§ 34A — Adjustment on change of basis of computing profits of financial instruments resulting from FRS 39 or SFRS for Small Entities

34A.—(1) Despite the provisions of this Act, the amount of any profit or loss (as the case may be) or expense to be brought into account for the basis period for any year of assessment in respect of any financial instrument of a qualifying person for the purposes of sections 10, 14, 14G and 37 is that which, in accordance with FRS 39 or SFRS for Small Entities (as the case may be), is recognised in determining any profit or loss (as the case may be) or expense in respect of that financial instrument for that year of assessment.[39/2017]

(2) Despite subsection (1), the profit or loss or expense in respect of the financial instrument referred to in the following paragraphs is, for the purposes of sections 10, 14, 14G and 37, to be computed as follows:(a)

where a qualifying person to whom section 10(12)(b) applies derives interest from a negotiable certificate of deposit or derives a gain or profit from the sale thereof, the qualifying person’s income therefrom is treated in the manner set out in section 10(12);

(b)

where a qualifying person derives interest from debt securities or loans, and the interest is chargeable to tax under section 10(1)(d), such interest is to be computed based on the contractual interest rate and not the effective interest rate;[Act 33 of 2022 wef 04/11/2022]

(c)

any amount of profit or expense in respect of a loan for which no interest is payable is disregarded;

(d)

where the creditor and debtor of a loan agreement are not dealing with each other at arm’s length, only the interest income or the interest expense based on the contractual interest rate is chargeable to tax or allowed as a deduction, as the case may be;

(e)

in a case where section 14(1)(a) applies, only the interest expense incurred based on the contractual interest rate is allowed as a deduction under section 14(1)(a);

(f)

any amount of profit or loss in respect of a hedging instrument where the underlying asset or liability is employed or intended to be employed as capital is disregarded;

(g)

where a bank or qualifying finance company within the meaning of section 14G is unable to make provision for the amount of impairment losses in respect of a group of financial assets in accordance with FRS 39, but is required to make such provision by the Monetary Authority of Singapore, section 14G applies for a period of 5 years, or such further period as the Minister may allow, beginning from the year of assessment relating to the basis period in which the bank or qualifying finance company is first required to prepare financial accounts in respect of its trade or business in accordance with FRS 39;

(h)

a gain from discounts or premiums on debt securities, being a gain chargeable to tax under section 10(1)(d), is deemed —(i)

to accrue only on the maturity or redemption of the debt securities; and

(ii)

to be equal to the difference between the amount received on the maturity or redemption of the debt securities and the amount for which the debt securities were first issued;

(i)

in a case where a qualifying person issues debt securities at a discount or redeems issued debt securities at a premium, and section 14(1)(a) applies in respect of the outgoing represented by such discount or premium, such outgoing is deemed to be incurred and deductible only when it is paid on the maturity or redemption of the debt securities and —(i)

in the case of debt securities issued in the basis period relating to the year of assessment 2008 or subsequent years of assessment, to be equal to the difference between the amount paid on the maturity or redemption of the debt securities and the amount for which the debt securities were first issued; or

(ii)

in the case of debt securities issued before the basis period relating to the year of assessment 2008, to be equal to such part of the difference referred to in sub‑paragraph (i) that would be attributable to the year of assessment 2008 and subsequent years of assessment;

(j)

in a case where —(i)

a qualifying person issues debt securities at a discount or redeems issued debt securities at a premium;

(ii)

the debt securities were issued with an embedded derivative to acquire shares or units in the qualifying person; and

(iii)

the outgoing represented by such discount or premium is deductible under section 14(1),

such part of the outgoing that is attributable to the embedded derivative is not deductible.

(3) A person who is required to prepare or maintain financial accounts in accordance with FRS 39 may, subject to such conditions as the Comptroller may specify, elect in accordance with subsection (4) not to be subject to this section; and if the person so elects, the person is not treated as a qualifying person from the year of assessment relating to the basis period during which the person is first required to prepare financial accounts in accordance with FRS 39.

(3A) A person who prepares or maintains financial accounts in accordance with SFRS for Small Entities may, subject to such conditions as the Comptroller may specify, elect in accordance with subsection (4A) not to be subject to this section; and if the person so elects, the person is not treated as a qualifying person from the year of assessment relating to the basis period during which the person first prepares financial accounts in accordance with SFRS for Small Entities.

(3B) A person is not entitled to make an election under subsection (3) if the person is already subject to this section because the person did not make an election in accordance with subsection (4A), or the person had revoked under subsection (5) the person’s election made in accordance with subsection (4A).

(3C) A person is not entitled to make an election under subsection (3A) if the person is already subject to this section because the person did not make an election in accordance with subsection (4), or the person had revoked under subsection (5) the person’s election made in accordance with subsection (4).

(4) The election referred to in subsection (3) must be made by the person by written notice to the Comptroller —(a)

at the time of lodgment of the return of income for the year of assessment referred to in subsection (3); or

(b)

within such further time as the Comptroller may allow.

(4A) The election referred to in subsection (3A) must be made by the person by written notice to the Comptroller —(a)

at the time of lodgment of the return of income for the year of assessment referred to in that subsection; or

(b)

within such further time as the Comptroller may allow.

(5) A person who has made an election under subsection (3) or (3A) may at any time revoke the election by written notice to the Comptroller; and if the person so revokes, the person is treated as a qualifying person from the year of assessment relating to the basis period during which the revocation is made or such year of assessment as the Comptroller may approve.

(6) The revocation under subsection (5) is irrevocable.

(7) A person who is not required to prepare or maintain financial accounts in accordance with FRS 39 or SFRS for Small Entities may apply to the Comptroller in writing for approval to be subject to this section and, if the Comptroller approves the application, that person is treated as a qualifying person from the year of assessment relating to the basis period during which the approval is granted or such later year of assessment as the Comptroller may approve.

(8) The provisions of this section pertaining to FRS 39 have effect for any basis period beginning on or after 1 January 2005; and the provisions of this section pertaining to SFRS for Small Entities have effect for any basis period beginning on or after 1 January 2011.

(9) For the purposes of this section, the Minister may make regulations —(a)

to provide for such transitional, supplementary and consequential matters as the Minister may consider necessary or expedient; and

(b)

generally to give effect to or for carrying out the purposes of this section.

(10) In this section —“contractual interest rate”, in relation to any financial instrument, means the interest rate specified in the financial instrument;

“debt securities” has the meaning given by section 43H(4);

“FRS 39” means the financial reporting standard known as Financial Reporting Standard 39 (Financial Instruments: Recognition and Measurement) that is treated as made by the Accounting Standards Committee under Part 3 of the Accounting Standards Act 2007, as amended from time to time;[Act 36 of 2022 wef 01/04/2023]

“Monetary Authority of Singapore” means the Monetary Authority of Singapore established under section 3 of the Monetary Authority of Singapore Act 1970;

“qualifying person”, in relation to any year of assessment, means —(a)

a person who is required to prepare or maintain financial accounts in accordance with FRS 39 and who has not made an election under subsection (3) for that year of assessment;

(b)

a person who prepares or maintains financial accounts in accordance with SFRS for Small Entities and who has not made an election under subsection (3A) for that year of assessment; or

(c)

a person who is treated as a qualifying person under subsection (5) or (7) for that year of assessment,

as the case may be, but excludes a person who is treated under section 34AA(6) as a qualifying person for that year of assessment for the purposes of section 34AA;

“SFRS for Small Entities” means the financial reporting standard known as Singapore Financial Reporting Standard for Small Entities made by the Accounting Standards Committee under Part 3 of the Accounting Standards Act 2007, as amended from time to time.[45/2018]

[Act 36 of 2022 wef 01/04/2023]

(11) Any term used in this section and not defined in this section but defined in FRS 39 or SFRS for Small Entities (as the case may be) has the same meaning as in FRS 39 or SFRS for Small Entities (as the case may be).

(12) This section does not apply to any profit, loss or expense in respect of any financial instrument of an insurer as defined in section 34AAA(1), to be brought into account for the basis period for a year of assessment, being a basis period that begins on or after 1 January 2023, or such earlier basis period as may be approved by the Comptroller in a particular case.[Act 33 of 2022 wef 04/11/2022]

—(1) Despite the provisions of this Act, the amount of any profit or loss (as the case may be) or expense to be brought into account for the basis period for any year of assessment in respect of any financial instrument of a qualifying person for the purposes of sections 10, 14, 14G and 37 is that which, in accordance with FRS 39 or SFRS for Small Entities (as the case may be), is recognised in determining any profit or loss (as the case may be) or expense in respect of that financial instrument for that year of assessment.[39/2017]

(2) Despite subsection (1), the profit or loss or expense in respect of the financial instrument referred to in the following paragraphs is, for the purposes of sections 10, 14, 14G and 37, to be computed as follows:(a)

where a qualifying person to whom section 10(12)(b) applies derives interest from a negotiable certificate of deposit or derives a gain or profit from the sale thereof, the qualifying person’s income therefrom is treated in the manner set out in section 10(12);

(b)

where a qualifying person derives interest from debt securities or loans, and the interest is chargeable to tax under section 10(1)(d), such interest is to be computed based on the contractual interest rate and not the effective interest rate;[Act 33 of 2022 wef 04/11/2022]

(c)

any amount of profit or expense in respect of a loan for which no interest is payable is disregarded;

(d)

where the creditor and debtor of a loan agreement are not dealing with each other at arm’s length, only the interest income or the interest expense based on the contractual interest rate is chargeable to tax or allowed as a deduction, as the case may be;

(e)

in a case where section 14(1)(a) applies, only the interest expense incurred based on the contractual interest rate is allowed as a deduction under section 14(1)(a);

(f)

any amount of profit or loss in respect of a hedging instrument where the underlying asset or liability is employed or intended to be employed as capital is disregarded;

(g)

where a bank or qualifying finance company within the meaning of section 14G is unable to make provision for the amount of impairment losses in respect of a group of financial assets in accordance with FRS 39, but is required to make such provision by the Monetary Authority of Singapore, section 14G applies for a period of 5 years, or such further period as the Minister may allow, beginning from the year of assessment relating to the basis period in which the bank or qualifying finance company is first required to prepare financial accounts in respect of its trade or business in accordance with FRS 39;

(h)

a gain from discounts or premiums on debt securities, being a gain chargeable to tax under section 10(1)(d), is deemed —(i)

to accrue only on the maturity or redemption of the debt securities; and

(ii)

to be equal to the difference between the amount received on the maturity or redemption of the debt securities and the amount for which the debt securities were first issued;

(i)

in a case where a qualifying person issues debt securities at a discount or redeems issued debt securities at a premium, and section 14(1)(a) applies in respect of the outgoing represented by such discount or premium, such outgoing is deemed to be incurred and deductible only when it is paid on the maturity or redemption of the debt securities and —(i)

in the case of debt securities issued in the basis period relating to the year of assessment 2008 or subsequent years of assessment, to be equal to the difference between the amount paid on the maturity or redemption of the debt securities and the amount for which the debt securities were first issued; or

(ii)

in the case of debt securities issued before the basis period relating to the year of assessment 2008, to be equal to such part of the difference referred to in sub‑paragraph (i) that would be attributable to the year of assessment 2008 and subsequent years of assessment;

(j)

in a case where —(i)

a qualifying person issues debt securities at a discount or redeems issued debt securities at a premium;

(ii)

the debt securities were issued with an embedded derivative to acquire shares or units in the qualifying person; and

(iii)

the outgoing represented by such discount or premium is deductible under section 14(1),

such part of the outgoing that is attributable to the embedded derivative is not deductible.

(3) A person who is required to prepare or maintain financial accounts in accordance with FRS 39 may, subject to such conditions as the Comptroller may specify, elect in accordance with subsection (4) not to be subject to this section; and if the person so elects, the person is not treated as a qualifying person from the year of assessment relating to the basis period during which the person is first required to prepare financial accounts in accordance with FRS 39.

(3A) A person who prepares or maintains financial accounts in accordance with SFRS for Small Entities may, subject to such conditions as the Comptroller may specify, elect in accordance with subsection (4A) not to be subject to this section; and if the person so elects, the person is not treated as a qualifying person from the year of assessment relating to the basis period during which the person first prepares financial accounts in accordance with SFRS for Small Entities.

(3B) A person is not entitled to make an election under subsection (3) if the person is already subject to this section because the person did not make an election in accordance with subsection (4A), or the person had revoked under subsection (5) the person’s election made in accordance with subsection (4A).

(3C) A person is not entitled to make an election under subsection (3A) if the person is already subject to this section because the person did not make an election in accordance with subsection (4), or the person had revoked under subsection (5) the person’s election made in accordance with subsection (4).

(4) The election referred to in subsection (3) must be made by the person by written notice to the Comptroller —(a)

at the time of lodgment of the return of income for the year of assessment referred to in subsection (3); or

(b)

within such further time as the Comptroller may allow.

(4A) The election referred to in subsection (3A) must be made by the person by written notice to the Comptroller —(a)

at the time of lodgment of the return of income for the year of assessment referred to in that subsection; or

(b)

within such further time as the Comptroller may allow.

(5) A person who has made an election under subsection (3) or (3A) may at any time revoke the election by written notice to the Comptroller; and if the person so revokes, the person is treated as a qualifying person from the year of assessment relating to the basis period during which the revocation is made or such year of assessment as the Comptroller may approve.

(6) The revocation under subsection (5) is irrevocable.

(7) A person who is not required to prepare or maintain financial accounts in accordance with FRS 39 or SFRS for Small Entities may apply to the Comptroller in writing for approval to be subject to this section and, if the Comptroller approves the application, that person is treated as a qualifying person from the year of assessment relating to the basis period during which the approval is granted or such later year of assessment as the Comptroller may approve.

(8) The provisions of this section pertaining to FRS 39 have effect for any basis period beginning on or after 1 January 2005; and the provisions of this section pertaining to SFRS for Small Entities have effect for any basis period beginning on or after 1 January 2011.

(9) For the purposes of this section, the Minister may make regulations —(a)

to provide for such transitional, supplementary and consequential matters as the Minister may consider necessary or expedient; and

(b)

generally to give effect to or for carrying out the purposes of this section.

(10) In this section —“contractual interest rate”, in relation to any financial instrument, means the interest rate specified in the financial instrument;

“debt securities” has the meaning given by section 43H(4);

“FRS 39” means the financial reporting standard known as Financial Reporting Standard 39 (Financial Instruments: Recognition and Measurement) that is treated as made by the Accounting Standards Committee under Part 3 of the Accounting Standards Act 2007, as amended from time to time;[Act 36 of 2022 wef 01/04/2023]

“Monetary Authority of Singapore” means the Monetary Authority of Singapore established under section 3 of the Monetary Authority of Singapore Act 1970;

“qualifying person”, in relation to any year of assessment, means —(a)

a person who is required to prepare or maintain financial accounts in accordance with FRS 39 and who has not made an election under subsection (3) for that year of assessment;

(b)

a person who prepares or maintains financial accounts in accordance with SFRS for Small Entities and who has not made an election under subsection (3A) for that year of assessment; or

(c)

a person who is treated as a qualifying person under subsection (5) or (7) for that year of assessment,

as the case may be, but excludes a person who is treated under section 34AA(6) as a qualifying person for that year of assessment for the purposes of section 34AA;

“SFRS for Small Entities” means the financial reporting standard known as Singapore Financial Reporting Standard for Small Entities made by the Accounting Standards Committee under Part 3 of the Accounting Standards Act 2007, as amended from time to time.[45/2018]

[Act 36 of 2022 wef 01/04/2023]

(11) Any term used in this section and not defined in this section but defined in FRS 39 or SFRS for Small Entities (as the case may be) has the same meaning as in FRS 39 or SFRS for Small Entities (as the case may be).

(12) This section does not apply to any profit, loss or expense in respect of any financial instrument of an insurer as defined in section 34AAA(1), to be brought into account for the basis period for a year of assessment, being a basis period that begins on or after 1 January 2023, or such earlier basis period as may be approved by the Comptroller in a particular case.[Act 33 of 2022 wef 04/11/2022]