IRAS clarifies that subordinated perpetual securities issued by a Singapore-listed REIT trustee are treated as “debt securities” for tax purposes under the Income Tax Act 1947, with distributions classified as interest eligible for Qualifying Debt Securities concessions and tax deductibility subject to statutory conditions.
Singapore’s Inland Revenue Authority of Singapore (IRAS) has published Advance Ruling Summary No. 6/2026 on 1 April 2026 clarifying the tax treatment of subordinated perpetual securities issued by a Singapore-listed real estate investment trust (REIT) trustee.
The ruling addresses whether the subordinated perpetual securities qualify as “debt securities” under Section 43H(4) of the Income Tax Act 1947 (“ITA”) and Regulation 2 of the Income Tax (Qualifying Debt Securities) Regulations (“QDS Regulations”), and whether distributions payable on the securities can be treated as interest for tax purposes. It also considers the deductibility of such distributions under Section 14(1)(a) of the ITA.
IRAS ruled that the securities will be regarded as “debt securities” for tax purposes, despite being treated as equity under Singapore Financial Reporting Standard 32. The distributions, including any optional distributions, are regarded as interest payable on indebtedness. As a result, they qualify for the tax concessions and exemptions available for Qualifying Debt Securities (QDS), subject to fulfilment of the relevant conditions.
The securities confer semi-annual distributions that are not dependent on the issuer’s profit performance. The issuer has discretion to defer payments, and any deferred distributions are non-cumulative and do not accrue interest. The issuer may also elect to pay optional distributions later, subject to notice requirements. The instruments have no fixed redemption date but may be redeemed at the issuer’s option in specified circumstances.
In a winding-up scenario, securityholders rank pari passu with holders of the REIT’s preferred units, ahead of junior obligations but junior to creditors of the issuer. A dividend stopper applies, restricting payments on junior or parity obligations if distributions are not paid, unless specified conditions are met.
On tax deductibility, IRAS confirmed that the issuer may claim deductions on distributions under Section 14(1)(a) of the ITA, provided the proceeds are used to generate taxable income and other statutory conditions are satisfied. The deductions apply only when distributions are legally due and payable, not based on scheduled payment dates.
IRAS noted that the ruling reflects the principle that the tax characterisation of hybrid instruments depends on their economic substance rather than accounting classification, and referred taxpayers to its e-Tax Guide on “Income Tax Treatment of Hybrid Instruments” for further guidance.
