However, it remains to be seen whether certain assets treated by the Singapore tax authorities as buildings can now be re-characterised as plants.
The taxpayer in ZF v Comptroller of Income Tax [2010] SGCA 48 provides workers’ accommodation and decided to create portable and demountable dormitories on a building site.
The taxpayer claimed a capital allowance on the expenditure incurred on the movable parts of the dormitories.
The Comptroller of Income Tax disallowed the taxpayer’s claim. This decision was appealed by the taxpayer.
Both the Income Tax Board of Review and the Singapore High Court upheld the comptroller’s decision, but the court of appeal disagreed and ruled in favour of the taxpayer.
“The term plant is not defined in the tax law,” said Edmund Leow of Baker & McKenzie. “Historically, a set of established tests is commonly used by taxpayers to determine whether an asset is a plant for capital allowance purposes – the business test (alternatively known as the function test) and the premises test and the trading stock test.”
The court of appeal moved away from this approach and laid down new guidelines for determining the distinction between plant and building.
The guidelines include the exact operational role which the asset plays in the business, the physical nature and characteristics of the asset, the intention of the taxpayer, whether the asset is to be used temporarily, and whether the asset is inexplicably connected with a building and therefore regarded as a building for tax purposes.
Based on this, the court decided the temporary dormitories can benefit from capital allowances.
“We believe that this new approach may only affect borderline cases, as many of the items regarded by the Inland Revenue Authority of Singapore as plant would likely continue to be so regarded,” said Leow.
Litiigators: Leung Yew Kwong and Tan Shao Tong of WongPartnership for ZF; Irving Aw and Quek Hui Ling (Inland Revenue Authority of Singapore) for the Comptroller of Income Tax
