July 2017

Tax update

Adjustments arising from

adoption of FRS 115

FRS 115 – Revenue from Contracts with Customers will be taking mandatory effect
on 1 January 2018. The adoption of FRS 115 will affect the way taxpayers
recognise their revenue and hence also have certain income tax implications. The
Inland Revenue Authority of Singapore (IRAS) had previously issued a public
consultation paper in October 2015 to provide guidance on their position regarding
such income tax implications.

The transitional tax adjustments arising from the adoption of FRS 115 have now
been included by the Ministry of Finance (MoF) as one of the amendments in the
draft Income Tax (Amendment) Bill launched for public consultation during the
period 19 June 2017 to 10 July 20171. A new section 34I of the Income Tax Act
(ITA) has been proposed.

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Available on the Ministry of Finance website
Background Comments
FRS 115 – Revenue from Contracts with Customers applies Notably, the income for the formula mentioned above is not
to all contracts that a business entity has with customers confined to only trade income but also any income subject
excluding certain exceptions. It is effective for annual to tax and exempt income. This means businesses with
periods beginning on or after 1 January 2018. However, transitional loss and significant exempt income in the initial
earlier adoption is permitted. YA or companies previously under tax incentive with
transitional profit and subject to normal rate in the initial
As revenue recognition plays a fundamental part in the YA will likely be adversely impacted.
preparation of a business entity’s financial statements,
which are then used for tax purposes, the adoption of FRS Clarifications, however are required on whether unremitted
115 has income tax implications for some taxpayers at current year foreign income (for e.g., foreign dividend
least in the transitional year. The IRAS issued a public income and foreign branch profits) is to be included in
consultation paper on 12 October 2015 to provide the formula.
guidance on its proposed positions on the income tax
implications arising from the adoption of FRS 115. It is also noted that the draft legislation is silent on the tax
adjustments for significant financing components
recognised as interest income or expenses.
IRAS’ proposed positions
The legislation as currently drafted is not final and is
The IRAS has taken the following proposed positions in its subject to changes, depending on the feedback received by
consultation paper to: the MoF. It is therefore imperative that businesses monitor
the development of this draft Income Tax (Amendment) Bill.
► Accept the accounting revenue determined in
accordance with FRS 115 as the revenue figure for tax
purposes except in certain situations If you would like to know more about EY services
or the issues discussed, please contact:
► Require tax adjustments for significant financing
components recognised as interest income or expenses
Chung-Sim Siew Moon
► Treat the profit or loss arising from transitional Partner and Head of Tax
adjustments as income or loss subject to tax under Ernst & Young Solutions LLP
section 10(1)(a) of the ITA in the year of assessment +65 6309 8807
relating to the year in which FRS 115 is first adopted siew-moon.sim@sg.ey.com
where the income is derived from a trade, business,
profession or vocation
Angela Tan
Proposed change in the draft Income Partner, Business Tax Services Leader
Ernst & Young Solutions LLP
Tax (Amendment) Bill 2017 +65 6309 8804
angela.tan@sg.ey.com
A new section 34I has been proposed in the draft Income
Tax (Amendment) Bill, which sets out the tax treatment of
any transitional gain or loss recognised upon adoption of Soh Pui Ming
FRS 115 by a person (including a partnership). This will Partner, Global Compliance and Reporting Leader
apply to the basis period of the first year of assessment Ernst & Young Solutions LLP
(YA) when FRS 115 is first adopted (initial YA). +65 6309 8215
pui.ming.soh@sg.ey.com
The proposed legislation is consistent with the thinking of
the IRAS set out in their consultation paper in
October 2015. Chai Wai Fook
Partner, Tax Accounting and
Any transitional gain or loss will be taxed or allowed a Risk Advisory Services
deduction based on the tax rate(s) applicable to the person Ernst & Young Solutions LLP
(or partner) for the initial YA. A formula is required to be +65 6309 8775
applied to the transitional gain or loss to determine the tax wai-fook.chai@sg.ey.com
rates applicable, based on the total income subject to tax
and income exempt from tax (if applicable) of the person
for the initial YA. Ivy Ng
Partner, Tax Accounting and
Risk Advisory Services
Ernst & Young Solutions LLP
+65 6309 8650
ivy.ng@sg.ey.com

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This material has been prepared for general informational purposes only and is
not intended to be relied upon as accounting, tax or other professional advice.
Please refer to your advisors for specific advice.

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