The Inland Revenue Authority of Singapore published new guidance on 31 March 2022 regarding the tax treatment of interest, gains or profits derived from negotiable certificates of deposit by non-financial institutions.

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Tax Treatment of Interest, Gains or Profits Derived from Negotiable Certificates of Deposit by Non-Financial Institutions

Where a non-financial institution (non-FI) derives interest from a negotiable certificate of deposit (NCD) or derives gains or profits from the sale thereof, the amount of taxable income derived must be computed based on the rules prescribed under Section 10(12) of the Income Tax Act 1947. This is notwithstanding the adoption of FRS 109 tax treatment by the non-FI.

The paragraphs below summarise the tax treatment of interest, gains or profits derived from NCDs by a non-FI.

Deemed passive interest income

All interest, gains or profits derived from NCDs by a non-FI are deemed as passive interest income taxable under Section 10(1)(d).

Original holders of NCDs

An original holder of an NCD must report any interest, gains or profit as interest income in its tax returns. Any loss incurred on the sale of NCDs cannot be deducted against other sources of income.

Subsequent holders of NCDs

For a subsequent holder, its deemed interest income from NCDs is determined as follows:

• If a subsequent holder purchases an NCD at a price higher than the issued price and subsequently receives interest on that NCD, the income from such interest is to be reduced by the amount by which the purchase price exceeds the issued price of the NCD (say X). No reduction is required if X has already been excluded in the computation of any previous interest derived by the subsequent holder in respect of that NCD.
• Where a subsequent holder sells an NCD after receiving interest from it, the gains or profit is deemed to be the amount by which the sale price exceeds the lower of the issued price and the purchase price.
• If a subsequent holder purchases an NCD at a price lower than the issued price and holds the NCD till maturity, the amount by which the issued price exceeds the purchase price is deemed to be interest derived by the subsequent holder.