Before preparing statement of accounts for your business, you need to know what are allowable and disallowble business expenses.
What are Allowable Business Expenses?
Allowable business expenses are expenses that you can claim as deduction against your business income to arrive at your adjusted profit.
General rule for claiming expenses
You can generally claim a deduction against your business income for expenses that you incur wholly and exclusively to earn your business income.
There are some basic rules:
- The expense must be related to your business – you must be able to show why you needed to spend the money to earn the income.
- Expenses that are capital in nature cannot be claimed.
- Expenses that are personal and private in nature cannot be claimed.
|Allowable Business Expenses|
|Finance and professional costs||
|Productivity and Innovation Credit NEW!|
|Disallowable Business Expenses|
|Private Hire Cars/Private Cars Expenses||
|Other Disallowable Expenses||
The PIC was introduced in Singapore Budget 2010 and is available from YA 2011 to YA 2015. Under the PIC scheme, businesses can claim a total deduction of 250% on the expenditure spent on any of the following 6 qualifying activities:
1.Purchase/ Lease of Automation Equipment2.Training of Employees3.Acquisition of Intellectual Property4.Registration of Intellectual Property5.Research and Development6.Approved Design
For YA 2011 and 2012, a combined cap of $600,000 of expenditure applies for each qualifying activity. For YA 2013 to YA 2015, the cap is $300,000 for each activity for each YA.
Your business purchased qualifying automation equipments for $400,000 in YA 2011. The amount of capital allowance (CA) that will be given to your business is as follows:
Base allowance (normal CA at 100%) : $400,000 x 100% = $400,000
Enhanced allowance (150%) : $400,000 x 150% = $600,000
Total capital allowance for YA 2011 : $400,000 + $600,000 = $1,000,000
Your business incurred another $300,000 on automation equipments in YA 2012. The amount of capital allowance claim will be calculated as follows:
Base allowance (normal CA at 100%) : $300,000 x 100% = $300,000
Enhanced allowance (150%) : $200,000* x 150% = $300,000
Total capital allowance for YA 2011 : $300,000 + $200,000 = $600,000
*The combined cap for each activity in YA 2011 and 2012 is $600,000. As $400,000 of the expenditure has been allowed for enhanced allowance in YA 2011, only $200,000 will be allowed for enhanced allowance in YA 2012.
How to claim PIC
The amount of qualifying PIC enhanced allowance/deductions to be claimed should be included under the “Allowable Business Expenses” of the 4-line statement in Form B (self-employed) or Form P (partnership).
The prescribed form, PIC Enhanced Allowances/Deductions Declaration Form for Sole-proprietors & Partnerships (164KB), should be submitted together with the Income Tax Return (Form B or Form P) by the filing due date.
For sole-proprietors claiming PIC enhanced allowance/deductions for more than 1 business, please submit separate annexes for each type of expenditure claimed for each individual business. However, only 1 declaration form is required.
If you file your tax return electronically, the completed prescribed form has to be sent to IRAS within 14 days after you have e-filed.
For businesses with revenue of $500,000 or more, the completed prescribed form is to be submitted together with the certified statement of accounts and tax computation.
With effect from YA 2008, in recognising that employers’ provision of portable medical shield plans or ad-hoc contributions to the Medisave accounts of employees achieve the same objective as the PMBS and TMIS, you may claim a tax deduction up to 2% of the total employees’ remuneration if your business:
1. has provided your employees with inpatient medical insurance benefits in the form of portable medical shield plans (excluding premiums for riders that cover deductibles and co-payments); or
2. has made ad-hoc contributions to your employees’ Medisave Accounts (subject to a cap of $1,500 per employee per year regardless of the number of employers the employee has) during the relevant basis period.
Tax deduction will remain capped at 1% of total remuneration if your business is not on PMBS or TMIS or do not provide portable medical shield plans or make ad-hoc medisave contributions for your employees.
Capital expenditure incurred on renovation or refurbishment works
Currently, capital expenditure incurred on renovation or refurbishment works (R&R costs) carried out on the business premises is not allowable as a tax deduction, unless the R&R costs constitute expenditure on repairs or replacements with no element of improvement.
Such R&R costs also do not qualify as capital allowances unless they form part of an industrial building which qualifies for industrial building allowances. This is because they are incurred in relation to the business setting within which the business is carried on and not on the provision of “plant or machinery”.
Section 14Q deduction for expenditure incurred on renovation or refurbishment works (R&R Costs)
To help businesses, particularly small and medium enterprises, reduce their business costs, tax deduction will be granted on all qualifying R&R costs incurred between the period 16 Feb 2008 to 15 Feb 2013 under Section 14Q of the Income Tax Act.
Under Section 14Q, the amount of R&R costs that will qualify for tax deduction is subject to an expenditure cap of $150,000 for each taxpayer over every relevant three-year period. The three-year period starts from the year in which the R&R costs were incurred and a deduction is claimed by the taxpayer. The amount of qualifying R&R costs incurred will be allowed as a deduction equally in 3 consecutive YAs.
For partnerships, the expenditure cap of $150,000 will be applied at the partnership level. Tax deduction will be allowed up to a cap of $150,000 over the three-year period.
Your business incurs qualifying R&R costs of $200,000 on 1 Mar 2009 (basis period is 1 Jan 2009 to 31 Dec 2009) but business ceases on 31 Dec 2010.
You will be given a tax deduction of $50,000 ($150,000 / 3 years) against your income for each of the YAs 2010 and 2011. As there is no income derived from the business from 1 Jan 2011 (basis period for the YA 2012), the balance $50,000 will not be allowed to you for YA 2012.
The following items will generally qualify for Section 14Q deduction if they do not affect the structure of the business premises:
(a) General electrical installation and wiring to supply electricity;
(b) General lighting;
(c) Hot/cold water system (pipes, water tanks etc);
(d) Gas system;
(e) Kitchen fittings (sinks, pipes etc);
(f) Sanitary fittings (toilet bowls, urinals, plumbing, toilet cubicles, vanity tops, wash basins etc.);
(g) Doors, gates and roller shutters (manual or automated);
(h) Fixed partitions (glass or otherwise);
(i) Wall coverings (such as paint, wall-paper etc.);
(j) Floorings (marble, tiles, laminated wood, parquet etc.);
(k) False ceilings and cornices;
(l) Ornamental features or decorations that are not fine art (mirrors, drawings, pictures, decorative columns etc.);
(m)Canopies or awnings (retractable or non-retractable);
(n) Windows (including the grilles etc.);
(o) Fitting rooms in retail outlets.
No deduction will be allowed on expenditure relating to:
(a) Any designer fees or professional fees;
(b) Any antique; or
(c) Any type of fine art including painting, drawing, print, calligraphy, mosaic, sculpture, pottery or art installation.
How to claim the Section 14Q deduction?
The amount of qualifying R&R costs to be claimed should be included under the “Allowable Business Expenses” of the 4-line statement in Form B (self-employed) or Form P (partnership).
To claim the Section 14Q deduction on the qualifying expenditure, please submit an itemised list of the renovation or refurbishment works using the prescribed form.
If you have incurred these expenses for more than one business, please submit the prescribed form for each business.
Please confirm on the prescribed form that the renovation or refurbishment works do not require the approval of the Commissioner of Building Control (which means the renovation and refurbishment works do not involve structural changes).
If you file your tax return electronically, the completed prescribed form has to be sent to IRAS immediately after you have e-filed.
For business with revenue of $500,000 or more, the completed prescribed form is to be submitted together with the certified statement of accounts and tax computation.
For full details of the Section 14Q deduction, please refer to the e-Tax Guide “Deduction For Expenditure Incurred On Renovation or Refurbishment Works“
Enhancement of the Deduction for Expenditure incurred on Renovation or Refurbishment Works for YA 2010 and YA 2011
As announced in the Budget 2009 Statement, taxpayers who incurred qualifying R&R costs in the basis periods for YAs 2010 and 2011 will have the option of claiming the tax deduction in one year instead of three years. The other conditions for the deduction under S14Q remain unchanged.
Your business’ qualifying R&R costs: $60,000 on 5 June 2008, $80,000 on 1 Mar 2009 and $20,000 on 3 Feb 2010
Your tax deduction will be as follows:
|R&R costs incurred||$60,000||$80,000||$20,000|
|Qualifying R&R costs||$60,000||$80,000||**$10,000|
* 20,000 = 60,000/3
** As the expenditure cap of $150,000 has been reached for the relevant 3-year period, no deduction will be allowed in respect of the remaining $10,000 incurred on 3 Feb 2010.
If your business is:
- carrying on a trade in manufacturing; or
- carrying on a business for the provision of any services;
you can claim deductions for research & development (R&D) expenditure related to that trade or business:
- incurred by your business; or
- incurred on R&D activities outsourced to any R&D organisations
In addition, your business may enjoy double tax deduction on the R&D expenditure incurred if it is approved by Economic Development Board (EDB).
Enhancement of R&D Tax Deductions from YA 2009 to YA 2013
With effect from Year of Assessment 2009, the tax deductions of R&D expenditure is no longer restricted to manufacturing business or business for the provision of services. The changes in tax deductions for R&D expenses are as follows:
1.Removal of the requirement that R&D expenses incurred must be related to the existing trade or business.
Your business can qualify for tax deduction on expenditure incurred on qualifying R&D activities conducted in Singapore which is unrelated to your existing trade or business.
2. Enhanced deduction for R&D expenses under Section 14DA in respect of R&D done in Singapore.
The tax deduction has been raised from 100% to 150% of the actual R&D expenditure incurred on R&D done in Singapore.
Qualifying R&D Expenditure
The following types of expenditure incurred in connection with qualifying R&D activities carried out in Singapore are eligible for further tax deduction equal to 50% of the expenditure under Section 14DA:
(a) Staff costs (excluding directors’ fees);
For more details, please refer to Annex A, B & E of the e-Tax Guide “Research And Development Tax Measures“.
How to claim the R&D deduction?
The amount of qualifying R&D expenditure claimed is to be included under the “Allowable Business Expenses” of the 4-line statement in the Form B (self-employed) or Form P (partnership).
You are also required to submit a completed prescribed R&D claim form together with the breakdown showing the items of qualifying R&D expenditure incurred during the basis period.
If you file your tax return electronically, the completed prescribed form and the breakdown of the qualifying R&D expenditure have to be sent to IRAS immediately after you have e-filed.
For business with revenue of $500,000 or more, the completed prescribed form and the breakdown of the R&D expenditure are to be submitted together with the certified statement of accounts and tax computation.
Expenses incurred before commencement of business
You may claim allowable business expenses for the expenses that you incur from the first day of the accounting year even though your business commenced later during the year.