Claiming Capital Allowances For Businesses In Singapore

Capital allowances play a crucial role in the tax landscape for businesses in Singapore. Unlike regular business expenses, capital assets undergo wear and tear over time, making it essential for businesses to understand how to claim capital allowances effectively. Let’s explore the ins and outs of this process:

Understanding Capital Assets

Before delving into capital allowances, it’s crucial to differentiate capital assets from regular business expenses. Capital assets, such as machinery and equipment, are not only one-off purchases but also depreciate with use. This depreciation sets them apart from expenses like salaries or office rental. Qualifying Fixed Assets

To qualify for capital allowances, fixed assets must be deemed “plant and machinery” and integral to the company’s operations. This excludes assets meant for resale and extends to assets used in premises renovations. Notably, capital allowances are applicable to motor vehicles (lorries, vans, motorcycles, etc) except for cars, unless they’re directly utilised in the core business operations.

Calculating Capital Allowances

Capital allowances can be claimed in the year of asset acquisition, regardless of payment mode. The subsequent depreciation of assets can be written off using three methods:

1. One-Year Write-Off:

Certain assets like computers and low-value assets can be fully written off in one year, provided their value doesn’t exceed specified limits.

☞ One-Year Write-Off Example:

Let’s say a company purchases IT equipment worth $4,000 and a printer valued at $2,500 during the year. Both items fall under the category of low-value assets and qualify for a one-year write-off.

Total cost of assets: $4,000 (IT equipment) + $2,500 (printer) = $6,500

Since the total cost of assets does not exceed the $30,000 threshold for low-value assets, the company can fully write off both items in the year of purchase.

2. Three-Year Write-Off:

All asset types can be depreciated over three years, with the annual allowance set at 1/3 of the asset’s cost.

☞ Three-Year Write-Off Example:

Consider a company that buys machinery for its manufacturing operations at a cost of $60,000.

Annual allowance for three-year write-off: 1/3 of the cost

Annual allowance = $60,000 / 3 = $20,000

Over three years, the company can claim an annual allowance of $20,000, reducing its taxable income by this amount each year.

3. Write-Off Over the Prescribed Working Life of the Asset :

Alternatively, assets can be depreciated over their prescribed working life, with an initial allowance and subsequent annual allowances.

☞ Prescribed Working Life Example:

Suppose a company invests in specialised equipment for its research and development activities, costing $100,000. The equipment has a prescribed working life of five years.

Initial allowance: 20% of the asset’s value

Initial allowance = 20% of $100,000 = $20,000

Annual allowance for subsequent years: 80% of the asset’s value divided by the prescribed working life

Annual allowance = (80% of $100,000) / 5 = $16,000

In the first year, the company can claim the initial allowance of $20,000 plus an additional annual allowance of $16,000. In the following four years, it can claim an annual allowance of $16,000 each year.

Sale Of Assets

When assets are sold, the total capital allowances are deducted from the asset’s cost to determine the taxable gain or loss. Any unutilised capital allowances are adjusted accordingly, with balancing charges or allowances applied as necessary.

Asset Transfer

Businesses can transfer fixed assets to related companies, with the asset’s value treated as its unutilised capital allowances. The acquiring company can then claim these allowances as if it purchased the asset at that price.

Deferred Capital Allowances

Companies in a loss position or new ventures can defer capital allowances to future assessment years, providing flexibility in tax planning and optimisation.

How To Claim Capital Allowances for Businesses in Singapore

To claim capital allowances effectively, your company needs to follow specific steps outlined by the Inland Revenue Authority of Singapore (IRAS). Here’s how to ensure a smooth process:

• Submission Process: Capital allowance claims must be made within your company’s Corporate Income Tax Return for the relevant Year of Assessment (YA). Ensure that your tax computation, including supporting schedules, is accurately completed. If filing Form C-S/ Form C-S (Lite), retain the tax computation and submit it only upon IRAS’ request.
• Supporting Schedules:
  1. Fixed Assets Additions: Provide a concise description and cost details of any new assets purchased during the accounting year. This includes equipment, machinery, or other qualifying fixed assets.
  2. Fixed Assets Disposals: Detail any disposals of fixed assets, including a brief description, original cost, sale proceeds, and any resulting profit or loss. This information ensures accurate assessment of capital gains or losses.
  3. Capital Allowances: Present a breakdown of the basis used to calculate the total capital allowance claimed. This breakdown should include:
     • The cost or tax written down value brought forward from previous years.
     • The capital allowance amount claimed for the current year.
     • The tax written down value carried forward for each category of assets. 

If you need help in preparing the capital allowance schedule, you may use IRAS Basic Corporate Income Tax Calculator.

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