Making mistakes while filing taxes is hardly an uncommon occurrence, but may well lead to unpleasant consequences.
According to the Inland Revenue Authority of Singapore (IRAS), all Singaporean citizens who make more than S$22,000 per annum are required to pay personal income taxes. For foreigners based in Singapore, if you have been in the country for more than 183 days and your annual income exceeds S$22,000, then you too are legally obliged to pay personal income taxes.
Singapore takes willful tax evasion very seriously. So let’s look at some of the most common tax filing mistakes made by taxpayers in Singapore.
Understating Your Income
This, according to the IRAS, is one of the most common mistakes made by companies in Singapore when filing their tax returns.
Sometimes companies accidentally may omit certain receipts or invoices documenting a sale. This omission is not looked on favourably by the tax authorities and is taken to mean that you are deliberately understating your income in order to escape paying more taxes. This is a costly mistake, which may well result in penalization of your business.
Other common mistakes made by companies in Singapore include passing non-deductible expenses as deductible ones, stating incorrect expenses, and a failure to maintain records for at least five years.
For these reasons, proper book keeping and hiring competent accountants who are well-versed with the land’s tax laws will be worth it, particularly, if you are new to the country.
Not Declaring Your Overseas Income
For those Singapore nationals who are based here but do a lot of traveling abroad as part of their work, it is mandatory to disclose the income you earn when you are overseas. Failure to do so may lead to a fine.
Note that this is only applicable to those Singaporeans who work abroad as part of their employment contract with a company in Singapore.
Even if you are employed abroad on behalf of the government of Singapore, your income will be taxable per the laws of this country. This is because you are working for an employer that is based here.
Not Mentioning Rental Income
All of your income is taxable, not just the salary you draw or the income via your main line of employment. Whether you own a full-fledged property that keeps bringing in regular rental income, or have put your small office for rent of late, it is all taxable because at the end of the day, it is your income.
A failure to report rental income, or filing it incorrectly is a commonly made mistake in this country.
Even within rental income, there are aspects that need to be taken into consideration when reporting your income from your rented property. For example, if you have installed new fittings or furniture in your rented property, on the basis of which you are charging more rent from your tenants, that too needs to be mentioned when filing tax returns.
In any case, you cannot deduct these expenses (or the commission paid to an estate agent) from your total rent received when making a tax claim, but need to state them separately.
Total gross rent, not estimates or net rent, is to be reported. Real estate agents, all your commissions are taxable, too.
Not Differentiating Between Types of Expenses
This is a problem typically faced by those who work for themselves. Self-employed people such as freelancers, taxi drivers, or those who run their business single-handedly, are required to file their tax returns as well as state all the expenses incurred as part of their business (if they are to claim them as deductible expenses).
They, however, sometimes confuse their business expenses with the personal/family expenses and claim them all as deductible expenses. Bear in mind that only business expenses can be claimed. For a better understanding of the topic, understand what “allowable and disallowable business expenses” for the self-employed in Singapore are.
All the payment received on your services or income earned by the sale of goods is taxable. You need to subtract the cost of doing business from the revenue and profit earned from it. Then further deduct allowable business expenses to arrive at the final figure.
For your own convenience, maintain a detailed record of all income you receive, no matter how minor it may seem at the time. You will need to submit documents of all your income as well as expenses at the time of filing returns, so this is a good habit to get into.
Reporting Taxes Based on Estimates
This is another recurring problem with taxpayers in Singapore. Whether it is property investors, real estate salesmen, or self-employed people, filing returns based on estimates instead of solid documented numbers has been seen to be a common occurrence.
Estimated expenses are often incorrect. In addition, they don’t stand when the IRAS asks for proof/supporting evidence for claims. So save yourself some grief, and calculate your taxes before filing your returns.
If you are unsure of how to do it, you can approach a professional accountant to help you out. They may charge a fee but they will make sure that your taxes are filed accurately and on time. They will also let you know of any exemptions that you may be eligible for. Filing incorrect returns is an error grave enough to incur penalties from the IRAS.