Within the tax jurisdiction of the Republic of Singapore, determine Anthony's tax amount. (Please refer to case study for question)

CASE STUDY - Mr & Mrs Anthony Chan Soon Thoong Anthony is 35 years old. He works as a Compliance Manager with one of the banks here in Singapore. In calendar year of 2016, he took home an annual base compensation of $84,000 (12 months). As a good employee, he received a total of 5 months' bonus. To enhance his professional skills, he took relevant courses that he paid for by himself at $8,000. In addition to his regular job, Anthony was a prolific author who wrote assessment books. His side income for assessment books sales came to $12,500 (no CPF contribution needed). He had a stock portfolio which started in the year 2016 at $105,000, and ended up the year at $185,000. Total dividend received for 2016 was $4,300. Anthony was a non-commissioned officer in a medical team of 3 head counts. He was called for reservist training last year. Anthony resides at a private condominium. He bought the property at $800,000 two years ago under joint ownership with his wife, and at end of 2016, it was valued at $1,100,000. This year would be considered as the third year of ownership. He is thinking of doing the following: (a) Re-mortgage his existing condominium, and take the money to invest into a second property, budgeting the investment property at $700,000 (b) Sell off his existing property at valuation price, and invest into a bigger property, budgeting the bigger property at $1,400,000 Anthony's father is staying with him now. Anthony is married to Janet, aged 30 years old, for 3 years now. They have one daughter, delivered on Christmas eve in year 2015, which Anthony claimed all related child relief thereafter. Anthony last year tax payable amount was $3,250, but the parenthood tax rebate rendered it to zero. Janet is currently working as a freelance yoga teacher. Last year, she earned $34,000 for her teaching. She didn't contribute any CPF as her friends had advised her as a freelancer, there is no need for her to contribute at all. Both her parents are still living. She claimed both of them as dependants for parent relief. YA 2016 and within the tax jurisdiction of the Republic of Singapore. Question 1 Determine Anthony's tax amount. FIN373 Tax and Estate Planning Study Guide (5CU) Course Development Team Head of Programme : Course Developer : Production : Dr Ding Ding Hon Shin Ming Educational Technology & Production Team 2017 Singapore University of Social Sciences. All rights reserved. No part of this material may be reproduced in any form or by any means without permission in writing from the Educational Technology & Production, Singapore University of Social Sciences. Educational Technology & Production Singapore University of Social Sciences 461 Clementi Road Singapore 599491 Release V1.3 CONTENTS SECTION 1: COURSE GUIDE 1.1 Introduction .....................................................................................................1 1.2 Course Description and Aims .......................................................................2 1.3 Learning Outcomes ........................................................................................ 2 1.4 Overall Assessment ........................................................................................ 3 1.5 Learning Materials .......................................................................................... 4 SECTION 2: STUDY UNITS STUDY UNIT 1 Learning Outcomes SU1-1 Overview SU1-1 Chapter 1: Introduction to Taxation SU1-2 Chapter 2: Income SU1-15 STUDY UNIT 2 Learning Outcomes SU2-1 Overview SU2-1 Chapter 3: Deduction SU2-2 Chapter 4: Tax Planning and Tax Offset SU2-7 Chapter 5: Administration of Taxation System and Tax Audit SU2-9 STUDY UNIT 3 Learning Outcomes SU3-1 Overview SU3-1 Chapter 6: CPF and SRS SU3-2 Chapter 7: Taxation Aspect of Different Investment Structures SU3-4 STUDY UNIT 4 Learning Outcomes SU4-1 Overview SU4-1 Chapter 8: Goods and Services Tax SU4-2 Chapter 9: Stamp Duty SU4-11 Chapter 10: Property Tax SU4-16 STUDY UNIT 5 Learning Outcomes SU5-1 Overview SU5-1 Chapter 11: Will Planning SU5-2 Chapter 12: Process of Estate Administration SU5-12 Chapter 13: Trusts and Section 73 of Conveyancing and Law of Property Act (CLPA) SU5-16 STUDY UNIT 6 Learning Outcomes SU6-1 Overview SU6-1 Chapter 14: Family Law SU6-2 Chapter 15: Business Succession Planning SU6-6 Applications in Practice SU6-10 FIN373 Tax and Estate Planning COURSE GUIDE FIN373 COURSE GUIDE SECTION 1: COURSE GUIDE 1.1 Introduction Welcome to your study of FIN373 Tax and Estate Planning, a 5 credit unit (CU) course. This Study Guide is divided into two sections - the Course Guide and Study Units. The Course Guide provides a structure for the entire course. As the phrase implies, the Course Guide aims to guide you through the learning experience. In other words, it may be seen as a roadmap through which you are introduced to the different topics within the broader subject. This Guide has been prepared to help you understand the aims and learning outcomes of the course. In addition, it explains how the various materials and resources are organised and how they may be used, how your learning will be assessed, and how to get help if you need it. Course Schedule To help monitor your study progress, you should pay special attention to your Course Schedule. It contains study unit related activities including Assignment, self-evaluations, and examinations. Please refer to the Course Timetable in the Student Portal for the updated Course Schedule. NOTE: You should always make it a point to check the Student Portal for any announcements and latest updates. You need to ensure you fully understand the contents of each Study Unit listed in the Course Schedule. You are expected to complete the suggested activities independently and/or in groups. It is imperative that you read through your Assignment questions and submission instructions before embarking on your Assignment. It is also important you comprehend the Overall Assessment Weighting of your course. This is listed in Section 1.4 of this Guide. Manage your time well so you can meet given deadlines and do regular revisions after completing each unit of study. They will help you retain the knowledge garnered and prepare you for any required formal assessment. If your course requires an end-of-semester examination, do look through the Specimen or Past Year Exam Paper which is available on Learning Management System. Although flexible learning - learning at your own pace, space and time - is a hallmark at UniSIM, you are encouraged to engage your instructor and fellow students in online discussion forums. A sharing of ideas through meaningful debates will help broaden your learning and crystallise your thinking. 1 FIN373 COURSE GUIDE 1.2 Course Description and Aims A financial planner should be well informed about the basics of tax and estate planning for clients. Tax considerations are very important when dealing with different investment alternatives. This requires an understanding of the tax code for treatment of income and of deductible expenses. When individuals hold assets in many countries, understanding the implications of cross-border taxation is also important. For high net worth clients, estate planning is a significant concern. Estate planning includes will planning, the use of power of attorney, rights of beneficiaries and the formation of trusts. The course covers these aspects of tax and estate planning. 1.3 Learning Outcomes Knowledge & Understanding (Theory Component) 1 Explain the tax codes in relation to income, expenses and deductions 2 Analyse cross-border taxation issues 3 Assess the tax impact and implications of participating in CPF and SRS 4 Compare the tax aspects of different investment structures 5 Assess how GST, Stamp Duty and Property Tax influence tax planning 6 Apply the basics of will planning, and power of attorney 7 Draw plans to form trusts and business succession Key Skills (Practical Component) 1 Formulate tax and estate plans 2 Discuss the important tax codes 3 Demonstrate the essential knowledge and interpersonal skills to work effectively in a team 4 Demonstrate proficiency in writing 2 FIN373 COURSE GUIDE 1.4 Overall Assessment The overall assessment weighting for this course is as follows: Assessment Description Weight Allocation Pre-Class Quiz 1 6% Pre-Class Quiz 2 7% Pre-Class Quiz 3 7% Assignment 2 Group Based Assignment 30% Examination Closed Book Written Examination 50% Assignment 1 TOTAL 100% UniSIM's assessment strategy consists of two components, Overall Continuous Assessment (OCAS) and Overall Examinable Component (OES) that make up the overall course assessment score. For SBiz courses, both components will be equally weighted: 50% OCAS and 50% OES. (a) OCAS: The continuous assignments are compulsory and are non-substitutable. (b) OES: The Examination is 100% of this component. To be sure of a pass result, you need to achieve scores of 40% in each component. Your overall rank score is the weighted average of both components. 3 FIN373 COURSE GUIDE 1.5 Learning Materials The following is a list of the required learning materials to complete this course. Required Textbook Author(s) Last name, First name FPAS Title M3 TAX AND ESTATE PLANNING Year 2013 Publisher FPAS References The following resources will be useful for more information and help you in the course of your study. Inland Revenue Authority of Singapore www.iras.gov.sg Tax Academy of Singapore http://www.taxacademy.sg Singapore Institute of Accredited Tax Professionals http://www.siatp.org.sg/ Human Organ Transplant Act http://www.moh.gov.sg Civil Law Act Guardianship of Infants Act Income Tax Act Intestacy Succession Act Women's Charter http://statutes.agc.gov.sg Syariah Law http://www.muis.gov.sg Probate and Administration Act http://app.subcourts.gov.sg/civil/index.aspx Public Trustee www.ipto.gov.sg 4 FIN373 Tax and Estate Planning STUDY UNIT 1 Introduction to Taxation and the Concept of Income FIN373 STUDY UNIT 1 LEARNING OUTCOMES At the end of this unit, you are expected to: Chapter 1 Identify the law of income taxation in Singapore Determine the scope of income tax Apply the qualitative and quantitative test Apply the 6 badges of trade Determine the basis of assessment Recognise the trading concept in taxation Determine the overseas taxation, double taxation and tax treaties Explain territorial vs. worldwide basis Show the computation of tax liability Chapter 2 Indicate difference between revenue income and capital gain Interpret the definition of income that attracts tax Explain the difference between allowance and reimbursement Explain the taxation of fringe benefits, stock options, employee benefits OVERVIEW With the aim of drafting a sound tax planning document for a client, we start off by looking at the basics of Singapore income taxation. Try to understand how the computation is derived for an individual and in the process understand the key tenets of assessment such as the basis, the various tests and the implications of foreign income. SU1-1 FIN373 STUDY UNIT 1 CHAPTER 1: INTRODUCTION TO TAXATION Introduction to Taxation (1) Introduction to Taxation (2) (Access video via iStudyGuide) This module introduces you to the basic tenets of income taxation and estate planning in Singapore. In this first chapter on Income Tax Planning, we will discuss the basic concepts in income tax law you should be familiar with. In the second chapter, we will discuss three other common forms of taxation you are likely to encounter as a financial planner: Goods and Services Tax, Stamp Duty and Property Tax. Throughout this course, please keep in mind that tax and estate planning is interrelated and must be integrated as part of the planning process. We will cover the main areas of Income, Tax Deductions, Tax Exemption, Personal Relief and Personal Rebate. Singapore offers a greatly simplified Income Tax for individuals. Income tax in Singapore is only imposed on the gains of an income nature and by extension gains by a capital nature are excluded from taxation. Whilst increasing diversity and complexity of investments and businesses will expose an individual, especially a High Net Worth Individual, to more complex tax returns for most salaried taxpayers, the process is as simple as a single page of returns and a declaration. Most large employers are already on the Auto-Inclusion Scheme so the details are already submitted for tax returns. Starting in 2007, IRAS offers a No-Filing Service for taxpayers with auto-included income to claim the standard tax reliefs, which means for most individuals there is no need to even file the annual returns. Tax evasion or fraud is a criminal offence, punishable under the law. However diligent tax planning and tax saving when done properly is encouraged and is each individual's own responsibility. Scope of Income Tax Taxation is the main source of revenue for the government to pay for the various services required for a safe environment and vibrant economy Singapore enjoys. The Income Tax Act (ITA) defines the scope of income tax levied in Singapore by IRAS. Under Section 10(1) of ITA, income is taxable in Singapore if: - It accrues in or is derived from Singapore - It accrues or is derived from outside Singapore but received in or remitted into Singapore SU1-2 FIN373 STUDY UNIT 1 Tax policy is a major tool the government uses to achieve long-term goals and to implement fiscal policy. There are two main objectives of tax policy in Singapore: 1. Revenue raising: This is the traditional function of tax policy. 2. Promote and influence economic and social goals: A combination of tax incentives can be used by government to influence behaviour towards desired activities such as development of certain industries or to encourage citizens to have more children. In determining the extent the Income Tax applies, the scope of income tax has to take into account: 1. Residence of the individual determined 2. Any application of the 3-year and 2-year concession rules for tax residence 3. Qualitative and quantitative test 4. 6 badges of trade 5. Other factors such as overseas taxation Income tax is levied on income from any employment exercised in Singapore and on any income accrued in or derived from Singapore, regardless of the tax residency of the individual. Tax on employment income is determined on where the services are performed and not where the payment is made or where the employer is resident. Since 1 January 2004, any income derived from sources outside Singapore, even if received in Singapore, is exempt from Singapore tax, except for income received through a partnership in Singapore or from employment outside Singapore on behalf of the Government of Singapore. The income may still be liable for tax in other jurisdictions. Tax Resident vs. Non-Resident Individual Tax residence is not the same as residence for citizenship or immigration purpose. The tax residency status impacts how tax is assessed and is determined by the Qualitative and Quantitative Tests. Difference in tax treatment between resident and non-resident is summarised in the table below. In most cases, the non-resident status will accrue a higher income tax. Tax rate Resident Progressive rate Claim expenses Claim donations Claim relief Yes Yes Yes SU1-3 Non-Resident Employment income 15% Director fee, consultant fee and all other income 20% Yes Yes No FIN373 STUDY UNIT 1 Qualitative & Quantitative Residency Test The residency for tax purposes is determined by reference to both qualitative and quantitative tests. Under the Qualitative Test, Singapore citizens are treated as residents whereas Singapore Permanent Residents need to prove to IRAS that they have a \"permanent home\" in Singapore. The individual is considered a tax resident for a particular Year of Assessment if: 1. a Singaporean; or 2. a Singapore Permanent Resident (SPR) and has established permanent home in Singapore; or 3. a foreigner who has stayed in Singapore for 183 days or more in the year preceding the YA; or 4. a foreigner (who is not a director of a company) who has worked in Singapore for 183 days or more in the year preceding the YA. Example Paul is a Singapore citizen working in Singapore and has decided for his 1 year sabbatical from his company to pursue further studies overseas from 1 Jan 2011 to 31 Dec 2011. For YA 2011 to YA 2013, what is his tax residency status? For YA2011 and YA2013 since he is working in Singapore, he is a tax resident. For YA2012, Paul is also considered a tax resident because by the qualitative test he is considered \"normally resident\" as his family resides in Singapore and he is still a Singapore citizen and his period of absence is temporary. Under the Quantitative Test, if he resides or is employed in Singapore for 183 days or more in a tax year, then he can be considered a resident for tax calculation. It may be helpful to remember that so long as the employee commences work on or before 2 July he would automatically qualify for resident status for the year. If the individual is considered a non-resident then he must have stayed or worked in Singapore for less than 183 days. The definition of a day for this calculation is any part of a calendar day. For example, if he arrives on Tuesday 3 Oct at 10 am and planned to leave on Thursday 11 pm then this would be counted as 3 days. However if there was a delay and he leaves at 12.02 am, then the two minutes past midnight will count as an additional day. Two Year and Three Year Concession Under the two-year administrative concession, an individual can be granted tax resident status for 2 years if his employment period or physical presence in Singapore covers a continuous period of at least 183 days spanning over the two years. The tax will be assessed as a tax resident for both YA. SU1-4 FIN373 STUDY UNIT 1 Example Richard was posted to Singapore from London and started work on 1 Sep 2010 and was posted back on 30 Mar 2011. For both YA 2011 and 2012, he was in Singapore for less than 183 days and would be assessed as a non-resident. He can apply for the tax concession as he was in Singapore for a continuous period of 211 days and has all income taxed at progressive resident rates as well as claim tax reliefs. Under the 3-year concession, an individual is considered a tax resident in Singapore from the date of arrival into Singapore if he exercises an employment in Singapore for at least 3 consecutive years of assessment, even though he may be physically present or employed for less than 183 days in the year of arrival or the year of departure. These concessions are provided upfront and used from the starting year for tax calculation only if the employer gives a letter of undertaking to cover the difference in tax liability should the conditions not be satisfied and the tax liability needs to be revised from the first year at the higher rate. Income Days Employment 183 days or income more Resident status Resident Tax implication Progressive resident rate, entitled to tax relief Employment 61 to 182 income days Non-Resident Taxed at 15% or progressive resident rates, whichever gives rise to a higher tax amount Not entitled to tax reliefs Employment 60 days or income less Non-Resident Short-term employment income is exempt from tax Director's fee and other income Not relevant Director's fees and other income are taxed at the prevailing rate of 20% Not relevant The short-term employment income tax exemption rule does not apply to director of a company SU1-5 FIN373 STUDY UNIT 1 Badges of Trade When an asset is sold, the gains are not automatically granted capital gain status which is tax exempt. The transaction is first assessed and classified and this results in material tax implications such as a sale of property. If a taxpayer is buying and selling properties, then he is deemed to be trading in properties and the gains from the sale is considered taxable income. Singapore has adopted the English courts definition called \"Badges of Trade\" to determine the classification of the transaction. This practice dates back to 1955 when the UK Royal Commission on the Taxation of Profits and Income introduced the concept and is also known as the Radcliffe Commission. There are 6 badges with no one badge being conclusive. 1. Subject matter of realisation 2. Length of period of ownership 3. Frequency or number of similar transactions by the same person 4. Supplementary work on or in connection with property realised 5. Circumstances responsible for the realisation 6. Motive In a landmark case in 1991 [HH v Comptroller of Income Tax 1991], the Singapore courts also considered the \"financing method\" as an additional badge of trade where a taxpayer did not have the necessary capital to finance its acquisition and had to rely partly or entirely on borrowing. The Radcliffe Commission used this test to define a \"trading adventure\" which refers to an isolated transaction that is regarded as one that amounts to a trade or a business. Of the 6 badges, the Motive badge is always taken into account with emphasis on the intention at the time of asset acquisition. Even though the original intention to acquire an asset may have been for capital investment, the motive could change over time and require the asset to be treated as a trading asset. Trading In vs. Trading With Even though transactions are classified as trade as determined by the badges of trade, the Singapore tax is only levied on trading profits when it is considered to have been sourced in Singapore. To determine if a trade is carried on in Singapore, the IRAS considers: Contracts concluded in Singapore Business operations carried on in Singapore Capital is employed in Singapore Inventories are maintained in Singapore to fulfil orders Ownership of goods passes in Singapore Sales proceeds are received in and payment of expenses made from Singapore SU1-6 FIN373 STUDY UNIT 1 There is a permanent establishment in Singapore A person who trades in Singapore has potential tax liability whereas a person trading with Singapore does not. To determine if a person is \"trading in\" or \"trading with\" Singapore, the circumstances and details of each case are considered. The usual activities IRAS considers as \"trading in\" Singapore are: Conclusion of sales contract in Singapore Performance and execution of contract in Singapore Transfer of title or property of goods in Singapore Payment for goods or properties in Singapore Basis of Assessment The assessment of tax under the various categories is set out under Section 10 of ITA, commonly called the \"charging section\". a) Gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exercised; b) Gains or profits from any employment; c) [Deleted by Act 29/65] d) Dividends, interest or discounts; e) Any pension, charge or annuity; f) Rents, royalties, premiums and any other profits arising from property; and g) Any gains or profits of an income nature not falling within any of the preceding paragraphs. Taxation of Singaporeans Going Overseas From 1 January 2004, any overseas income received in Singapore is not taxable and does not need to be declared, even if it is paid into your Singapore bank account. But then there is always a 'but'... Overseas income is taxable in Singapore if: 1. it is received in Singapore through partnerships in Singapore 2. the overseas employment is \"incidental\" to Singapore employment, for example a job based in Singapore that requires travel overseas 3. employed outside Singapore on behalf of the Government of Singapore Before boarding a plane the taxpayer must: - pay any outstanding taxes - update IRAS with the overseas residential or mailing address - inform IRAS the period of time away from Singapore - arrange to make tax payments whilst overseas SU1-7 FIN373 STUDY UNIT 1 Why is a Partnership singled out? A partnership is a legal relationship between two or more persons to carry on business, make profits and share them between themselves. As a partnership is not an entity in law, the partnership does not pay income tax on the income earned by the partnership. Instead, each partner will be taxed on his or its share of the income from the partnership. Where the partner is an individual, his share of income from the partnership will be taxed based on his personal income tax rate. Where a partner is a company, its share of income from the partnership will be taxed at the tax rate for companies. While the partnership does not pay tax, it still has to file an annual income tax return to show all income earned by the partnership and deductions claimed for expenses incurred in carrying on the partnership business. Thus participation in a Singapore partnership is economically identical to physically being present and working in Singapore. All the income earned through the partnership is therefore taxable. Limited Liability Partnership A limited liability partnership (LLP) is a business structure that allows businesses to operate and function as a partnership while giving it the status of a separate legal person. LLP will be regarded in law as "bodies corporate" which is formed by being registered under the LLP Act. Even though the law treats an LLP as a bodies corporate, for income tax purposes, an LLP will be treated as a partnership and not as a separate legal entity. This means that an LLP will not be liable to tax at the entity level. Instead, each partner will be taxed on his or its share of the income from the LLP. Where the partner is an individual, his share of income from the LLP will be taxed based on his personal income tax rate. Where a partner is a company, its share of income from the LLP will be taxed at the tax rate for companies. The amount of a partner's share of capital allowance and trade loss from the LLP that can be offset against his other sources of income (referred to as "relevant deduction") for a year of assessment, together with all of his relevant deduction allowed in all past years of assessment (referred to as "past relevant deduction") will be restricted. The total offset shall not exceed each partner's contributed capital as at the end of the basis period relating to the current year of assessment. SU1-8 FIN373 STUDY UNIT 1 Territorial vs. Worldwide Basis The taxation basis arises when international taxation is considered. The scope of taxation determined by each country can lead to a situation where an individual taxpayer is exposed to double taxation. In Singapore, the scope of taxation is based on the territorial system whereas other countries have adopted a worldwide taxation basis such as Australia and the US. Countries that follow the territorial system levy taxes only on local income which is defined as income from a source inside the country. Under the worldwide basis, the residents of the country are taxed on their worldwide income which includes both the local and foreign sourced income and typically only the non-residents are taxed on their local income. Singapore taxation is applied only to income and not capital gains and is defined under Section 10(1) of the ITA explained above and operates on partial territorial basis. Only Singapore sourced income and foreign income remitted is assessed to tax. Section 10(25) of the ITA defines remittance as: - Physical remittance or transmission of cash into Singapore; - Satisfaction of any trade debt incurred in the course of a business carried out in Singapore; or - Purchase of movable property outside Singapore which is brought into Singapore. Example A Singapore HQ manufacturer has operations also in Malaysia and has working capital in CIMB bank in Johor. The interest earned on the deposits is NOT taxable as it was earned and held outside of Singapore. If the interest was used to purchase a machine in Malaysia that was transferred to a factory in Woodlands, the cost of the equipment becomes taxable as the amount is deemed brought into Singapore. Permanent Establishment Section 2(1) of the ITA describes a permanent establishment as \"a fixed place where a business is wholly or partly carried on\" which includes: a) a place of management; b) a branch; c) an office; d) a factory; e) a warehouse; f) a workshop; g) a farm or plantation; h) a mine, oil well, quarry or other place of extraction of natural resources; SU1-9 FIN373 STUDY UNIT 1 i) a building or work site or a construction, installation or assembly project, and without prejudice to the generality of the foregoing, a person shall be deemed to have a permanent establishment in Singapore if that person i. carries on supervisory activities in connection with a building or work site or a construction, installation or assembly project; or ii. has another person acting on that person's behalf in Singapore who a) has and habitually exercises an authority to conclude contracts; b) maintains a stock of goods or merchandise for the purpose of delivery on behalf of that person; or c) habitually secures orders wholly or almost wholly for that person or for such other enterprises as are controlled by that person. The test of permanent establishment is if one of the following is occurring: 1. Asset Test: a fixed place of business in Singapore 2. Activity Test: supervised activities carried on in Singapore 3. Agency Test: representation via an agent in Singapore A foreign entity is not considered to have Permanent Establishment if activities are done through an independent broker or agent. The agent is considered independent if: independent of the non-resident legally and economically not bearing any entrepreneur or business risk for the foreign company acting in the ordinary course of trade when acting on behalf of the nonresident performing commercial activities for the foreign company that is not subject to detailed instructions and absolute control by the foreign company Tax Deductions Income tax in Singapore is only imposed on the gains of an income nature and by extension gains by a capital nature are excluded from taxation. It also follows when making an assessment IRAS only allows expenses of an income nature to be tax deductible; expenses of a capital nature are not tax deductible. Capital expenses are defined as having an \"endearing nature\" and have \"lasting benefits\". Revenue expenses are defined as \"recurring\" and their benefits are enjoyed \"once and for all\". SU1-10 FIN373 STUDY UNIT 1 Tax Treaties Singapore has concluded two types of DTAs (Double Tax Agreements): Comprehensive DTAs which cover all income flows; and Limited DTAs which cover only shipping and/or air transport income. Under a DTA, tax credit is usually available in the country of residence only if the income has been taxed in the country of source. Tax sparing credit is a special form of credit whereby the country of residence agrees to give a credit of the tax which would have been paid in the country of source but was not, i.e. \"spared\