Singapore Capital Allowance: A Detailed Guide

Capital allowance is a vital component of Singapore's tax regime, offering businesses tax relief on qualifying capital expenditure. At Apexia Corporate Advisory, we aim to simplify the complexities of capital allowance for businesses looking to optimize their tax strategies.

What is Capital Allowance?

Capital allowance is a tax deduction that businesses can claim for the wear and tear of qualifying fixed assets used in their trade or business. This allows businesses to offset their taxable income and reduce their tax liabilities effectively.

Qualifying Assets

According to the Inland Revenue Authority of Singapore (IRAS), capital allowance can be claimed on fixed assets that are used in the trade or business, such as:

• Plant and machinery used in the production of income.
• Office equipment, including computers and printers.
• Vehicles, excluding private cars.
• Fixtures and fittings installed for trade purposes.

Assets must be owned by the business at the time of use, and the expense must not fall under the prohibited categories specified by IRAS.

Summary of Methods to Claim Capital Allowances

There are various methods to claim capital allowances depending on the type of asset and the preferred timeline for claiming deductions:

Over Working Life of Asset (Section 19)

This method applies to all qualifying assets. The working life is determined by the Sixth Schedule of the Income Tax Act 1947. From YA 2023, businesses can choose:

• 6 or 12 years for assets with a prescribed working life of 12 years or less
• 6, 12, or 16 years for assets with a prescribed working life of 16 years

Initial Allowance (IA): 20% of the asset cost
Annual Allowance (AA): (80% of the asset cost) divided by the number of working life years

3-Year Write-Off (Section 19A(1))

This method applies to all qualifying assets. The annual allowance is computed as:

AA: 1/3 of the asset cost

2-Year Write-Off (Section 19A(1E))

This method applies to assets acquired during the basis periods for YAs 2021, 2022, and 2024:

• For YA 2021 or YA 2022 or YA 2024: AA = 75% of the asset cost
• For YA 2022 or YA 2023 or YA 2025: AA = 25% of the asset cost

1-Year Write-Off (For Specific Assets - Section 19A(2))

This applies to specific assets, such as:

• Computers
• Prescribed automation equipment listed in the Income Tax (Automation Equipment) Rules

AA: 100% of the asset cost

1-Year Write-Off (Low-Value Assets - Section 19A(10A))

This applies to low-value assets where the cost per asset does not exceed $5,000. The total claim for all such assets is capped at $30,000 per YA:

AA: 100% of the asset cost

Balancing Allowances and Charges

When an asset is sold, scrapped, or otherwise disposed of, a balancing allowance or charge may arise. If the sale price is less than the tax-written-down value, the difference qualifies as a balancing allowance. Conversely, if the sale price exceeds the tax-written-down value, the excess is considered a balancing charge and added back to the taxable income.

How to Claim Capital Allowance

To claim capital allowance, businesses must:

• Identify qualifying assets used in the business.
• Maintain accurate records of acquisition, usage, and disposal.
• Submit the claim via the company's annual income tax return using the appropriate forms provided by IRAS.
• Ensure compliance with IRAS guidelines to avoid penalties or rejections.

How Apexia Corporate Advisory Can Help

At Apexia, we offer comprehensive support for capital allowance claims. Our expertise ensures your business maximizes tax savings while complying with IRAS regulations. Let us help you navigate the process and improve your financial efficiency.

Our team is happy to assist you and help to enhance the eligible capital allowances claim through our study. Our vast experience in tax advisory, as well as detailed knowledge on application of the current legislation is key to delivering value to our clients. We provide a comprehensive report in a structured manner that will form the basis of the capital allowances analysis and computations, and reconcile the total capitalised costs to the accounting and income tax records, in accordance with the legislation and best practice, to be reviewed by the tax authority. Contact us today for professional support tailored to your business needs!