BAD DEBTS RELIEF

BAD DEBTS RELIEF

 

 

BAD DEBTS RELIEF

Goods and Services Tax or GST is a broad-based consumption tax levied on the import of goods (collected by Singapore Customs), as well as nearly all supplies of goods and services in Singapore.

All Singapore companies must register for GST if their annual taxable revenue is more than S$1 million, or if their current taxable income and annual taxable revenue is expected to be more than S$1 million. The business must register for GST within thirty days from the time it is deemed liable. ou may also choose to voluntarily register for GST. Approval for voluntary registration is at the discretion of the IRAS Comptroller. Once approval is given, you must remain registered for at least two years. GST must be charged on the supplies at the prevailing rate. GST that is charged on the supplies is termed as Output tax and GST on purchases is termed as Input Tax. If your business satisfies the conditions for claiming input tax, you can claim the input tax on your business purchases and expenses.

Supplies are classified into

  1. Standard rated supplies – Most of the sale of goods and services fall under this category
  2. Zero-rated Supplies – Export of goods and services that are classified as International services
  3. Exempt supplies – Supplies for which GST is not applicable
  4. Out of scope Supplies – Supplies that are out of the scope of GST.

Output tax will be accounted when an invoice is issued or when payment is received.

Input tax can be claimed if you are GST registered, goods or services have been supplied to you or goods have been imported by you, the goods or services will be used for the purpose of the business, the purchase is supported by a Tax invoice or simplified tax invoice, Imports must be supported with import permits.

A tax invoice is the main document for supporting an input tax claim. Your customer needs to keep this tax invoice as a supporting document to claim input tax on his standard-rated purchases. In general, a tax invoice should be issued within 30 days from the time of supply.

A tax invoice need not be issued for zero-rated supplies, exempt supplies and deemed supplies or to a non-GST registered customer.

Your tax invoice must also provide details on exempt, zero-rated, or other supplies, if applicable. The gross amount payable for each type of supply must also be separately stated.

DISALLOWED INPUT TAX CLAIMS

  • Benefits provided to the family members or relatives of your staff
  • Costs and running expenses incurred on private registered motor cars
  • Club subscription fees (including transfer fees) charged by sports and recreation clubs;
  • Expenses incurred on company cars of which the COE has been renewed or extended on or after 1 Apr 1998;
  • Expenses incurred on rental cars hired for use on or after 1 Jul 1999;
  • Medical expenses incurred for your staff unless they are obligatory under the Work Injury Compensation Act or under any collective agreement within the meaning of the Industrial Relations Act;
  • Medical and accident insurance premiums incurred for your staff unless the insurance or payment of compensation is obligatory under the Work Injury Compensation Act or under any collective agreement within the meaning of the Industrial Relations Act; and
  • Any transaction involving betting, sweepstakes, lotteries, fruit machines or games of chance 

Expenses Incurred by Employee on Behalf of the Company

Generally, you are not allowed to claim input tax for purchases if the tax invoices are not addressed to your company name.

However, input tax claims can be allowed if you can prove that your employee is acting as an agent of your company (i.e. the taxable person) in receiving the supply of goods or services.

For example, you should maintain evidence of reimbursements made to the employee and recognise the bills as business expenses in your accounts.

Please note that your input tax claims are also subject to the following conditions:

  1. You are a GST-registered business;
  2. The goods or services are used or to be used for the purpose of your business;
  3. The input tax is directly attributable to taxable supplies or out-of-scope supplies which would be taxable if made in Singapore; and
  4. The input tax claims are not disallowed expenses under Regulations

Bad Debts

When debts cannot be recovered, you may apply for bad debt relief to recover GST charged but unpaid by your customers. Should your customer subsequently pay you, you must repay the relief claimed.

A bad debt situation occurs when money that is owed cannot be recovered. You can apply for bad debt relief from the Comptroller of GST for return of the output tax previously accounted for and paid by you.

On the other hand, if you as a customer have not paid your supplier within 12 months from the due date of payment, you are required to repay to the Comptroller the input tax that you have previously claimed.

CIRCUMSTANCES UNDER WHICH A DEBTOR IS TREATED AS INSOLVENT 

If the debtor is an individual, the debtor is declared a bankrupt or a deed of arrangement is made for the benefit of his creditors or a composition or scheme of arrangement proposed by him.

Where the debtor is a company it is ordered by the court, to be wound up because it is unable to pay

Its debts within the meaning of the Companies Act; or to be placed under the judicial management

Of a judicial manager.

A receiver is appointed and the statement of affairs lodged with the Registrar of Companies shows that its assets would be insufficient to cover the payment of any dividend in respect of the debts which are neither secured nor preferential.

QUALIFYING FOR BAD DEBTS RELIEF

Goods or services have been supplied for money and the same has been accounted for and paid GST on the supply.

You have written off the whole or any part of the consideration for the supply as a bad debt in your accounts

12Months beginning from the date of supply has elapsed or the debtor has been declared insolvent before the 12 months period has elapsed.

Reasonable steps have been taken to recover the debts.

The value of the supply is equal to or less than its open market value

In the case of goods, the ownership must have been transferred to your customer

Reasonable Steps for Recovery of Bad Debts Relief

Before declaring as bad debt it is necessary that reasonable steps should be taken to recover the debts.The recovery of the debts depends on the size of the debts and the resources that are available.

It can be done  by issuing reminders to the attempting to reach them over emails/telephones etc

Issuing a formal demand notice

Refund for Bad debts Relief

Refund for Bad debts can be claimed if the following conditions are satisfied;

the value of the supply is equal to or less than its open market value

where the supply involved goods, the ownership must have been transferred to your customer; and

the claim was made within the following ”relevant periods”, i.e, 7 years of supplies made prior to Jan 2007 or 5 years of supplies made after Jan 2007 from the date of supply.

Computation of Bad debts relief

The computation of Bad Debts depends on whether there is a single or multiple supplies. The tax rate applied is 7% . When a single supply is made, the Bad debt relief claimable will be on( the value of supply -the payment received.)

In the case of multiple supplies, if the debtor specifies a part payment, then that payment will be deducted from the value of supply and bad debts relief will be claimed on the balance amount.When the Debtor does not specify the part payment, and if the payment is made against invoices outstanding on different dates, the payment can be adjusted in the chronological order. When the invoices are on the same day, the payment can be adjusted against those invoices for which payment can be adjusted in full and the Bad debt relief will be claimed on the balance amount.

REPAYMENT OF REFUND FOR BAD DEBT RELIEF

If you received a payment from your customer after you have received a refund from the Comptroller of GST for the bad debt relief, you should repay to the Comptroller the amount calculated.

CLAIMING BAD DEBT RELIEF

 You need not submit the self-review checklist to IRAS but you should keep it as part of your records. You may be asked to provide this checklist in the course of an audit.

TIME LIMIT FOR CLAIMING BAD DEBT RELIEF

 The bad debt relief claim has to be made within 5 years from the date of your supply.

REPAYING IRAS AFTER RECOVERING DEBTS 

When you recover a bad debt i.e. receive payment from your customer after you have claimed Bad Debt Relief, you should repay to the Comptroller the amount calculated according to the following formula

 

Amount to be repaid to IRAS  =  Amount of bad debt relief                         Amount of payment recd

                                                                                Claimed                               X             ———————————–

                                                                                                                                                Amount of outstanding 

 

CONCLUSION

 

Bad debt is a situation where you cannot recover the money that is owed, when debts cannot be recovered, you can apply for bad debt relief to recover the GST charged. Subsequently if the debts are recovered , the relief must be repaid to the IRAS.

 

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