From accounting profit to tax payable: the computation

The single most useful thing an owner can understand about corporate tax: your financial statements' profit is the start of the tax computation, never the end. Between accounting profit and tax payable sits a sequence of standard adjustments — each one mechanical once you know why it exists.

The shape of every computation

     Accounting profit before tax
  +  Non-deductible expenses (add-backs)
  −  Non-taxable income
  +  Depreciation (added back)
  −  Capital allowances (claimed instead)
  −  Unabsorbed losses / allowances brought forward
  =  Chargeable income before exemption
  −  Start-up or partial tax exemption
  =  Chargeable income
  ×  17%
  −  Rebates (where announced)
  =  Tax payable

Each block, briefly:

• Add-backs restore expenses tax law refuses to recognise — S-plate cars, private costs, provisions, fines, capped items. Every company has add-backs; they are adjustments, not accusations.
• Non-taxable income comes out — most commonly one-tier dividends received from Singapore companies.
• Depreciation ↔ capital allowances. Your depreciation policy is yours; tax replaces it with standardised allowances, claimable on an elective timetable.
• Brought-forward balances — prior-year losses and allowances offset current profits, subject to the shareholding and same-trade tests.
• Exemptions — the start-up or partial exemption shelters the first slice of chargeable income.

A worked example

A young company's first profitable year (YA 2, within the start-up exemption):

	S$
Accounting profit before tax	260,000
Add: depreciation	20,000
Add: S-plate car and private expenses	15,000
Add: general provision for doubtful debts	5,000
Less: one-tier dividend income	(10,000)
Less: capital allowances claimed	(35,000)
Less: unabsorbed loss brought forward (YA 1)	(30,000)
Chargeable income before exemption	225,000
Less: start-up exemption (75% × 100k + 50% × 100k)	(125,000)
Chargeable income	100,000
Tax at 17%	17,000

Accounting profit S$260,000; tax S$17,000 — an effective rate of 6.5%, every line of it standard. The same company outside the exemption years, with no losses left, would pay roughly S$31,000 on the same trading — which is why FYE timing and the salary/dividend mix are decided with the computation in view, not after it.

Where the numbers go

The computation supports the two IRAS filings: ECI within three months of year end (unless waived), and Form C-S or C by 30 November. The computation itself — with schedules for allowances and losses — is what IRAS asks to see when it queries a return, which is why it should be prepared properly and kept, not reverse-engineered later.

An owner does not need to prepare this. An owner benefits enormously from being able to read it — the computation is one page, and every question about "why is my tax bill this number?" is answered on it.