Corporate Tax Guide: Claiming Capital Allowances in Singapore

In the first year, you should simply calculate the annual capital allowance as 75% of the total cost of the asset. Then in the second year, you ... AboutUsServicesIncorporationCompanySecretarialNomineeDirectorAccountingTaxFilingPSGGuidesPSGCompanyAboutUsTermofServicesPrivacyPolicyContactUsServicesIncorporationCompanySecretarialNomineeDirectorAccountingTaxFilingPSGGuidesGeneralIndustryGuidesAccountingIncorporationTaxationExperienceWBGeneralIndustryGuidesAccountingIncorporationTaxationGeneralGeneralIndustryGuidesAccountingIncorporationTaxationShare CorporateTaxGuide:ClaimingCapitalAllowancesinSingaporeStaffWriterJanuary30,2022What’sinthearticle?Thisissometextinsideofadivblock.Thisissometextinsideofadivblock.Thisissometextinsideofadivblock.Thisissometextinsideofadivblock.Thisissometextinsideofadivblock.AmongthemanytaxbenefitsthatbusinessesgetontheircapitalexpenditureinSingaporeiswhattheIRAS(InlandRevenueAuthorityofSingapore)calls“capitalallowance”. Totakeadvantageofit,though,youneedtounderstandwhatitentails,whatqualifiesascapitalexpenditure,howtocalculateyourcapitalallowancesinSingapore,aswellashowtoclaimthem. Here’sacompletebreakdownofeverything...WhatAreCapitalAllowances?Capitalallowances,tobeginwith,aresimplytaxdeductionsthatyougetforthewearandtearoffixedassetsthatyoupurchasedandusedinyourbusinessortrade.TheIRASpreferstocallthefixedassets“plantandmachinery”-andtheyincludestufflikeofficeequipment,furniture,carpets,electronics,computers,etc. Thewholeprocessoffilingforcapitalallowancecoveringaperiodoftimecanbereferredtoas“writingofftheasset”.TheIRASonlyallowsyoutoincludebusinessfixedassetsthathaveundergone“wearandtear”ordepreciatedovertime. It’sworthnoting,however,thatyoucannotclaimtaxdeductionsforanydepreciationthatyou’veaccountedforinyourcompany’sfinancialstatements. WhoCanClaimThem?CapitalallowancetaxbenefitsareopentoallcompaniesinSingapore.TheIRASallowsyoutoclaimdeductionsoncapitalexpenditureyou’velostthrough“plantandmachinery”usedinyourcompany’sbusinesses. Notallformsofcapitalexpenditurearecovered,though.Todoawaywithcasesofdouble-incentivization,thegovernmentofSingaporeannouncedin2020thatcapitalallowancewon’tcovergovernmentgrantsfromtheyear2021.Thatmeansyoucan’tincludeanycapitalgrantsyou’vereceivedfromthegovernmentorstatutoryboardsaspartofyourcapitalexpenditure. Toputitintoperspective,considerabusinessthatpurchasesequipmentworth$300,000andthenproceedstouseitinitsactivities.If,sayS$50,000ofthatcapitalexpenditurewasacquiredfromagovernmentgrantonorafter1stJan2021,thecompanycanonlyclaimcapitalallowanceonS$250,000. It’sthatsimpleandstraightforward. AssetsthatQualifyforCapitalAllowancesNotallcompanyassetsqualifyforcapitalallowancesinSingapore.TheIRASonlyacceptsfixedassetsor“plantandmachinery”thatyou’veusedinyourprofession,business,ortrade. Forinstance,ifyouhappentoberunningamilkprocessingplantinSingapore,youcangoaheadandclaimcapitalallowanceonallthemachinesyouusetohandleandprocessthemilk.But,youwon’tbeabletoincludeassetsthatyoupurchaseentirelyfordonationorotheractivitiesthatarenotdirectlyrelatedtoyourbusinessortrade. Allinall,thefixedassetsshouldmeetthefollowingconditions: Theyshouldnotbepartofthepremisesonwhichyourbusinessactivitiesarebeingcarriedout.Otherwise,youcouldalternativelyapplyforarefurbishmentorrenovationdeduction. Theyshouldhavebeenusedtoperformyourtradeorbusinessactivities. Theyshouldnotbepartofyourcompany’stradingstocks. HowtoCalculateCapitalAllowancesTherearethreeprimarymethodsofcalculatingyourcompany’scapitalallowancesinSingapore. Youcouldeither: Writeoffthecostofanassetoveroneyear. Writeoffthecostofanassetovertwoyears. Writeoffthecostofanassetoverthreeyears.Writeoffthecostofanassetoveritsprescribedworkinglife.100%Write-OffinOneYear TheIRASgivesyoutheoptionofclaimingcapitalallowanceontheentirecapitalexpenditureyou’vespentthatyearon: Computers. Prescribedautomationequipment. Low-valueassetsthatcostS$5,000orless. Thecalculationprocedurehereisprettystraightforward.Ifyou’veacquiredtheassetsbycash,simplyconsiderthetotalcostoftheassetasyourannualcapitalallowance. Asforfixedassetsacquiredviahirepurchase,theIRASrequiresyoutoclaimannualcapitalallowanceontheprincipalamountanddepositspaid. Write-OffOverThreeYearsSince2009,theIRAShasgivencompaniestheoptionofspreadingtheircapitalallowanceclaimsoverthreeyears. Inthatcase,yousimplyestablisheachyear’scapitalallowanceasathirdofthetotalcostoftheassets.Thenwhenitcomestoassetsthatyou’veacquiredunderhirepurchase,eachyear’sannualallowanceissimplyathirdofprincipalpaymentsanddeposits. Write-OffOverTwoYearsThisoptionwasintroducedintheyear2020’sbudget.Itbasicallyallowscompaniestoexpeditetheirwrite-offsovertwoyearsinsteadoftheusualthreeyears. Inthefirstyear,youshouldsimplycalculatetheannualcapitalallowanceas75%ofthetotalcostoftheasset.Theninthesecondyear,youcanproceedtoclaimtherestofthecapitalexpenditure(25%oftheassetcost). Write-OffOverthePrescribedWorkingLifeoftheAssetThismethodisalittlebitcomplicatedbecause,unliketheotherthree,itspreadsthecapitalallowanceclaimsovertheprescribedworkinglifeofthefixedassets. Motorvehicles,forexample,haveaprescribedworkinglifeofsixyears,whilemotorcyclesstretchtoeightyears. Andtocalculatetheclaims,considerthefirstyear’scapitalallowanceas20%ofthetotalcostoftheassetifitwaspurchasedincash,or20%oftheprincipalamountanddepositspaidifitwasacquiredviahirepurchase.Therestoftheamount(80%)isthenwrittenoffinequalannualallowancesspreadovertheprescribedworkinglifeyears. Intheend,companiesarerequiredtoroundofftheprescribedworkinglifeyearstoeither6,12,or16years.Thatmeansyougettoclaimallowancesfor6,12,or18years. HowtoClaimCapitalAllowancesToclaimcapitalallowancesinSingapore,theIRASrequiresyoutoattachthefollowingdocumentstoyourFormC.But,ifyou’refilingFormC-S,youcankeepthedocumentsuntilIRASrequeststhem. Theyinclude: FixedAssetsAdditions:Thisshouldlistanddescribeallthenewassetsthatyouacquiredintheaccountingyear,alongwiththeirrespectivecosts. FixedAssetsDisposals:Thisshouldlistanddescribeallthefixedassetsthatyou’vesoldorwrittenoffinthatparticularaccountingyear,alongwiththeircosts,plussaleproceeds. CapitalAllowances:Thisshoulddemonstratehowyoucalculatedandestablishedthecapitalallowancesyou’reclaiming.Assuch,yououghttoincludeabreakdownofeachasset’swrittendownamountsbroughtforward,thecorrespondingcapitalallowanceamount,plusthevaluescarriedforward. OvertoYouWeunderstandthatcalculatingyourcapitalallowances,claimingthedeductions,andkeepingtrackofeverythingovertheyearscanbeacomplicatedprocess.That’swhywe’reheretohelpyouwitheverything. So,goaheadandgetintouchwithustogetstarted.Ourconsultationsarealwaysfreeofcharge.  What'spopularStaffWriterAccountingWhentoHireanAccountantforYourSmallBusinessStaffWriterGeneralAnnualGeneralMeetings(AGMs)inSingaporeStaffWriterAccountingThe7BenefitsofCloudAccountingShare