What happened
IRAS issued the Third Edition of its e-Tax Guide Income Tax Treatment of Hybrid Instruments on 26 December 2025. Two 2026 advance rulings then applied it with opposite results.
No. 6/2026 (1 April): subordinated perpetual securities issued by the trustee of a listed REIT were treated as debt. This was despite equity classification under SFRS(I) 32, discretionary non-cumulative distributions and no fixed redemption date. Distributions are interest and can qualify for the qualifying debt securities (QDS) concessions. The issuer's deduction under s14(1)(a) depends on how the proceeds are used, and is available only when distributions become legally due and payable.
No. 16/2026 (1 October): redeemable, non-convertible, non-cumulative, participating, non-voting preference shares issued to existing joint-venture shareholders were treated as equity. They rank equally with ordinary shares on liquidation, have no maturity, can be redeemed only at the issuer's discretion and pay discretionary dividends. Those dividends are exempt one-tier dividends under s13(1)(za).
Why it matters
Neither the accounting label nor the instrument's name decided the outcome. IRAS weighs the factors in paragraph 5 of the guide together. These are the investor's residual interest, participation and voting rights, any obligation to repay, whether payouts are mandatory or cumulative, enforceability and ranking. Debt treatment opens up deductions and QDS concessions for issuers. Equity treatment gives exempt dividends to investors but no deduction for the issuer.
What to do now
Test each funding instrument against the paragraph 5 factors before issue, and model the outcome for both issuer and holder, including withholding tax. For perpetuals, track how the proceeds are used so that the deduction can be supported. Where one feature points the other way from the rest, consider an advance ruling.
Key resources
General information only; not tax or legal advice.
