Capital Allowances - Singapore
- a22162
- Feb 14
- 5 min read
Updated: 4 days ago
Singapore Capital Allowance Explained
Capital Allowances in Singapore are a system of tax deductions that businesses can claim for the wear and tear of qualifying fixed assets used in their trade or business. Instead of depreciation, which is not tax-deductible, companies can claim these allowances as outlined by the Inland Revenue Authority of Singapore (IRAS). These allowances help to reduce the taxable income of a company.
Key Aspects of Capital Allowances:
Qualifying Fixed Assets: Generally, these are categorized as plant and machinery that are essential for the company's business operations. Key characteristics include:
Not being part of the company's trading stock.
Facilitating business operations.
Not forming part of the premises where the business operates (in which case, renovation and refurbishment deductions might apply).
Methods of Claiming Capital Allowances: There are several ways to claim capital allowances, as specified under Section 19 and 19A of the Income Tax Act:
Write-off over the working life of the asset (Section 19): An initial allowance (IA) of 20% of the asset's cost is usually granted in the first Year of Assessment (YA). The remaining 80% is written off as an annual allowance (AA) over the prescribed working life of the asset (typically 6, 12, or 16 years). The choice of working life is usually irreversible.
3-year write-off (Section 19A(1)): The cost of the qualifying asset is written off in equal installments over three YAs.
2-year write-off (Section 19A(1E)): For assets acquired during the basis periods relating to YA 2021, YA 2022, and YA 2024, businesses have the option to claim 75% of the cost in the first YA and the remaining 25% in the second YA. This option is irrevocable.
1-year write-off (Section 19A(2) and 19A(10A)):
Specific Assets: A 100% write-off is allowed in the year of purchase for certain assets like computers, prescribed automation equipment, generators, and robots.
Low-Value Assets: Assets costing SGD 5,000 or less can be fully written off in a single year, with a total cap of SGD 30,000 for all such assets in one YA.
Accelerated Capital Allowances: For plant and machinery acquired during YA 2021, 2022, and 2024, companies can claim 75% of the asset's cost in the first YA and the remaining 25% in the second YA.
Motor Vehicles: Generally, capital allowances are not granted for private cars (S-plated, RU-plated, and company cars). However, they can be claimed for other commercial vehicles like vans, lorries, and motorcycles used for business purposes. Capital expenditure on cars registered and used exclusively outside Singapore for business purposes may also qualify.
Low-Value Asset Write-Off: As mentioned, assets costing SGD 5,000 or less can be written off in the year of purchase, with a maximum total claim of SGD 30,000 per YA.
Renovation and Refurbishment (R&R): While typically capital in nature and not tax-deductible, R&R expenses can be claimed under Section 14Q of the Income Tax Act. Businesses can deduct up to SGD 300,000 in R&R expenses for each relevant three-year period. For expenses incurred during the basis period for YA 2024, a one-year write-off option is available.
Land Intensification Allowance (LIA): This incentive encourages increased land productivity for industrial users by offering capital relief for constructing or renovating qualifying buildings. Qualifying companies can claim a 25% initial allowance and a 5% yearly allowance for expenses incurred after 25 February 2010. This is available from 1 July 2010 to 31 December 2025.
Sale of Qualifying Assets: If a qualifying asset is sold for more than the capital allowances claimed, a clawback of the excess amount may apply. If the sale proceeds are less, an additional allowance can be claimed in the year of sale.
Intellectual Property (IPR): Writing-down allowances (WDAs) can be claimed for capital expenditures on specific IPs until the basis period for YA 2025. The allowance can be spread over 5, 10, or 15 years on a straight-line basis.
Claiming Process: Capital allowance claims are made within the company's Corporate Income Tax Return for the relevant YA. Proper schedules and documentation detailing the assets, costs, and calculations should be maintained and submitted with Form C or retained for submission upon IRAS request (for Form C-S filers).
Understanding and correctly claiming capital allowances can significantly impact a company's tax liability in Singapore. It's important to refer to the latest IRAS guidelines and the Income Tax Act for the most up-to-date information and specific rules.
How Bestar can Help
Seeking professional help with capital allowances in Singapore can be incredibly beneficial for businesses of all sizes. Here's how Bestar can assist:
1. Expert Knowledge and Interpretation:
Navigating Complexity: Singapore's tax laws regarding capital allowances can be intricate, with various sections of the Income Tax Act (e.g., Sections 19, 19A, 14Q) and specific rules for different asset types. Bestar possesses in-depth knowledge of these regulations and can accurately interpret them for your specific situation.
Staying Updated: Tax laws and IRAS guidelines are subject to change. Bestar stays abreast of these updates, ensuring your claims are always compliant with the latest requirements (like the recent extensions and changes to accelerated allowances).
Identifying Qualifying Assets: We can accurately identify which of your business assets qualify for capital allowances, ensuring you don't miss out on potential deductions or incorrectly claim for non-qualifying assets.
2. Maximizing Claims and Tax Savings:
Choosing the Optimal Method: Bestar can advise on the most advantageous method for claiming capital allowances (e.g., normal write-off, 3-year, 2-year, or 1-year write-off) based on your cash flow and tax planning objectives.
Strategic Timing of Purchases: We can provide guidance on the timing of asset acquisitions to optimize your capital allowance claims in a particular Year of Assessment.
Claiming All Eligible Allowances: We ensure you are claiming all eligible allowances, including initial allowances, annual allowances, accelerated allowances, and any specific write-offs for certain asset categories or low-value assets.
Understanding Special Cases: We can handle complex scenarios, such as the sale or disposal of assets, ensuring the correct adjustments (balancing adjustments) are made to your capital allowance claims.
3. Ensuring Compliance and Avoiding Penalties:
Accurate Calculations: Bestar is skilled in performing the necessary calculations for capital allowance claims, minimizing the risk of errors.
Proper Documentation: We can advise on the record-keeping requirements for capital assets and capital allowance claims, ensuring you have the necessary documentation to support your submissions in case of an IRAS audit.
Correct Filing: We ensure that capital allowance claims are correctly reported in your company's Corporate Income Tax Return (Form C or Form C-S) and any accompanying schedules.
Minimizing Audit Risk: By ensuring accuracy and compliance, Bestar helps reduce the risk of an IRAS audit and potential penalties for incorrect claims.
4. Saving Time and Resources:
Freeing Up Internal Resources: Managing capital allowance claims can be time-consuming for internal staff. Engaging Bestar allows your team to focus on core business activities.
Efficiency and Expertise: Bestar has the expertise and systems in place to handle these tasks efficiently, saving you time and potential frustration.
5. Providing Strategic Business Advice:
Tax Planning Integration: Capital allowance planning can be integrated into your overall tax strategy to optimize your tax position over the long term.
Understanding Tax Incentives: Bestar is also aware of other relevant tax incentives and how capital allowances might interact with them.
In summary, engaging professional help with capital allowances in Singapore provides:
Accuracy and Compliance: Ensuring your claims adhere to the latest tax regulations.
Optimization: Maximizing your eligible deductions and reducing your tax liability.
Efficiency: Saving you time and resources by handling the complexities of the process.
Strategic Guidance: Integrating capital allowances into your broader financial and tax planning.
By partnering with Bestar, businesses can confidently navigate the capital allowance landscape in Singapore and reap the full benefits of these valuable tax deductions.
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