Failure to submit income tax return

� Furnishing an incorrect return

� Tax evasion

• Penalty varies from a fine to imprisonment dependingon the nature and severity of offence


Voluntary

Disclosure


Voluntary Disclosure

The IRAS Voluntary Disclosure Program help taxpayers to come forward to disclose errors or omissions made

Timely voluntary disclosures made within a grace period of 1 year from statutory filing

date

Waiver of penalty

Voluntary disclosures made after grace period

Reduced penalty of

5% p.a. for Income Tax



Qualifying Conditions

For cases already under IRAS's query,

audit or investigation,

taxpayers' disclosure must NOT be under the scope of

query, audit or investigation

Cooperation received from taxpayers to

correct mistakes

made in the past returns

Disclosures must be made

BEFORE IRAS’s commencement

of audit / investigation or letter of query relating to his assessment



www.iras.gov.sg > About IRAS > Taxpayer

Compliance > IRAS Voluntary Disclosure

program

Tel : 6351 3121 / 6351 3122

Email: [email protected]

THANK YOU

54

The information presented in the slides aims to provide a better general understanding of taxpayers’ tax

obligations and is not intended to comprehensively address all possible tax issues that may arise. This

information is correct as at 30/09/2017. While every effort has been made to ensure that this information is

consistent with existing law and practice, should there be any changes, IRAS reserves the right to vary its

position accordingly.

© 2017 Inland Revenue Authority of Singapore. All rights reserved.