Caught by IRAS: Doctor earned millions but reported monthly salaries of $5k and $6k

The doctor paid himself below market salaries but received huge amounts in dividends and loans.

SINGAPORE – A doctor declared monthly salaries of around $5,000 and $6,000 from his companies, but did not pay any personal tax on additional payouts averaging over $2 million a year.

He claimed there was no need to declare the additional income because the sum was received as tax-exempt dividends and “shareholders’ loans” after his companies paid the standard corporate tax of 17 per cent on their profits.

This doctor, a private specialist, thought he had a foolproof arrangement that would shield him from higher personal income taxes. Income beyond the $1 million mark would have hit the highest personal tax bracket of 24 per cent.

After scrutinising past assessments between 2013 and 2018, the Inland Revenue Authority of Singapore (IRAS) deployed its most powerful weapon – Section 33 of the Income Tax Act – which can shoot down any arrangements that are created mainly to avoid tax.

It imposed additional taxes on the doctor’s overall income, which the High Court upheld despite the doctor’s challenge.

Under the personal income tax regime, someone earning $6,000 monthly would have been taxed less than $3,000 a year, but taking home $2 million could entail over $400,000 in taxes annually.

The decision has likely sent shockwaves through the league of high-income earners who have been using company structures to avoid paying more personal taxes.

The doctor was among 279 high-income earners IRAS has caught to date for using sham arrangements to avoid paying more taxes.

An example of such an arrangement involves setting up companies to receive income but paying owners salaries below market rate so that they can pay lower taxes.

As companies enjoy various concessions to encourage entrepreneurship, the owners will end up paying less tax on their profits than individuals earning the same amount.