Case Note: GIQ v The Comptroller of Income Tax [2025] SGITBR 1

Case Overview

GIQ purchased a bank's loan portfolio for $12,124,458, recovered debts from it, and then sold it back to the bank for $24,180,000. The main issue was whether the net profit of $18,492,555 from trading these non-performing loans (NPLs) was taxable under sections 10(1)(a) or (g) of the Income Tax Act. GIQ argued that both the gains and recoveries were capital in nature, thus making them non-taxable.

Legal Framework

Section 10(1) of the Income Tax Act imposes income tax on income that accrues in or is derived from Singapore. Specifically, Section 10(1)(a) explicitly includes "gains or profits from any trade, business, profession or vocation." For income to be taxable under this rule, it must originate from business activities carried out as part of a profit-making plan, not merely from asset appreciation upon sale.

The difference depends on whether property has been transferred to a business as stock in trade and realised through trading activities (taxable), or if it is held as an investment and then disposed of (non-taxable).

Key Rulings

Issue 1: Taxability of Net Recoveries

The Board determined that the NPLs are GIQ's stock-in-trade rather than investments. This classification was based on GIQ's business model of acquiring and recovering debts from NPLs as part of its debt collection operations. Consequently, the net recoveries were regarded as taxable income.

Issue 2: Taxability of Net Gains

Following the stock-in-trade classification, the Board concluded that gains from the NPL sale were taxable income under a profit-making scheme. The Board described the net gains as compensation for lost revenue—representing the debt recoveries GIQ could have obtained if it had retained the NPLs.

Crucially, the Board held that the unsolicited nature of the bank's repurchase offer did not affect this conclusion, seeing it simply as an earlier-than-expected realisation of GIQ's stock in trade.

Legal Significance

Expansion of "Stock in Trade" Definition

This decision significantly expands the scope of "stock in trade" beyond traditional tangible goods to include specialised financial assets such as NPLs in debt collection businesses.

Stock in Trade vs. Profit-Making Apparatus

The ruling highlights the essential difference between stock in trade, which includes a business's trading items, and profit-making apparatus, which relates to the operational infrastructure that allows the company to function. By classifying NPLs as stock in trade, the Board ensured that any gains from selling them would be taxed as ordinary revenue rather than capital gains.

Revenue Character Preservation

The case confirms that replacing expected business income with compensation treats it as taxable revenue, preventing taxpayers from transforming taxable business income into non-taxable capital gains through other means.