Tax Treatment of Interest, Gains or Profits Derived from Negotiable … – IRAS

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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.
All interest, gains or profits derived from NCDs by a non-FI are deemed as passive interest income taxable under Section 10(1)(d).
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.
For a subsequent holder, its deemed interest income from NCDs is determined as follows:
Issued price (face value) of NCD: $1,000,000
Date of issue: 1 Jan 2018
Date of maturity: 1 Jan 2021
Interest rate: 8% per annum payable on 1 Jan of each year

B purchases the NCD from A, the original holder, on 1 May 2018 for $1,020,000. B receives interest of $80,000 on 1 Jan 2019 and 1 Jan 2020 respectively and sells the NCD to C on 1 Apr 2020 for $1,025,000.

C sells the NCD to D on 1 Aug 2020 for $1,040,000.
D holds the NCD until maturity.
B, C, and D are non-FIs, with Dec year-ends. Their income for each relevant year of assessment (YA) is computed as follows:
Gains/ profit from sale of NCD
Gains/ profit from sale of NCD
Less: Amount by which purchase price ($1,040,000) exceeds issued price ($1,000,000), except where the amount has been excluded in the computation of any previous interest
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Last updated on 31 March 2022


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