IRAS Tax Relief: Maximizing Unutilized Capital Allowances, Trade Losses, and Donations
Managing taxes effectively is key to optimizing your business finances. One of the ways Singapore businesses can reduce their tax burden is through unutilised items like capital allowances, trade losses, and donations. These tax reliefs can provide substantial savings if managed well, especially during leaner years when income may not be enough to offset these deductions.
What Are Unutilised Items?
• Capital Allowances: If your company made significant investments in machinery, equipment, or other qualifying assets, the depreciation (known as capital allowances) may not be fully utilized if there was insufficient income to offset it during a particular Year of Assessment (YA).
• Trade Losses: Companies that incur losses from their trade or business during a YA can carry forward these losses for future use when profits are earned, or use them to offset income from the previous year.
• Donations: If your company made qualifying donations during the year, but didn’t have enough income to fully utilize the tax deduction, you can carry forward the unused donation amount for up to 5 YAs.
How Your Business Can Benefit:
1. Carry Forward Unutilised Items
- You can carry forward unutilised capital allowances, trade losses, and donations to offset future taxable income, reducing your tax liability in profitable years.
2. Carry Back to Offset Previous Year’s Income
- If your company incurred capital allowances or trade losses in the current year (e.g., YA 2023), you can carry them back to offset the income earned in the immediate preceding year (e.g., YA 2022), up to a cap of $100,000.
3. Group Relief for Related Companies
- If your business is part of a corporate group, you can transfer current-year unutilised items such as capital allowances, trade losses, and donations to another company within the same group. This ensures that the tax benefits are maximized across the group as a whole.
Qualifying Conditions:
• For Capital Allowances and Trade Losses: These can be carried forward indefinitely, provided that shareholding continuity and business activity tests are met.
• For Donations: Unutilised donations can be carried forward for up to 5 YAs. For example, donations made in YA 2018 must be fully utilized by YA 2023, or they will expire.
