On this page:
FRS 109 Tax Treatment
FRS 109 has replaced FRS 39 and applies to companies for financial years beginning on or after 1 Jan 2018.
Overview
To minimise tax adjustments, the tax treatment of financial assets and liabilities on revenue account that are recognised and measured under FRS 109 and Singapore Financial Reporting Standard (International) [SFRS(I)] 91 generally follows the accounting treatment. This tax treatment is termed as 'FRS 109 tax treatment’.
If your company adopts FRS 109 or SFRS(I) 9 for accounting purposes, it has to apply the FRS 109 tax treatment. Unlike the approach adopted for FRS 39, there is no option for your company to opt out of the FRS 109 tax treatment.
If your company does not need to comply with FRS 109 or SFRS(I) 9 for accounting purposes2, the FRS 109 tax treatment does not apply. However, your company may elect to apply the FRS 109 tax treatment by submitting a written application to the Comptroller of Income Tax. The option to apply the FRS 109 tax treatment is irrevocable once it is exercised.
1 SFRS(I) 9, which sets out the requirements for recognising and measuring financial instruments for companies that have issued or are in the process of issuing equity or debt instruments for trading in a public market in Singapore, is similar to FRS 109 except for the transition provisions.
2 For example, companies which qualify for and have chosen to comply with the Singapore Financial Reporting Standards for Small Entities do not need to comply with FRS 109 or SFRS(I) 9 for accounting purposes.
Impact of FRS 109 Tax Treatment
Financial Assets on Revenue Account
- Financial Assets Measured at Fair Value Through Profit or Loss ('FVTPL')
The alignment of tax treatment with FRS 109 and Singapore Financial Reporting Standard (International) [SFRS(I)] 9 accounting treatment means that all gains or losses (including the related exchange differences) in respect of financial assets on revenue account that are recognised in the profit and loss account are taxed as income or allowed as a deduction, regardless of whether the gains or losses are realised.
- Financial Assets Measured at Fair Value Through Other Comprehensive Income ('FVOCI')
Under FRS 109 and SFRS(I) 9, financial assets may be measured at fair value through other comprehensive income. For debt and equity instruments measured at FVOCI, the gain or loss that is recognised in other comprehensive income (OCI) (i.e. not in the profit and loss account) is not taxed or allowed as a deduction until it is realised.
For debt instruments on revenue account, at the time of de-recognition, the cumulative gains or losses previously recognised in OCI and now transferred from OCI to the profit and loss account are taxed or allowed as a deduction.
For equity instruments on revenue account, at the time of de-recognition, the cumulative gains or losses recognised and remaining in OCI (i.e. they are not transferred to the profit and loss account) are taxed or allowed as a deduction.
Example
Company X holds 1,000 shares in Company C on revenue account. The shares were acquired for $100,000 on 15 Jun 2018. Company X has a Dec financial year end and the Year of Assessment (YA) 2019 is the first YA that Company X adopts FRS 109. The shares in Company C are measured at FVOCI. As at 31 Dec 2018, the market value of the shares is $200,000.
During the year 2019, Company X sells the shares at $400,000.
The tax computations for the relevant YAs are as follows:
| Tax Computation | YA 2019 ($) | YA 2020 ($) |
|---|---|---|
| Taxable gain/ chargeable income | NIL | 300,000 (400,000 - 100,000) |
| Is tax payable by Company X? | No | Yes |
Impairment Losses of Financial Assets on Revenue Account
Under the FRS 39 incurred loss model, impairment losses are recognised in the profit and loss account when there is objective evidence of impairment as a result of loss events. FRS 109 and SFRS(I) 9, on the other hand, introduce an expected credit loss model where impairment losses may be recognised in the profit and loss account even when the loss event has not occurred (i.e. the financial instruments are not credit-impaired).
Under the FRS 109 tax treatment, only impairment losses recognised in the profit and loss account in respect of credit-impaired financial instruments on revenue account are allowable as a deduction. Such impairment losses that are allowed and subsequently reversed and recognised in the profit and loss account are subject to tax.
For impairment losses in respect of non-credit impaired financial instruments3, no deduction is allowable even if the financial instruments are on revenue account.
3 Non-credit impaired financial instruments include trade receivables, contract assets and lease receivables where the impairment losses of such receivables and assets are measured using the simplified approach provided under FRS 109.
Learn more about the income tax treatment arising from the adoption of FRS 109 – Financial Instruments (PDF, 576KB).
FRS 39 Tax Treatment
FRS 39 applies to companies for financial years beginning on or after 1 Jan 2005.
Overview
To minimise tax adjustments that companies have to make as a result of adopting FRS 39, the income tax treatment of financial assets and liabilities has been changed so as to be closer generally to the accounting treatment. The revised tax treatment is referred to as the 'FRS 39 tax treatment'.
The FRS 39 tax treatment is the default tax treatment for all companies who adopt FRS 39 for accounting purposes. However, if your company wishes to be subject to tax on a realisation basis (i.e. remain on pre-FRS 39 tax treatment) for its financial instruments on revenue account, it must elect in writing at the time of filing of its Corporate Income Tax Return in the first Year of Assessment (YA) that FRS 39 is adopted for accounting purposes.
Your company may elect for the FRS 39 tax treatment thereafter and this election for the FRS 39 tax treatment is irrevocable.
Impact of FRS 39 Tax Treatment
Under the FRS 39 tax treatment, the income tax treatment of financial instruments on revenue account is aligned with the accounting treatment under FRS 39.
Gains or losses recognised in the profit or loss account are taxed or allowed notwithstanding that such gains or losses are not realised.
Example 1
Company Y holds 1,000 shares in Company A on revenue account. The shares were acquired for $500,000 on 15 Jun 2017. Company Y has a Dec financial year end and the Year of Assessment (YA) 2018 is the first YA that Company Y is required to file a Corporate Income Tax Return. The market value of the 1,000 shares as at 31 Dec 2017 is $700,000.
During the year 2018, the 1,000 shares in Company A are sold for $300,000 and Company Y is liquidated shortly thereafter.
The tax computations for the relevant YAs are as follows:
Scenario 1: Under FRS 39 tax treatment
Company Y does not opt out of the FRS 39 tax treatment at the point of filing its YA 2018 Corporate Income Tax Return. It also claims Loss Carry-Back Relief in YA 2019.
| Tax Computation for YA 2018 | $ |
|---|---|
| Taxable gain/ chargeable income (700,000 - 500,000) | 200,000 |
| Is tax payable by Company Y? | Yes |
| Tax Computation for YA 2019 | $ |
|---|---|
| Adjusted loss (300,000 - 700,000) | 400,000 |
| Less: Loss carried back to YA 2018 (capped at maximum of $100,000) | (100,000) |
| Unabsorbed loss c/f | 300,000 |
| Is tax payable by Company Y? | No |
| Revised Tax Computation for YA 2018 | $ |
|---|---|
| Chargeable income | 200,000 |
| Less: Loss carried back from YA 2019 | (100,000) |
| Revised chargeable income | 100,000 |
| Is tax payable by Company Y? | Yes |
Scenario 2: Under pre-FRS 39 tax treatment
Company Y elects to remain on the pre-FRS 39 tax treatment at the point of filing its YA 2018 Corporate Income Tax Return.
| Tax Computation | YA 2018 ($) | YA 2019 ($) |
|---|---|---|
| Taxable gain/ chargeable income | NIL | NIL |
| Unabsorbed loss c/f | NIL | 200,000 (300,000 - 500,000) |
| Is tax payable by Company Y? | No | No |
Example 2
Company Z holds 1,000 shares in Company B on revenue account. The shares were acquired for $500,000 on 15 Jun 2017. Company Z has a Dec financial year end and YA 2018 is the first YA that Company Z is required to file a Corporate Income Tax Return. The market value of the 1,000 shares as at 31 Dec 2017 is $600,000.
During the year 2018, the 1,000 shares in Company B are sold for $700,000 and Company Z is liquidated shortly thereafter.
The tax computations for the relevant YAs are as follows:
Scenario 1: Under FRS 39 tax treatment
Company Z does not opt out of the FRS 39 tax treatment at the point of filing its YA 2018 Corporate Income Tax Return.
| Tax Computation for YA 2018 | $ |
|---|---|
| Taxable gain/ chargeable income (600,000 - 500,000) | 100,000 |
| Is tax payable by Company Z? | Yes |
| Tax Computation for YA 2019 | $ |
|---|---|
| Taxable gain/ chargeable income (700,000 - 600,000) | 100,000 |
| Is tax payable by Company Z? | Yes |
Scenario 2: Under pre-FRS 39 tax treatment
Company Z elects to remain on the pre-FRS 39 tax treatment at the point of filing its YA 2018 Corporate Income Tax Return.
| Tax Computation | YA 2018 ($) | YA 2019 ($) |
|---|---|---|
| Taxable gain/ chargeable income | NIL | 200,000 (700,000 - 500,000) |
| Is tax payable by Company Z? | No | Yes* |
* Under the pre-FRS 39 tax treatment, Company Z is taxed on its gain on sale of shares only on a realisation basis (i.e. in YA 2019).