Note: With effect from 1 January 2024, foreign disposal gains may be taxable, notwithstanding the points below. Please see the separate article below.
Singapore does not tax capital gains but can tax disposal gains that are trade in nature.
The word ‘trade’ is not defined in the Income Tax Act. Whether a trade is being carried on is a question of fact. In determining whether a trade exists, certain factors are taken into consideration. All the factors are taken into consideration when determining whether a trade exists, and no single factor is conclusive.
1. Nature of Subject Matter
This refers tothe nature of the asset/ property that is bought and then sold. Some assets(e.g. commodities, manufactured items) are normally regarded as the subject oftrading while others, when not bought in quantity, are less likely to beregarded as trading (e.g. antiques, art work).
2. Length of Ownership
This refersto the holding period of the asset/ property in question. The shorter theholding period, the more likely it is regarded as held for trading.
3. Frequency of Transactions
A high frequency of similar transactions is more indicative oftrading than an isolated transaction.
4. Supplementary Work
This refers to additional work done on the asset/property in question to make it more marketable or extra effort made to find or attract purchasers. If this is done,it is more likely that the subsequent disposal is regarded as trading.
5. Circumstances of the Realisation
Some circumstances are less likely to be indicative of trading (e.g. company is forced to sell the property in question due to compulsory acquisition, sudden urgent need of cash or threat of foreclosure by creditors).
6. Motive
This refers to whether there was an intention to trade at the time of the acquisition of the asset/ property in question.
7. Mode of Financing
This refers to how the purchase of the asset/property in question is financed. Short-term financing is more indicative oftrading than long-term financing. The company's financial position and abilityto hold on to the property is also taken into consideration.
8. Other Factors
Other factors include whether there were any feasibility studies conducted, the accounting treatment adopted by the company, the availability of documentation or other evidence maintained by the company to indicate its intention.