Draft BDO Raffles Newsletter April 2005.pmd

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<strong>BDO</strong> RAFFLES CONNECTIRAS Circular On Change To Assess The Income Of A HusbandAnd Wife As Separate IndividualsObjectiveIn line with the government’s objective tocontinuously streamline rules and regulations,IRAS has reviewed the way married couples arebeing assessed and decided to adopt the separateassessment basis instead of the current combinedassessment basis. With effect from year ofassessment (YA) 2005, the income of a husbandand wife will be assessed as separate individuals,i.e. separate assessment will be used as thedefault mode of assessment under the Income TaxAct instead of the wife having to elect for separateassessment previously.Rationale for the Tax ChangesSocial changesToday, the social context in Singapore haschanged. More married woman are working anddual income families are also becoming the norm.Our current tax system does not reflect such shiftsin our society and hence needs to be updated.Service to taxpayersBrief Description of the Tax Changes andImplementation ProceduresUnder the new policy, a married man will beallowed to claim the full amount of wife relief of$2,000 as long as his wife’s incomechargeable in her own name is not more than$2,000 in the preceding year for that Year ofAssessment.The allowance of transfer of qualifyingdeductions between spouses who areseparately assessed.Any qualifying deductions should first beset off against the assessable income ofthe taxpayer whose activities gave riseto the deductions. Any excess can thenbe transferred to the spouse in the orderof capital allowance, trade loss followedby donations. The transferee must haveassessable income available before thetransfer can be allowed. The amountavailable for transfer is restricted to theassessable income of the transferee.The allowance of transfer of rental deficitof one spouse to be set off strictly againstthe rental income of the other spouse.As the combined assessments would generallyattract a higher marginal tax rate and to eliminatethe need for married women to elect for separateassessment yearly, the combined assessmentbasis would no longer be the default mode ofassessment for married couples with effect from YA2005.With effect from the Year of Assessment2005, a married woman would be sent anincome tax return separately from herhusband. She would be required todeclare her income and claim fordeductions, and be assessed separatelythereon.For the transfer to take place, an electionhas to be made by both spouses. Theelection for the transfer is to be made byboth spouses on a year-to-year basis.The election is not made at the time ofsubmission of Returns but has to be madebefore the end of 30 days from the dateof notice of assessment of the individualor his spouse, whichever is the later.The election once made is irrevocable.Article contributed by Simon Poh of our Tax DepartmentTel: 6828-9182 Fax: 6828-9111 Email: simonpoh@bdo.com.sg4
<strong>BDO</strong> RAFFLES CONNECTFRS 103, Revised FRS 36 and Revised FRS 38:International Convergence On The Accounting Of Business CombinationsIntroductionThe Singapore Council on Corporate Disclosureand Governance (“CCDG”) issued the new FRS103 Business Combinations and theconsequential revised FRS 36 Impairment ofAssets and FRS 38 Intangible Assets on 1 July2004 to be effective for financial periods beginningon or after 1 July 2004.The new FRS 103, which replaces FRS 22Business Combinations, is CCDG’s adoption ofInternational Financial Reporting Standards 103(“IFRS 103”) Business Combinations publishedby the International Accounting Standards Board(“IASB”) in March 2004, which seeks to align theIFRS to US GAAP.Early adoption or retrospective application of thisstandard is permitted only if the necessaryconditions are met which include the requirementfor entities to have had access, at the time of eachacquisition, to the fair value information foracquired identifiable assets, liabilities andcontingent liabilities. The revised FRS 36 and 38will also have to be applied retrospectively fromthe same date as FRS 103.Management will need a thorough understandingof this new standard as it potentially hassignificant implications on the financial reportingof an entity’s merger and acquisition.This article provides an overview of the scope andmajor requirements of the new FRS 103 andamendments to FRS 36 and FRS 38.Scope and definitions of FRS 103FRS 103 applies when an entity enters into abusiness combination, i.e. when separate entitiesor businesses are brought together into areporting entity. However, FRS 103 excludes fromits scope business combinations under commoncontrol as well as those formed by contract alonewithout an ownership interest by the reportingentity.Major requirementsThe uniting of interests method previously allowedunder FRS 22 when it was not possible to identifyan acquirer is no longer allowed under FRS 103.Now, only the purchase method of accounting canbe used for all business combinations within thescope of FRS 103.An acquirer will therefore have to be identified forall business combinations and the fair value of allthe acquiree’s identifiable assets, liabilities andcontingent liabilities will have to be determined.The measurement for the costs of businesscombinations remains unchanged from FRS 22.Acknowledging the difficulties in identifying anacquirer for some business combinationtransactions, indicators are provided by FRS 103as guidance to assist in the identification process.Detailed guidance on reverse acquisitions is alsonow provided in FRS 103.The benchmark treatment in FRS 22 in measuringthe minority’s share of its identifiable assets andliabilities at the book value is now prohibited, asFRS 103 requires the minority interests in theacquiree to be stated at the minority’s share of thenet fair value of the acquiree’s identifiable assets,liabilities and contingent liabilities determined.Even though FRS 22 requires the intangibleassets acquired in a business combination to beseparately recognised from goodwill, in practice,these intangible assets have always largely beensubsumed in goodwill on the basis that theseparability and identifiability criteria are difficult tomeet. The new FRS 103 now expands theidentifiability of intangible assets to those arisingfrom contractual or other legal rights, regardless ofwhether those rights are transferable or separablefrom the acquiree.Article contributed by Elsa Neoh Su Mei of our Audit DepartmentTel: 6828-9187 Fax: 6828-9111 Email: elsaneoh@bdo.com.sg5
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