ST : Common tax filing slip-ups

Mar 21, 2010

Common tax filing slip-ups

In the last of a two-part series on tax filing, Senior Correspondent Lorna Tan highlights the common filing mistakes made by individuals

The clock is ticking for taxpayers with just four weeks to file returns, but that is still time enough to make sure all the numbers add up.

The devil, as they say, is in the details and never more so than for a tax return. So when you file - April 15 is the deadline for paper filing while e-filers have until April 18 - try to get it right.

COMMON FILING MISTAKES BY INDIVIDUAL TAXPAYERS

Individual taxpayers tend to make several common mistakes, despite constant reminders over the years. These include reporting rental income and claiming for certain reliefs.

1. Rental income

Taxpayers who rent out property must report the gross rental income. That means the rent from the property, including rent on furniture and fittings, and service charges received from the tenant.

Many landlords fail to report rental income from furniture and fittings.

2. Estimates of rental income

Rental estimates are not acceptable for income tax purposes. Taxpayers must retain supporting documents to substantiate the amount of rental income reported and expenses claimed.

These documents include tenancy agreements, mortgage interest statements, invoices and receipts.

3. Incorrect expense claim

Expenses such as interest incurred on personal loans cannot be claimed as a tax deduction.

Taxpayers can claim interest only on the mortgage incurred directly when buying the property.

Property tax, fire insurance, commission paid to secure a subsequent tenant and expenses on repairs and maintenance are also deductible.

But expenses that are not allowable include loan repayments, depreciation of furniture and fittings, renovation costs, additions and alterations, agent's commission for securing the first tenant and legal expenses.

4. Personal reliefs

Mistakes are often made when claiming personal reliefs, especially Qualifying Child Relief and Parent Relief.

The income thresholds for both these reliefs have been raised from $2,000 to $4,000 with effect from the Year of Assessment 2010.

Child Relief is allowable if a taxpayer has maintained an unmarried child who earned less than $4,000 in the preceding year.

This includes income from working part-time or vacation jobs.

For example, Ah Hock (not his real name) claimed Child Relief on his son for the Years of Assessment 2007 to 2009.

His son was doing national service in 2006 and 2007 and received an allowance exceeding $2,000 a year.

In 2008, his son was studying full-time at a local university and did not have any income.

Since the income of Ah Hock's son exceeded $2,000 - which was the income threshold then - for the assessment years 2007 and 2008, the claim for Child Relief would be disallowed. But Ah Hock can make a claim for the 2009 assessment year.

Parent Relief can be claimed if the parent is at least 55 and did not have income - including part-time salary and rental - exceeding $4,000 in the previous year.

A common mistake among siblings is that they claim this relief on the same parent.

Some also claimed this relief even though the age or income criteria of their parents were not met.



COMMON FILING MISTAKES BY SELF-EMPLOYED TAXPAYERS

1. Entering income in the wrong category

Self-employed people often incorrectly report their incomes under 'Employment' or 'Other Income' on the tax return form.

But taxpayers who are carrying on a trade, business, profession or vocation must declare income under 'Trade'.

The self-employed also need to prepare the simplified 'four-line statement' stating turnover, gross profit, allowable business expenses and adjusted profit/loss if gross turnover is more than $100,000.

If gross turnover is less than $100,000, a 'two-line statement' - the gross commission and adjusted profit/loss - must be declared instead.

And if revenue is $500,000 or more, a certified statement of accounts must be submitted with the tax return.

2. Incorrect expense claims

Private and domestic expenses are not deductible for tax purposes against business income.

These include club membership subscriptions, personal insurance, travelling expenses on personal trips, family holiday expenses, medical expenses, private entertainment, domestic utilities and telephone charges.

And claims of motor vehicle expenses, including petrol, repair and maintenance, insurance, parking fees, Central Business District charges and hire purchase interest in respect of private vehicles are specifically prohibited under the Income Tax Act.

'These expenses are not deductible even if they are incurred in the course of business,' said the Inland Revenue Authority of Singapore (Iras).

3. Unsupported estimates of expenses

Claims of expenses against income should be made based on actual amounts incurred for the business, with supporting receipts and invoices.

Incomplete, sketchy records with merely approximate amounts are inadequate and unacceptable for tax purposes.

4. Failure to maintain business records

You should keep adequate business records for at least five years so the Iras can easily ascertain your income and allowable business expenses.

Unfortunately, some people believe they do not need to keep records, but it makes good sense as it gives you a fallback in case the taxman decides to do an audit.

lorna@sph.com.sg


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Mar 21, 2010

Penalties for filing wrongly

Filing an incorrect tax return is an offence and one that can bring severe penalties.

Negligent taxpayers

If you submit an incorrect return, you can be fined up to two times the amount of tax undercharged. In addition, you could find yourself facing a fine of up to $5,000 or jail for up to three years, or both.

Wilful taxpayers

Anyone who evades tax or helps someone else do so faces a penalty of three times the amount of tax undercharged. There may also be a fine of up to $10,000 or jail for up to three years, or both.

Voluntary compliance

Taxpayers who have made errors or submitted incorrect returns are encouraged to come forward to disclose errors or omissions and to get their tax affairs in order.

As an incentive, Iras has reduced the penalty for voluntary disclosures which meet certain qualifying conditions.

The penalty for voluntary disclosures made by individual taxpayers within a grace period of one year from the statutory filing date of April 15 will be waived.

Voluntary disclosures made after the grace period will incur a standard reduced penalty rate of 5 per cent a year if these disclosures meet qualifying conditions.

Refer to Iras e-Tax Guide on 'Iras Voluntary Disclosure Programme' or www.iras.gov.sg/irashome/vdp.aspx for further details.

If you want to disclose past errors in your returns, e-mail iit_compliance@iras.gov.sg or call 6351-3122 or 6351-3121.