By Lee U-Wen

THEY had lived overseas for years, but two employees were still receiving wages and director's fees of more than $220,000 a year from their family-owned company.

And in another case, a shareholder paid his parents and parents-in-law a total of $140,000 over two years, even though they did not a scrap of work.

These are just two of the 'errors' detected through tax audits, the Inland Revenue Authority of Singapore (IRAS) said yesterday ahead of the Nov 30 deadline for corporate taxpayers to submit their Forms C.

All companies carrying on a trade or business in Singapore need to file Form C annually to report their income. Even if a company is making a loss, it must still file the form.

Other incidents discovered by IRAS through audits in the past two years include a company director claiming $200,000 in personal shopping, dining and country club costs.

According to IRAS assistant commissioner (corporate tax division) Sabina Cheong, such cases are more common in family-owned and managed companies, which make up about a third of the 131,000 companies required to file income tax returns this year.

IRAS will step up checks and audits on such companies, she said. 'Generally, family-owned companies do not see the distinction between a shareholder and a director. They regard the company as their own. But even if you own the company, as directors, there are duties under the Companies Act.'

Last year, IRAS carried out audits on 682 companies and found that 143 had filed incorrect tax returns. Eighty-three of the 143 were family-owned.

The penalties for incorrect returns are heavy, to act as a deterrent and to remain fair to honest taxpayers, said Mrs Cheong. Fines of up to 200 per cent of the tax undercharged can be imposed, besides the original tax payable. A jail term is also possible.

Those who do not file a tax return face a penalty of up to $1,000 on top of the tax payable.

In the coming weeks, IRAS will send documents to family-owned businesses to highlight common tax mistakes and encourage them to self-review before filing. More information can be found at www.iras.gov.sg

This article was first published in The Business Times on October 01, 2008.