Question 1 Soda Crush Media Pte Ltd (Soda Crush), a Singapore incorporated company, is in the...

 

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Question 1 Soda Crush Media Pte Ltd ("Soda Crush"), a Singapore incorporated company, is in the business of designing and distributing digital games. It was incorporated on 15 December 2015 and its first set of accounts was for the period ended 30 September 2016. Its shares are equally held by Jordan Woods, Abel Tanaka, Cyn Wong and Tyga Lee, avid e-gamers who met in high school in Country X Except for Tyga who is a Singapore citizen, the other 3 shareholders are foreign citizens who have taken up residence in Singapore. The shareholders are also the directors of the company and they hold their directors' meetings in Singapore. For the financial year ended 30 September 2022, the company made a net profit before tax of $1,380,000 on turnover of $35,000,000. The profit was arrived at after taking into consideration the following income and expenses: Income: S Rental income from renting out excess office space at $6,000 per month from December 2021. The space was left vacant and unused for the first 2 months of the financial year. This is the first time the company had derived rental 60,000 income. Interest accrued on a 6-month fixed deposit maturing on 30 November 2022. The fixed deposit was placed with OCBC Bank, an approved bank in Singapore. 50,000 Dividend income from shares held in Queen Limited ("Queen"), a company tax resident in Country Y which has a headline tax rate of 10%. Country Y does not impose dividend withholding tax. The proceeds from the dividend, paid out of after-tax profits in Country Y, were used to settle the first instalment payment due on 15 October 2022 for computing equipment purchased from Country Y. 105,000 Soda Crush is not entitled to relief for any foreign tax suffered on the dividend. Payout under Enabling Employment Credit Scheme which is given to employers to support their employment of qualifying persons with disabilities. 17,800 Grant from a private foundation to fund a project jointly undertaken by Soda Crush with a school in Singapore to develop new gaming devices. 25,000 Expenses: Annual direct expenses related to excess office space rented out 42,000 Depreciation charge for the year 570,000 Legal and professional fees for: Vetting the 2-year tenancy agreement with new tenant Debt recovery from customers Preparation of tax retum for expatriate general manager 5,000 28,000 13,000 Employee remuneration benefits include the following: Income tax borne on behalf of the company's expatriate general manager per the terms of the employment contract 20,500 Staff salaries, bonus and CPF 11,500,000 Cash allowance for staff medical consultation 55,000 Medical insurance premium; the company has not implemented the Portable Medical Benefits Scheme (PMBS) 180,000 Interest paid to banks for: Purchase of new computing equipment Purchase of shares in Queen Ltd 48,000 15,000 Transport expenses in relation to: Reimbursement to employees for use of their personal cars for business purposes. 45,000 Reimbursement of staff transport claims due to overtime work as follows: 30,800 Taxi fares: $18,000 Chauffeured private hire cars: $10,300 Private hire cars from carsharing apps like GetGo: $2,500 Donation made to Tan Ah Moi Home for the Aged, an Institution of Public Character on 15 December 2021 as follows: 24,000 Cash donation of $10,000 Food supplies costing $14,000 Additional information: (1) The company commenced non-structural renovation works at its office premises in financial year 2021 with costs incurred and capitalized to the Balance Sheet as follows: • $184,500 in year ended 30 September 2021 $126,900 in year ended 30 September 2022 The costs incurred was for flooring, tiling works, fixed partition and plumbing works. The company will be electing to claim maximum deduction, where applicable. The last Section 14N compliant costs of $120,000 were incurred in financial year 2019 and there were no such costs incurred prior to that. (2) The company is entitled to capital allowances claim of $550,000 for Year of Assessment 2023. Required: (a) Apply the relevant exemptions and deduction rules and construct the tax computation for the Year of Assessment 2023. Every line item of income and expense given (as underlined) must be accounted for in the tax computation. Where no adjustment is required, please insert "0". Please show your workings, where necessary, to indicate how you arrive at the amounts adjusted for each income and expense/deduction category. In arriving at statutory income, all items of income from each non-trade/foreign source must be accounted for. If an item of non-trade/foreign income is not taxable, please insert "0". All related expenses should also be accounted for. If the expense is not deductible, please insert "0". Show all workings clearly as application marks will be awarded even if the answer is incorrect. (b) (40 marks) For each of the expense identified as not deductible in arriving at the adjusted profit, please explain the basis of your adjustment, i.e. why it is not deductible. (10 marks) (c) Soda Crush is contemplating the following investments in the coming year: Purchase of office building as the company finds it challenging to manage their real estate needs using rental premises as their business is expected to grow with the exponential growth in demand for their e-games in recent years. The building will be used primarily for the business and any excess space will be rented out if there is no immediate need for the space. The company has been offered 10% equity investment in King Entertainment Inc. ("King"), a company tax resident in Country Z which has a headline tax rate of 15%. Country Z does not impose dividend withholding tax. King is an up-and-coming e-game developer and the money raised through the current equity injection exercise is to finance the further growth and development of King before it embarks on an initial public offering (IPO"), expected to take place in the next 4 to 6 years. Meanwhile, King is projected to be highly profitable and dividends are expected to be paid to its shareholders annually. Soda Crush is considering financing the purchase of the above investments through: . • (i) (111) Share capital injection Bank loans Partial disposal of shares in Queen, a public listed company in Country Y. The investment has been held since financial year 2016 and it was purchased for long-term holding purposes as the dividend retums were deemed to be attractive. Soda Crush did not dispose of any of its shareholdings when Queen was listed on the stock exchange. Its current shareholding is 10% and Soda Crush does not intend to sell more than 5% of its current holdings. Explain the Singapore income tax implications of each of the above mode of financing. You are to address the income tax implications of the receipt of funds from each mode as well as the expense or outlay in relation to each mode. (25 marks) Discuss the merits or disadvantages of using each mode of financing to purchase the proposed investment. (17 marks) Provide your recommendations of the most tax efficient way in which Soda Crush should finance each of the above investment and explain the basis of your recommendations. (8 marks) Question 1 Soda Crush Media Pte Ltd ("Soda Crush"), a Singapore incorporated company, is in the business of designing and distributing digital games. It was incorporated on 15 December 2015 and its first set of accounts was for the period ended 30 September 2016. Its shares are equally held by Jordan Woods, Abel Tanaka, Cyn Wong and Tyga Lee, avid e-gamers who met in high school in Country X Except for Tyga who is a Singapore citizen, the other 3 shareholders are foreign citizens who have taken up residence in Singapore. The shareholders are also the directors of the company and they hold their directors' meetings in Singapore. For the financial year ended 30 September 2022, the company made a net profit before tax of $1,380,000 on turnover of $35,000,000. The profit was arrived at after taking into consideration the following income and expenses: Income: S Rental income from renting out excess office space at $6,000 per month from December 2021. The space was left vacant and unused for the first 2 months of the financial year. This is the first time the company had derived rental 60,000 income. Interest accrued on a 6-month fixed deposit maturing on 30 November 2022. The fixed deposit was placed with OCBC Bank, an approved bank in Singapore. 50,000 Dividend income from shares held in Queen Limited ("Queen"), a company tax resident in Country Y which has a headline tax rate of 10%. Country Y does not impose dividend withholding tax. The proceeds from the dividend, paid out of after-tax profits in Country Y, were used to settle the first instalment payment due on 15 October 2022 for computing equipment purchased from Country Y. 105,000 Soda Crush is not entitled to relief for any foreign tax suffered on the dividend. Payout under Enabling Employment Credit Scheme which is given to employers to support their employment of qualifying persons with disabilities. 17,800 Grant from a private foundation to fund a project jointly undertaken by Soda Crush with a school in Singapore to develop new gaming devices. 25,000 Expenses: Annual direct expenses related to excess office space rented out 42,000 Depreciation charge for the year 570,000 Legal and professional fees for: Vetting the 2-year tenancy agreement with new tenant Debt recovery from customers Preparation of tax retum for expatriate general manager 5,000 28,000 13,000 Employee remuneration benefits include the following: Income tax borne on behalf of the company's expatriate general manager per the terms of the employment contract 20,500 Staff salaries, bonus and CPF 11,500,000 Cash allowance for staff medical consultation 55,000 Medical insurance premium; the company has not implemented the Portable Medical Benefits Scheme (PMBS) 180,000 Interest paid to banks for: Purchase of new computing equipment Purchase of shares in Queen Ltd 48,000 15,000 Transport expenses in relation to: Reimbursement to employees for use of their personal cars for business purposes. 45,000 Reimbursement of staff transport claims due to overtime work as follows: 30,800 Taxi fares: $18,000 Chauffeured private hire cars: $10,300 Private hire cars from carsharing apps like GetGo: $2,500 Donation made to Tan Ah Moi Home for the Aged, an Institution of Public Character on 15 December 2021 as follows: 24,000 Cash donation of $10,000 Food supplies costing $14,000 Additional information: (1) The company commenced non-structural renovation works at its office premises in financial year 2021 with costs incurred and capitalized to the Balance Sheet as follows: • $184,500 in year ended 30 September 2021 $126,900 in year ended 30 September 2022 The costs incurred was for flooring, tiling works, fixed partition and plumbing works. The company will be electing to claim maximum deduction, where applicable. The last Section 14N compliant costs of $120,000 were incurred in financial year 2019 and there were no such costs incurred prior to that. (2) The company is entitled to capital allowances claim of $550,000 for Year of Assessment 2023. Required: (a) Apply the relevant exemptions and deduction rules and construct the tax computation for the Year of Assessment 2023. Every line item of income and expense given (as underlined) must be accounted for in the tax computation. Where no adjustment is required, please insert "0". Please show your workings, where necessary, to indicate how you arrive at the amounts adjusted for each income and expense/deduction category. In arriving at statutory income, all items of income from each non-trade/foreign source must be accounted for. If an item of non-trade/foreign income is not taxable, please insert "0". All related expenses should also be accounted for. If the expense is not deductible, please insert "0". Show all workings clearly as application marks will be awarded even if the answer is incorrect. (b) (40 marks) For each of the expense identified as not deductible in arriving at the adjusted profit, please explain the basis of your adjustment, i.e. why it is not deductible. (10 marks) (c) Soda Crush is contemplating the following investments in the coming year: Purchase of office building as the company finds it challenging to manage their real estate needs using rental premises as their business is expected to grow with the exponential growth in demand for their e-games in recent years. The building will be used primarily for the business and any excess space will be rented out if there is no immediate need for the space. The company has been offered 10% equity investment in King Entertainment Inc. ("King"), a company tax resident in Country Z which has a headline tax rate of 15%. Country Z does not impose dividend withholding tax. King is an up-and-coming e-game developer and the money raised through the current equity injection exercise is to finance the further growth and development of King before it embarks on an initial public offering (IPO"), expected to take place in the next 4 to 6 years. Meanwhile, King is projected to be highly profitable and dividends are expected to be paid to its shareholders annually. Soda Crush is considering financing the purchase of the above investments through: . • (i) (111) Share capital injection Bank loans Partial disposal of shares in Queen, a public listed company in Country Y. The investment has been held since financial year 2016 and it was purchased for long-term holding purposes as the dividend retums were deemed to be attractive. Soda Crush did not dispose of any of its shareholdings when Queen was listed on the stock exchange. Its current shareholding is 10% and Soda Crush does not intend to sell more than 5% of its current holdings. Explain the Singapore income tax implications of each of the above mode of financing. You are to address the income tax implications of the receipt of funds from each mode as well as the expense or outlay in relation to each mode. (25 marks) Discuss the merits or disadvantages of using each mode of financing to purchase the proposed investment. (17 marks) Provide your recommendations of the most tax efficient way in which Soda Crush should finance each of the above investment and explain the basis of your recommendations. (8 marks)

Answer rating: 100% (QA)

The following are the adjustments needed to calculate the taxable income for Soda Crush Media Pte Ltd for the financial year ended 30 September 2022 1 ... View the full answer