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Common pitfalls to avoid in YA 2021 corporate income tax filing

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Swee Thiam Teh

28 Oct 2021
Categories Thought leadership
Jurisdictions Singapore

Errors attract penalties. Avoid the mistakes others made is far better and cheaper than learning from our own mistakes.   

The corporate income tax return for the Year of Assessment (YA) 2021 is due for filing by 30 November 2021. As companies prepare their income tax returns, this is an excellent time to check out the common but costly pitfalls. Here, we highlight a few of these to avoid.

COVID-19 related grants 

The COVID-19 pandemic wreaked massive global economic disruptions in 2020. Singapore was not spared - our economy registered the worst full-year recession since independence. 

Amidst the unprecedented economic shock, our government provided “waves” of wage support and grants to support businesses and retain jobs. Some of these supports and grants are taxable. Some are not. Treating them wrongly in the tax return potentially triggers a penalty.

How should companies make the distinction? 

In brief, these are the established rules in taxation. First, the support or grant is taxable if its purpose is to supplement trading receipts or defray the operating expenses of a company (i.e., revenue in nature). Second, it is not taxable if the purpose is to help fund capital assets acquisitions (i.e., capital in nature). Therefore, unless specifically exempted from tax under the Income Tax Act (ITA), the revenue grant is a taxable receipt.

The tax treatment of COVID-19 related grants depends on the underlying purpose of these grants. It is thus a mistake to assume all COVID-19 related grants are exempt from tax. 

The table below lists the COVID-19 related grants that companies may have received in the basis period for YA 2021. We also explain in brief their tax treatments. 

Grants Tax treatment
  • Jobs support scheme (JSS) payout
  • COVID-19 quarantine order allowance scheme payout
  • COVID-19 leave of absence (LOA) scheme payout
  • COVID-19 stay-home notice (SHN) scheme payout


These support payments and grants are aimed at helping employers retain their local employees or cushioning the financial impact of COVID-19 containment measures for employers. Specific tax exemptions in the laws cover these. 

  • Temporary housing support for employers affected by Malaysia’s movement control order (MCO)
  • Senior worker support package
    • Senior employment credit
    • Central Provident Fund (CPF) transition offset scheme
    • Senior worker early adopter grant
    • Part-time reemployment grant
  • Construction restart booster
  • Assistance scheme to defray third-party professional cleaning and disinfection costs for premises with confirmed COVID-19 cases
These support payments and grants are aimed at defraying the operating costs of businesses. Because the underlying purpose is revenue in nature, these are taxable receipts. Also, thus far, the government has not offered an exemption for these support payments and grants.  

Distributions from Singapore Real Estate Investment Trusts (S-REITs)

There can be up to three distinct components in an S-REIT distribution: the tax-exempt component, the return of capital component, and the taxable component. The tax treatment is different for each. 

The S-REIT distributions are commonly recorded as dividend income in the financial statements. As a result, they are sometimes mistaken as the tax-exempt dividend received from Singapore resident companies. To avoid this mistake, refer to the Annual Distribution Statement issued by the Central Depository Pte. Ltd. to identify the components in each S-REIT distribution and accord the appropriate tax treatment based on the type of distribution received.

Another common mistake on S-REIT distributions is the YA they are assessed to tax in the hands of the unitholders. For S-REIT distributions, there is a “twist” to the usual basis period, and hence the YA that such distributions are assessed to tax. Instead of following the basis period of the receipt by the corporate unitholder, the period out of which a S-REIT distributes its taxable income determines the basis period for these distributions.

Basis period of the S-REIT for YA 2021 1 January 2020 to 31 December 2020
Period of the S-REIT’s taxable income out of which the distribution was made to unitholders 1 October 2020 to 31 December 2020
Date of distribution by the S-REIT 10 February 2021

In the above example, the taxable component of the distribution is assessable in YA 2021 even though it is received after the corporate unitholder’s basis period for YA2021. In other words, the income will be reported in the recipient’s financial statements for financial year ending 2021 (assuming December yearend), but for tax reporting purposes, it is reportable in basis period 2020. 

Foreign-sourced income exemption scheme (FSIE)

Under the FSIE scheme, certain specified foreign income received in Singapore by Singapore tax resident companies is exempted from tax if certain qualifying conditions are met. Companies must provide specific information on such foreign income in the income tax returns and retain any supporting documents or information to enjoy the tax exemption.

A common pitfall is on the “foreign headline tax rate” condition. This condition refers to the highest corporate tax rate of the foreign jurisdiction from which the income is received, which must be at least 15% when the foreign income is received in Singapore. 

Dividends are considered sourced in the jurisdiction where the dividend-paying company is a tax resident. In some instances, foreign-sourced dividends can be paid by a company listed on the stock exchange in one jurisdiction (for example, Hong Kong) but is a tax resident in another jurisdiction (for example, Cayman Islands). In this instance, the “headline tax rate” condition is not met as the dividend-paying company is a tax resident in the Cayman Islands, which has a headline tax rate of less than 15%.

Hence, companies should ensure that the tax residence of the dividend-paying company is correctly identified and not presumed based on the jurisdiction of the listing of the dividend-paying company.

Group relief system

Under the group relief system, companies within the same group can transfer their unutilised capital allowances, trade losses and donations (tax loss items) for the current year from loss-making companies to profitable companies in the same group, subject to conditions. By electing for group relief, the overall tax payable by the group is reduced, and its cash flow improves. These are important considerations, especially during the current economic climate.

Companies that wish to consider group relief application should bear in mind the two common issues below.

Firstly, the group relief application, once made, is final and irrevocable. The Inland Revenue Authority of Singapore (IRAS) does not allow changes to the application once it has been submitted. A detailed review of the tax positions of the various companies within the group is thus a must before filing the group relief application.

Secondly, the group relief form must be submitted together with the income tax return. Failure to do so risks the IRAS rejecting the group relief application. 

Withholding tax disclosure in the income tax return (Form C) 

Withholding tax is an area of complexity, and often companies fail to comply with their withholding tax obligations or provide an incorrect disclosure in Form C.

Form C requires the company to disclose if it has made any payments to non-residents that are subject to withholding tax. It also asks for disclosure whether the withholding tax requirement has been complied with. The company has to provide the reason(s) if it does not comply with the withholding tax requirement.

Companies may incorrectly disclose that they did not make any payment to non-residents that are subject to withholding tax when they had, in fact, made such payments. Or they may disclose they had complied with the withholding tax requirements when in fact, they had not done so.

The IRAS has recently increased scrutiny on withholding tax compliance. Routinely they cross-check taxpayers’ withholding tax disclosure in Form C to their withholding tax return (Form IR37) filing and inquire into any inconsistencies noted. There are penalties for failure to comply with the withholding tax requirements.  

It is often tempting to check off the two withholding questions in the affirmative when completing Form C. This temptation looms large when we are, personally, not aware of such payments, and for those payments subject to withholding tax, we had paid the withholding tax. The problem is this. What we are personally aware of are not necessarily the reality. There may have been payments subject to withholding tax lying outside our awareness.  

A withholding tax health check helps to enlarge this circle of awareness. So does an appropriate system of tax controls and processes to ensure compliance. 


With the increased focus by the IRAS on tax compliance, it is vital to ensure that the tax returns filed are complete and correct. The clear risks are penalties and fines for incorrect tax returns filed. Companies should thus proactively take steps to avoid the pitfalls in their tax filings to mitigate their tax compliance risks.

The co-authors of this article are Teh Swee Thiam, Partner, Tax Services from Ernst & Young Solutions LLP and Angela Hoe, Associate Director, Tax Services from EY Corporate Advisors Pte. Ltd.