Allowances and Deductions | - ContactOne

Capital allowances (CA) are deductions that you can claim on the wear and tear of fixed assets bought and used in your trade or business. CA is given in place ... +6563330633 +6586663633 AllowancesandDeductions AllowancesandDeductions Inthissection,youwillbeintroducedtocommontaxpoliciesandtaxtreatmentsrelatingtosomeofthemostcommoncompanytransactions.Thesetaxbenefitsareinadditiontothedeductibleexpensesdiscussedinourpreviousarticle:Knowingwhataredeductibleandnon-deductibleexpenses.   CommonAllowanceandDeductionsthatyoushouldbeawareof ThefollowingarethemostcommonformsofAllowanceandDeductionsavailedtobusinessestoreducetheoverallchargeableincomeofthebusiness: CapitalAllowance Unutilisedlosses,capitalallowancesanddonations Section14QDeductionforRefurbishmentandRenovationcosts ProductivityandInnovationCredit MedicalExpenses   CapitalAllowance Capitalallowances(CA)aredeductionsthatyoucanclaimonthewearandtearoffixedassetsboughtandusedinyourtradeorbusiness.CAisgiveninplaceofdepreciation(whicharenon-deductibleexpenses).Capitalallowanceisavailedtobusinessescarryingoutatradeorabusiness.ThisimpliesthatCAisnotavailableforinvestmentholdingcompaniesderivingpassiveincomefromitsinvestments. Thefollowingtableprovidesanon-exhaustivelistofqualifyingandnon-qualifyingfixedassetsforyourbetterunderstanding. QualifyingFixedAssets Non-QualifyingFixedAssets Carpet Containersusedforcarriageofgoodsbyanymodeoftransportation Electrical&electronicequipment(e.g.air-conditioningsystem,security/alarmsystem,sprinklersystemandelectricalappliances) Furnitureandfixtures Industrialplantandmachinery Motorcycleandbicycle Motorvehicle(goods/commercialvehiclesuchaspickup,van,truck,lorryandbus) Movablepartitions Officeequipment(e.g.computer,printer,photocopier,faxmachineandtelecommunicationequipment) Showcaseordisplaylightings Signboardandothersignage Venetianblind&curtain Awning1 Containeroffice Designer’sfeesonrenovation Doors,rollershuttersandgates1 Electricalfittings1(exceptcablingforidentifiableplant,switchboardandtransformer) Falseceiling,ceilingboardsandotherceilingwork1 Fixedpartitions,walls,walltilesandotherwallfinishes1 Floortiles,raisedfloorsorotherflooringwork1 Lightingsandlightfittings1 Motorvehicle(S-plateprivatepassengercar) Waterandgaspipings1 CAClaimingMethods Therearegenerally3typesofmethodstocalculateandclaimforCAforyourtaxcomputation. A.100%WriteOffMethod Section19Aallowsyoutoclaim100%ofthecostofthefollowingassetsasCA: Computers Prescribedautomationequipment LowValueAssetsnotexceeding$5,000peritem,withacapof$30,000forallLowValueAssetsperYA. Forassetspurchasedbycash,youcanclaimfortheentireamount. ForassetspurchasedunderHirePurchasearrangement,youcanclaimfor100%oftheprincipalpaid(plusdepositamountifany). B.3YearWriteOffMethod EffectiveYA2009,allassetscanusethe3YearWriteOffmethodtoclaimCA.TheCAperyearcomputedissimplycostofassetsdivideby3. Forassetspurchasedbycash,youwillclaim1/3ofthecostoftheassetasCA. ForassetspurchasedunderHirePurchasearrangement,youwillclaimfor1/3oftheprincipalpaideachyear(plusdepositamountifany). C.Write-offovertheprescribedworkinglifeoftheassetunderSection19 Underthismethod,theCAisclaimedovertheworkinglifeoftheasset.TheworkinglifeisinaccordancetotheprescribedlifeoftheassetbasedontheSixthScheduleoftheIncomeTaxAct.Ifyouemploythismethodofclaim,youmustnotethattheCAisclaimedbasedontheconceptofInitialAllowance(IA)andAnnualAllowance(AA). Forassetspurchasedbycash,inthefirstYAofCAclaim,theCAiscomputedbasedon: CA=IA+AA 20%xCostofAsset+(80%xCostofAsset)/WorkingLifeofAsset InsubsequentYAs,theCA=AAwhichis(80%xCostofAsset)/WorkingLifeofAsset ForassetspurchasedunderHirePurchaseArrangement,youwillneedtocomputeIAandAAforeachyearwhereinstalmentswerepaidbasedon: CA=IA+AA 20%xPrincipalpaidintheYear+(80%xPrincipalPaidintheYear)/WorkingLifeofAsset Iftherearenopaymentsinayear,therewillbenoIAcomputationforthatparticularYA.   UnutilisedLosses,CapitalAllowancesandDonations Unutilisedlosses–InsufficientornoincomefromothersourcestooffsetbusinesslossesincurredduringthatYA. Unutilisedcapitalallowances–CapitalallowancesclaimedinthatYAcannotbefullyutilisedduetoinsufficiencyofincomeorbusinesslossesincurredduringthatYA. Unutiliseddonations–AllowabledonationsmadeduringtheYAismorethantheincomeforthatYA. QualifyingConditions UnutilisedLossesandDonations UnutilisedCapitalAllowances ShareholdingTest–nosubstantialchangeintheshareholdersandtheirshareholdingsasattherelevantdates. ShareholdingTest–nosubstantialchangeintheshareholdersandtheirshareholdingsasattherelevantdates. Nochangeinthecompany’sprincipalactivitiesduringtherelevantdates. RelevantDate:LastdayoftheyearinwhichthelossesanddonationswereincurredandFirstdayoftheYAinwhichthelossesanddonationsaretobededucted RelevantDate:LastdayoftheYAinwhichthecapitalallowancesaroseandFirstdayoftheYAinwhichthecapitalallowancesaretobededucted ShareholdingTest SolongasthecommonshareholdersattheTWOrelevantdatesareholdingontopercentageofsharesequalingorinexcessof50%ofalltheshares,thereisnochangeinsubstantialshareholders. Ifthereisasubstantialchangeinshareholdersandtheirshareholdings,youmaywritetoIRAStoapplyforwaiveroftheaboveshareholdingtest.Theapplicationsforwaiveroftheshareholdingtestwillbeconsideredbasedonthemeritsofeachcaseandgrantedifthesubstantialchangeinshareholdersisnottax-motivated. OrderofDeductions Inclaimingforunutiliseddeductions,thefollowingorderofdeductionsmustbefollowed: 1.Unutilisedcapitalallowances(startingwiththeCAfromtheearliestYA) 2.Currentyearcapitalallowance 3.Unutilisedlossesfrompreviousyears(startingwiththelossesfromtheearliestYA) 4.Unutiliseddonationsfrompreviousyears(startingwiththedonationsfromtheearliestYA,subjecttoamaximumof5yearsbeforethecurrentyear) 5.Currentyeardonations   Section14QDeductionforRefurbishmentandRenovationcosts Section14QDeductionforRefurbishmentandRenovationcostsisgrantedforcostsincurredfrom16Feb2008onwards.TheseeligiblecostsfordeductionarealsocalledR&Rcostsforshort. ExamplesofqualifyingR&Rcostsinclude: Generalelectricalinstallationandwiringtosupplyelectricity Generallighting Hot/coldwatersystem(pipes,watertanksetc) Gassystem Kitchenfittings(sinks,pipesetc) Sanitaryfittings(toiletbowls,urinals,plumbing,toiletcubicles,vanitytops,washbasinsetc.) Doors,gatesandrollershutters(manualorautomated) Fixedpartitions(glassorotherwise) Wallcoverings(suchaspaint,wall-paperetc.) Floorings(marble,tiles,laminatedwood,parquetetc.) Falseceilingsandcornices Ornamentalfeaturesordecorationsthatarenotfineart(mirrors,drawings,pictures,decorativecolumnsetc.) Retractableornon-retractableCanopiesorAwnings Windowsincludingthegrillesetc. Fittingroomsinretailoutlets ExamplesofNon-QualifyingR&Rcostsinclude: Anydesignerfeesorprofessionalfees Anyantique Anytypeoffineartincludingpainting,drawing,print,calligraphy,mosaic,sculpture,potteryorartinstallation Anyworkscarriedoutinrelationtoaplaceofresidenceprovidedortobeprovidedtothecompany’semployees TheSection14QdeductionMUSTBECLAIMEDover3continuousyearsofassessment,inceptingfromtheYearofAssessmentrelatingtothebasisperiodinwhichtheR&Rcostsareincurred. Remember:YoumustclaimintheYArelatingtothebasisperiodorelsetherighttodeductionswillbelost. Theamountdeductibleissimply1/3ofthequalifyingR&Rcostsforeachyear.However,pleasenotethatthereisa$300,000expenditurecapforeverythreerelevantyearperiod.   ProductivityandInnovationCredit(ThePICschemewilllapseafterYA2018) Theproductivityandinnovationcreditschemeisimplementedtoencourageentrepreneurstoinvestinefficiencyandinnovation. PICActivitiescoveredinclude: AcquisitionandleasingofPICInformationTechnology(IT)andAutomationEquipment Trainingofemployees AcquisitionandIn-licensingofIntellectualPropertyRights Registrationofpatents,trademarks,designsandplantvarieties Researchanddevelopmentactivities DesignprojectsapprovedbyDesignSingaporeCouncil HowdoesPICworks? Thereare2optionsavailabletobusinesses,subjecttoqualifyingconditionsbeingmet. Option1–400%Deduction/Allowance 400%TaxDeductionsonupto$400,000ofexpenditureperyearforYA2013/YA2014. 400%TaxDeductionsonupto$600,000ofexpenditureperyearfromYAs2015to2018 The400%deduction/allowancemethodwillbereflectedbyyourtaxagentinyourtaxreturnandbeusedtoreduceyourchargeableincome. Option2–60%(40%forpurchasesafter1Aug2016)PICCashPayout Cashpayoutonupto$100,000ofexpenditureperyear.Underthisoption,businessescanclaim60%(40%)payoutfromIRASbasedonthequalifyingexpenditureamount.Thecaptotheannualexpenditureamountis$100,000,whichimpliesthatthemaximumcashpayoutavailableforyourclaimeachyearis$60,000($40,000). Conditionstobemetbeforeyouqualifyforthe60%(40%)CashPayout: YouincurredqualifyingexpenditureandareentitledtoPICduringthebasisperiodforthequalifyingYA ThereisactivebusinessoperationsinSingapore Youhaveatleast3employeeswithCPFcontributions,excludingsole-proprietors,partnersundercontractforserviceandshareholderswhoaredirectorsofthecompany.Abusinessisconsideredtohavemetthe3-local-employeesconditionifitcontributesCPFonthepayrollofatleast3localemployeesintherelevantmonths. NotesonPICCoverageforthe2mostcommonqualifyingactivities A.AcquisitionandleasingofPICInformationTechnology(IT)andAutomationEquipment QualifyforPIC DoNotQualifyforPIC CostorleaseexpensesofITequipmentsuchasfaxmachine,laserprinter,computer,lap-topandsoftware. Cloudcomputingpayment Websitedevelopmentcostsincludingcostsincurredfortheone-timeregistrationofadomainnameforthewebsitefromYA2014 Air-conditioner Motorvehicle Motorcycle Furnitureandfittings Renovationandrefurbishmentcost Uninterruptedpowersupply(UPS) Freezer/chiller/refrigerator Refrigerateddisplay B.Trainingofemployees QualifyforPIC DoNotQualifyforPIC Trainingcostsincurredtotrainemployeesforthepurposesofthetradeandbusiness.Trainingrefersto: Externaltraining;and In-housetrainingaccreditedbySingaporeWorkforceDevelopmentAgency(WDA)orapproved/certifiedbyInstituteofTechnicalEducation(ITE). IfthetrainingisnotWDA-accreditedorITE-approved/certified,acapof$10,000perYAapplies Coursefeesontrainingattendedbybusinessowners MistakestoAvoidwhenclaimingforPIC DuplicateclaimforbothPICcashpayoutand400%taxdeductions/allowancesonthesameexpenditureunderanyofthesixPICactivities.Pleasenotethatyoucanonlyoptforeitherthecashpayoutorthe400%taxdeduction/allowance. Claiming500%insteadof400%taxdeductions/allowancesunderanyofthesixPICactivities.Pleasenotethatthe400%claimcompriseof100%normaldeductionand300%additionaltaxdeduction ClaimingPIConnon-qualifyingexpenditure: Coursefeesontrainingattendedbythebusinessowners GSTpaidbyaGST-registeredbusinessonanitemqualifyingforPIC.ThisisbecausetheGSTpaidwillberefundedduringyourGSTreturns. CostofPICITandAutomationEquipmentnotincurredduringtherelevantaccountingperiodoftheYearofAssessment(YA)ofclaim. CostthatisnotapplicabletothePICITandAutomationEquipmentsuchaswarrantyfee,servicemaintenancefeeorconsumable ConsultingfeesunrelatedtothedevelopmentofthePICITandAutomationEquipment ExpensesthathavebeensubsidizedbyaGovernment/StatutoryBoardgrantorsubsidy.ExpensesqualifyingforPICbenefitsmustbenetofsuchgrantorsubsidy. TheauthoritytakesaseriousviewoftaxpayerswhoabusethePICscheme.OffendersconvictedofPICfraudwillhavetopayapenaltyofuptofourtimestheamountofcashpayoutobtained,andafineofupto$50,000and/orimprisonmentofuptofiveyears.   MedicalExpenses Taxdeductionformedicalexpensesiscappedat1%oftotalemployeeremunerationaccruedfortheyear. Example:Totalremunerationfortheyearis$100,000.Thismeansthatbasedonthe1%rule,thecompanycanclaimupto$1,000ofthemedicalexpensesitincurredduringtheyearasdeductibleexpenses.Ifthecompanyincurred$500medicalexpenses,theamountwillbefullydeductibleagainstyourincome.Otherwise,ifthecompanyincurred$2,500medicalexpenses,$1,000willbedeductibleagainstyourincome,and$1,500willbeconsiderednon-deductible. Insomeinstances,thecaponmedicalexpensesisat2%oftotalemployeeremunerationaccruedfortheyearifthecompanyhasimplementedanyofthefollowingportablemedicalbenefitsoptions: PortableMedicalBenefitsScheme(PMBS); TransferableMedicalInsuranceScheme(TMIS); Providedemployeeswithinpatientmedicalinsurancebenefitsintheformofportablemedicalshieldplans;or Madead-hoccontributionstoemployees’Medisaveaccounts(subjecttoacapof$1,500peremployeeperyear)duringtherelevantbasisperiod. PleaserefertotheMOMwebsitefordetailsontheaforementionedmedicalbenefitsoptions. Stillhavequestions?Feelfreetocontactus! SelectLanguageEnglishChinese(Simplified)Chinese(Traditional)DutchFrenchGermanItalianJapaneseKoreanMalayPortugueseRussianSpanishThaiVietnamese