I had an accident a few weeks back and the issues I have encountered with reimbursement of my medical expenses through my company, company insurer and my personal hospitalization insurance have been a nightmare to say the least. As such I did a review of the tax law in relation to tax deductions for medical expenses. From my findings depending on your income levels and country of residence I highly recommend getting full medical cover.
Record Keeping II - What kind of records should you keep?
Depending on the country you pay your taxes the tax legislation may define specific requirements of the kinds documents you need to keep. You should choose a simple and effective system that clearly shows your income and expenses of your business.
Record Keeping I: a painful job for the small business
No matter what kind of business you run, you are required by tax law under all jurisdictions to keep financial records.&
There are a number of benefits to keeping accurate and up-to-date records:
Deductibility of Singapore Travel Expenses
In Singapore generally travel expenses are deductible for your business if you can substantiate the claim and prove that the expense was incurred in the "production of assessable income". Any expenses incurred for the use of a motor car are not eligible for a deduction except where the expense relates to
- cars registered and used wholly outside Singapore,
- cars used for a rental car business,
- company cars (Q-plate) registered before 1 April 1998, and
- cars used for the business of driving instruction by licensed driving schools or instructors.
Expenses incurred in traveling between two places of employment, or a place of employment and a place of business, rank for deduction where the taxpayer does not live at either of the places and the travel is undertaken to enable the claimant to engage in income-producing activities. As an employers if you pay a traveling allowance or car allowance to certain employees these would be deductible if work-related such as travel from office to business venues, eg clients’ premises. In practice, you need to convince the Tax Comptroller that the expenses meet the “wholly and exclusively incurred” criteria. You will need to keep proper records and provide following details in your tax return if you make a claim for these expenses:
- Mode of public transport;
- Date and place visited;
- Name and address of the person contacted;
- Purpose of the visit; and
- Amount incurred.
Australian Incidental Travel Expenses
Incidental travel expenses which are related to earning income are generally deductible under Australian Tax Law. An example would be the expenses incurred in traveling in a taxi between your office and your clients office for a business meeting. This is a business related reason and thus deductible. However, travel between your home and work place are not deductible as your home is not used for generating revenue. There are exceptional circumstances that have been identified as being deductible. If your business is classified as Itinerant, that is, travel is fundamental for your work, you have a 'web of work places' and no fixed place of employment, there is continual travel in order to carry out your duties and your home is considered your base of operations, then a deduction is available for travel expenses incurred from your home and work place(s). An example of the type of business would be a teacher who is involved in teaching at multiple schools and uses their home as a base for preparation and storage of materials. In addition your business is entitled to a deduction if an employee travels from their home to a client's premises and then on to the office. To be entitled to this deduction 3 criteria must be met:
- Your employee must have a regular place of employment and travel to it habitually
- The travel is undertaken to an alternative destination which is not a regular place of employment (this would not apply, for example, to an employee of a consultancy firm who is placed on assignment for a period with a client)
- The journey is undertaken to a location at which your employee performs substantial employment duties.
When preparing your business' expense policy and procedures consider the tax implications of the above before committing to any reimbursement of employees travel.
Entertainment expenses in Japan
In Japan the tax law limits the allowable deduction your business can claim for entertainment related expenses.
In 2009 the limit is based on the paid-in capital amount of your company. If your business has a capital amount of less than JPY 100 million then the deduction is limited to JPY 5.4 million or 90% of the actual entertainment expense which ever is lower. If your capital is greater than JPY 100 million then entertainment expenses are non-deductible.
Entertainment expenses are defined in Japan to include payments which are for the purposes of reception, entertainment, consolation and gifts. Expenses incurred for eating and drinking which are less than JPY 5000 are not included in entertainment expenses which are subject to the limitation described above. These will be outright deductible.
In order to ensure your business obtains the correct deduction you must ensure that all relevant receipts relating to the expenses are kept and should include the following additional information:
- Number of participants
- Names of participants
Entertainment Expenses in the United States
Entertainment under the US code has been defined to mean any activity that provides for entertainment, amusement or recreation, including meals for clients and employees.
Business related entertainment expenses incurred that are ordinary, necessary and meet either the directly related test OR the associated test are deductible under US tax law.
In order for your business to successfully claim a deduction under the directly related test the entertainment expense must
- be in a clear business setting such as at a convention room, office.
- have a main purposes of conducting business
- engage in business during the entertainment
- have a greater than general expectation of earning income or some other specific business benefit
In case there are “substantial distractions” in the entertainment situation then the expenses are non-deductible.
Examples include nightclubs, theaters, sporting events and cocktail parties.
They are also non-deductible where the business meeting takes place in a group, which includes persons who are not business associates.
The associated test requires the entertainment to be:
- associated with your trade or business. Examples include a purpose to gain new business or the continuation of existing business.
- directly prior to or after a substantial business discussion. You must prove that you actively engaged in the discussion, meeting or negotiation.
So to improve your tax situation prior to spending your business' cash on entertainment ensure that the above criteria are met.
Singapore Entertainment Expenses
Generally for deductibility the entertainment expense must be incurred in respect of business associates such as customers, clients, legal advisers, auditors, employees and must be related to the production of income and related directly to or associated with the claimant's business. In order to be directly related:
- Your business must expect to derive some business benefit immediately or at some future time.
- During the entertainment there must be some form of business discussion or activity relating to your business and these must represent the important aspects of the meeting.
Entertainment activities will include restaurants and bars, social clubs, night clubs, theaters, fishing and hunting trips, vacations.
In addition, providing facilities to business clients such as hotel suites, holiday bungalows, transport, food and drinks.
These activities if they have an acceptable business relationship will be deductible.
The Singapore Comptroller of Taxation is very strict with the requirements of deductibility of entertainment expenses.
The following have been recommended procedures to undertake to ensure you will not be denied the deduction
- Keep proper records of the direct relationship of the expense to the business, such as, date and place of entertainment, names of persons entertained, amount spent, business discussions that took place etc.
- Take note of claims in respect of entertainment at social clubs, as there is an element of pleasurable entertaining as opposed to primarily business entertaining at such places.
- Do not indulge in lavish and extravagant entertainment, the Comptroller will generally resort to serious investigation and probably deny the deduction.
- Do not destroy records supporting entertainment claims as the Comptroller may review past claims if the present ones appear suspicious.
Comparatively speaking Inland revenue Authority of Singapore is more open to allowing a deduction for entertainment expenses that the Australian Taxation Office.
Taxes: Of life’s two certainties, the only one for which you can get an automatic extension.
Recent entries• Medical Expense
• Record Keeping II - What kind of records should you keep?
• Record Keeping I: a painful job for the small business
• Deductibility of Singapore Travel Expenses
• Australian Incidental Travel Expenses
• Entertainment expenses in Japan
• Entertainment Expenses in the United States
• Singapore Entertainment Expenses
• Deductibility of Entertainment Expenses - Australia
• 2010 and the Global Tax System
• Prohibited Deductions Under Section 17 of the Income Tax Ordinance
• Specific Deductions Under The Income Tax Ordinance
• Deductions for Foreign Enterprises in China
• Tax Deductions for small businesses in Singapore
• US tax deductions - Small business Expenses
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