Inland Revenue Authority ruled that subordinated perpetual securities were treated as debt for tax purposes, allowing distributions to qualify as deductible interest under the Income Tax Act.
The Inland Revenue Authority of Singapore released Advance Ruling Summary No. 21/2025 on 3 November 2025, addressing the classification of subordinated perpetual securities as debt and the deductibility of distributions paid on them as interest
The ruling confirms that, although these securities are treated as equity for accounting purposes, they are considered “debt securities” under the Income Tax Act (ITA). Consequently, distributions paid on these securities qualify as interest on indebtedness and may benefit from tax concessions and exemptions available for Qualifying Debt Securities (QDS), provided all conditions are met.
Key points of the ruling:
- Classification as Debt Securities
The securities will be treated as debt securities for the purposes of Section 43H(4) of the ITA and Regulation 2 of the QDS Regulations. - Treatment of Distributions
Distributions, including arrears and any additional distribution amounts, will be regarded as interest payable on indebtedness and will enjoy the tax concessions and exemptions available for QDS, assuming all other conditions for QDS status are satisfied. - Deductibility of Distributions
The deductibility of distributions depends on how the proceeds from the securities are used. A tax deduction under Section 14(1)(a) of the ITA is allowed if:- The distributions are incurred on capital raised through the issuance of the securities that is used to generate taxable income for the issuer; and
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- The conditions for deductibility under Section 14 of the ITA are met, and the deduction is not restricted under any other provisions of the ITA.
Additionally, distributions are deductible only when they are legally due and payable, not based on their scheduled payment dates.
- The conditions for deductibility under Section 14 of the ITA are met, and the deduction is not restricted under any other provisions of the ITA.
- Timing of Deduction
The issuer can claim a tax deduction under Section 14(1)(a) of the ITA, provided the proceeds are used to produce taxable income. The deduction is recognised when the payment is legally due and payable, rather than on the scheduled distribution date.
