Tan How Teck


This article examines when income under long-term contracts is derived in Australia and Singapore. Grollo is revisited in the context of Australian Income Tax Ruling IT2450, and the Australian test of ‘recoverability’ for derivation is reviewed. Next, the Income Tax Board of Review’s reasoning in MPD, the only Singapore case that directly dealt with the timing of income recognition, is examined. Some common law cases on long-term contracts are also surveyed to distil the principles underlying derivation. The concept of derivation is similar in both countries, with MPD adopting the notion that the money must have ‘come home’ to the taxpayer for income to be derived or earned. Income under a long-term contract is derived when a right to receive the payments has arisen to the taxpayer, the taxpayer has provided the services contracted for, and he is not required to fulfil any further obligation.