In a recent case reported by IRAS, a company was penalised for wrongful claims of private expenses. The company directors were also charged in court for tax evasion by wilfully preparing false invoices to support their fictitious expense claims. These private expenses included luxury goods purchases such as handbags and jewellery, as well as family holidays.
They were both sentenced to 4 weeks & 6 months imprisonment and also ordered to pay a combined penalty of $1,027,388, which is 4 times the amount of tax evaded.
IRAS take a serious view on tax evasion by claiming private expenses to reduce the company tax. So the question is how do we differentiate what is private or business expenses?
Basically, the nature of the expenses will be the determining factor. For example, the company director who is in Thailand for a business meeting have incurred cost such as accommodation, meals and air ticket during the 4 days trip.
Ultimately, those costs are arise due to the business meeting. Therefore it can be treated as allowable expenses under tax deductible items. Given that the nature of the expense is relevant to the cost for driving the business then it is safe to say they are not private expenses. Of course if the director purchase gift or souvenir for his family and friends, then this is consider a private expense which cannot be claim under business expense.
Some example of Private Expenses
General Rules for Claiming Allowable Business Expenses
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