The Singapore tax system provides several schemes and allowances to promote investment, innovation, and growth. One of these is the capital allowance, which enables businesses to deduct the cost of eligible assets used in their operations over a designated period, allowing for cost recovery.
What Is Singapore Capital Allowance?
Capital allowances in Singapore pertain to the deductions that businesses can claim for the depreciation or gradual wear and tear of eligible fixed assets. Capital allowances serve as an alternative method for businesses to recover the costs associated with qualifying assets. When investing in machinery, equipment, vehicles, and other eligible assets, businesses can offset their expenses by utilizing Singapore capital allowances. By reducing taxable profits, these deductions effectively lower the overall tax liability for businesses.
Who Can Claim Singapore Capital Allowance?
Singapore capital allowances can be claimed by companies that have acquired and utilized qualifying fixed assets for their trade or business. Fixed assets, such as machinery, equipment, vehicles, and other similar assets, naturally experience wear and tear and depreciation over time. Rather than using the depreciation method, businesses have the option to claim Singapore capital allowances which are reflected in financial statements but they are not tax deductible.
What Are The Assets That Qualify For Singapore Capital Allowance?
To be eligible for Singapore capital allowances, the assets must fall within the category of “plant and machinery” and be actively used in the company’s business, trade, or profession. The term “plant and machinery” generally encompasses fixed assets that meet specific criteria. These assets should not be classified as trading stock intended for resale, but rather serve as equipment or devices utilized in the company’s business operations or trade activities.
How to Calculate Singapore Capital Allowances
When calculating Singapore capital allowances, companies have various methods to choose from. Companies can either:
1. Write-Off Over 2 Years
A company has the flexibility to accelerate the write-off of assets over two years, providing an alternative to the standard three-year write-off or the asset’s prescribed working life. This option is available for assets acquired during specific basis periods.
Under this accelerated Singapore capital allowance scheme, 75% of the incurred cost is written off in the first year, followed by 25% in the second year.
It’s crucial to remember that this option forbids the postponement of capital allowance claims. Even though they are paid after the corresponding YAs, all relevant base period installments for assets purchased through hire purchase are subject to the accelerated rates.
2. Write-Off Over 3 Years
Your company can opt for a 3-year write-off for all eligible assets to claim Singapore capital allowances. The capital allowance is given as an annual allowance (AA) under this arrangement.
For assets bought with cash, the annual allowance is equal to one-third of the asset’s cost. For assets acquired through hire purchase, the AA is one-third of the principal payment (plus any applicable deposit).
3. Write-Off Over Over the Prescribed Working Life
If the working life is under 12 years, a company has the option of claiming Singapore capital allowance over either 6 or 12 years. Meanwhile, the choices are 6, 12, or 16 years for assets with a working life of 16 years.
How to Claim Singapore Capital Allowances
The company is required to include the following supporting schedules in its tax calculation alongside the capital allowance claims when submitting its Corporate Income Tax Return for the relevant Year of Assessment (YA). If filing Form C, it is necessary to include the tax computation. However, if filing Form C-S or Form C-S (Lite), the tax computation should be retained and submitted only upon request by IRAS.
Please ensure that the following information is included:
1. Fixed assets additions: Provide a concise description of the newly acquired assets during the accounting year, along with their respective costs.
2. Fixed assets disposals: Include details regarding any fixed assets that were sold or written off during the accounting year, including descriptions, costs, sale prices, and the resulting profit or loss from the disposal.
3. Capital allowances: Present a breakdown of the brought forward cost/tax written down value, the amount of capital allowances, and the carried forward tax written down value for each asset type. This breakdown should demonstrate the methodology employed to determine the overall capital allowance claimed.
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Singapore Capital Allowance – Frequently Asked Questions
1. What is a Singapore capital allowance?
Singapore Capital Allowance is a tax incentive provided by the Singapore government to encourage businesses to invest in qualifying assets. This allowance enables businesses to deduct a portion of the qualifying asset acquisition costs from their taxable income over a designated period of time.
2. What assets qualify for Singapore capital allowance?
Assets such as machinery, equipment, furniture, computers, and vehicles that are utilized for business purposes are generally eligible for capital allowances in Singapore. However, it is essential to refer to the specific guidelines and regulations to determine the eligibility of assets.
3. How is the Singapore capital allowance calculated?
The computation of capital allowance is contingent upon both the category of the asset and the selected write-off approach. In general, for assets purchased with cash, the annual allowance is determined as a percentage of the asset’s cost. For assets acquired under hire purchase, the annual allowance is based on the principal payment made towards the asset.
4. Can I choose the write-off period for Singapore capital allowance?
Yes, businesses have the flexibility to choose the write-off period for capital allowances based on their specific needs and circumstances. The options include one-year write-off, two-year accelerated write-off, three-year write-off, or over the prescribed working life of the asset.
