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TOPIC 4
Capital Allowances
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OUTLINE
• Concept of Capital Allowances

• Plant & Machinery Allowances (P&M) (S19-24)

-Definition of plant
-Types of Capital Allowances (S19 / 19A)
-Balancing allowance/charge (S20)
-Replacement of P&M (S21)
-Related party transfers (S24)

• Writing Down Allowances (S19B,C,D)

• Industrial Building Allowances (S16-18)

- phased out after 22 Feb 2010

• Land Intensification Allowance

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Concept of Capital Allowances (CA)

What is CA?
• Expenditures incurred on the purchase of qualifying fixed
assets* is capital in nature

• Accounting Depreciation is not deductible for tax purposes

• For tax purposes, the wear and tear expenses of the fixed
asset used in trade or business –“Capital Allowances” (CA)

* Plant & machinery for tax purposes

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Who can claim CA

Taxpayer must be carrying on a trade, business or profession
[Section 10(1)(a)]

Capital expenditures must have been incurred (“liability to pay”)

on the plant & machinery, include installation cost to put the
assets in use

The plant and machinery must be used for the purposes of the
taxpayer’s trade, profession or business i.e. in respect of
S10(1)(a) income

The asset is not specifically prohibited under the Income Tax Act
(e.g. "S" plate private passenger car)

Capital allowance should not be claimed on the expenditure

incurred on equipment bought for donation or personal purposes
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What is a Plant & Machinery

Not defined in the Income Tax Act
IRAS sets out that "Plant and machinery" generally
refers to a fixed asset having the following
characteristics:
• not a trading stock of the company (not for resale
purposes);
• functions as an apparatus used for carrying out
the business or trade activities of the company;
and
• not part of the setting or part of the premises in
which the business is carried on.
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Items considered by IRAS as “Plant” and “Non-Plant”

Plants Non-Plants – integral and ordinary
parts of the building or structure
• Carpet
• Containers used for carriage of goods by • Container office
any mode of transportation • Designer's fees on renovation
• Electrical & electronic equipment (e.g. air- • Doors, roller shutters and gates*
conditioning system, security/alarm system) • Electrical fittings* (except cabling for
identifiable plant, switchboard and
• Furniture and fixtures transformer)
• Industrial plant and machinery • False ceiling, ceiling boards and other
• Motorcycle and bicycle ceiling work*
• Motor vehicle (goods / commercial vehicle • Fixed partitions, walls, wall tiles and other
such as pick up, van, truck, lorry and bus) wall finishes*
• Movable partitions • Floor tiles, raised floors or other flooring
work*
• Office equipment (e.g. computer, printer,
• Lightings and light fittings*
photocopier, fax machine and
• Motor vehicle (S-plate private passenger
telecommunication equipment)
car)
• Showcase or display lightings • Water and gas pipings*
• Signboard and other signage
• Venetian blind & curtain *S14Q deduction

Source: Annex B and C, IRAS Circular, “Machinery and Plant: Section 19/19A of the Income Tax Act”, dated 1.7.09 (revised on 20.4.11)
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How to compute CAs

2 Methods:
Section 19
• write-off of the cost of asset over the prescribed working life of the
asset

Section 19A
• 100% write-off of the cost of asset in one year or
• write-off of the cost of asset over three years
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S19 CA
 Initial allowance (“IA”)
– Expenditure incurred in the basis period
– On due claim and cannot be deferred
– 20% of cost

 Annual allowance (“AA”)

– Asset owned and in use at the end of the basis period
– On due claim and can be deferred
– (Cost – IA) / tax life*
– May be claimed from the 1st year

*asset's prescribed working life based on the Sixth Schedule of the Income
Tax Act
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Extract of 6th Sch

Budget 2020 - Streamline the years of working life
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of P&M for CA claims

• To simplify CA claims under Section 19, the prescribed working life
of P&M in the Sixth Schedule will be streamlined.
• make an irrevocable election to write down their P&M as follows:
– If the current prescribed working life of the P&M in the Sixth
Schedule is 12 years or less, businesses may choose to claim
annual allowance over 6 or 12 years; or
– If the current prescribed working life of the P&M in the Sixth
Schedule is 16 years, businesses may choose to claim annual
allowance over 6, 12 or 16 years.
• Apply for P&M acquired in or after FY2022, and P&M purchased
prior to FY2022 and no claim for CA (both initial and annual
allowances) has been made (i.e. the claim for CA in respect of the
entire cost of the P&M has been deferred).
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S19 CA
Example:
Cost of a cupboard - $20,000 (10 working life years)
Date of purchase – Jan 2 Year 2016

YA 2017
IA = 20% x $20,000 = $4,000
AA = 20,000-4,000 = $1,600
10
Tax written down value (TWDV) = $14,400

YA 2018 to 2026
AA = $1,600

If AA is not claimed for YA2018, the last YA for AA claim is 2027.

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Motor vehicle
• No capital allowance: on private cars (S-plated
cars) even for business purposes
• Exception: "private hire cars"/"cars for
instructional purpose" and are used for rental or
used for providing driving instruction in the
course of the company's business.
• Other motor vehicles such as vans, lorries and
motor cycles acquired for business use would
qualify for capital allowances
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Motor vehicle
• Certificate of Entitlement (COE) to acquire a
motor vehicle is part of the cost of the motor
vehicle.
• included when claiming capital allowance on the
motor vehicle.
• COE renewal is an additional cost of the vehicle
for the purposes of claiming allowances under
Section 19 or 19A.
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Foreign registered vehicle

• registered outside Singapore and
• used exclusively outside Singapore for business
purposes will be granted capital allowance.
• No cap on the capital allowance.
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Assets acquired on Hire Purchase

• Hire Purchase instalments has 2 elements
– Interest charge
– Capital cost

• IA on the capital element of each payment made

• AA on the capital cost after deducting the total IA

claimable
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Assets acquired on Hire Purchase

Example

Purchase a cupboard (10 years of working life) by hire purchase over 2

years
Year 1: $12,500, Year 2: $12,500
Capital cost of cupboard - $20,000, Interest - $5,000
Date of hire purchase – Jan 2 Year 2019
Instalments Year 1 (capital element) - $10,000
Instalments Year 2 (capital element) - $10,000

YA 2020
IA = 20% X $10,000 = $2,000
AA = 20,000-4,000 = $1,600
10
YA 2021
IA = $20% x $10000 = $2,000
AA = $1,600

YA 2022 to 2030
AA = $1,600
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Accelerated Allowances (S19A)

• Over 1 year or 3 years

• Can defer claim

• Claimable even though not in use at the end of basis period

• Only annual allowances; no initial allowances

• 100% of cost
– Computers (including software, printers)
– Prescribed Automation equipment
– Low value assets

• 33 1/3 % (over 3 years) – Other P&M

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Low Value Assets: 100% CA claims

• One-year write-off of the cost of any low-value asset if the conditions are met:
 acquired for the purposes of trade, profession or business;
 Plant and machinery that qualify for capital allowance under Sections 19, 19A or
19A(1B) of the ITA;
 The value cap of each low-value asset is $5,000 and
 The total claim for a one-year write-off of all such low-value assets does not
exceed $30,000 per YA.
 Where aggregate cost of each asset costing ≤ $5,000 (or $1,000) exceeds
$30,000 during the basis period, CA on the excess will continue to be allowed
under Sections 19 or 19A(1) SITA for that relevant YA.

http://www.iras.gov.sg/irasHome/page04.aspx?id=13902
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Low Value Assets: 100% CA claims

Company A purchased 7 pieces of equipment at $4,400 each at
a total cost of $30,800 in the year 2019
YA 2020 CA:-
• 6 pieces of new equipment ($4,400 x 6) = 26,400 will qualify
for 100% CA as the cost per asset is <$5,000 and total
claim <$30,000
• 7th piece cannot be claimed under 100% CA as the additional
cost of $4,400 will exceed the $30,000 cap, i.e. $4,400 x 7 =
$30,800.
• Company A can claim normal capital allowances on this
7th piece over three years $1,467 ($4,400 / 3 years)
• YA 2020 CA:$27,867 ($26,400+$1,467)
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Budget 2020 & 2021 -accelerate the write-off

of the cost of acquiring P&M”
• capital expenditure on the acquisition of P&M in the basis period for YA
2021 (FY 2020) and YA2022 (FY 2021) will have an option to accelerate
the write-off of the cost of acquiring such P&M over 2 years.
• If exercised, this option is irrevocable.
• The rates of accelerated CA allowed are as follows:
a) 75% of the cost incurred to be written off in the first year (i.e. YA
2021 / YA2022); and,
b) 25% of the cost incurred to be written off in the second year (i.e. YA
2022 / YA2023).
• The above option will be in addition to the options currently available
under Sections 19 and 19A of the ITA.
• No deferment of CA claims is allowed under the above option.
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Balancing Adjustments
• Asset ceases to belong to the taxpayer i.e. sold, scrapped
or given in part exchange
• Trade is permanently discontinued
• Asset permanently ceases to be used for the trade

• TWDV > Sales Proceeds = Balancing Allowance (BA)

• TWDV < Sales Proceeds = Balancing Charge (BC)
• BC is restricted to the allowances previously given

• Sales Proceeds
– Compensation received by the taxpayer
– “Open-market” value
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Example - Seller

• Accounting year-end: 31 December

• Plant purchased for $60,000 on 3 February 2016
• Tax life per Sixth Schedule: 6 years
• On 4 November 2018, the plant was sold for:-

(a) $10,000
(b) $50,000
(c) $70,000

Compute BA/BC based on the above sales proceeds

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Example - Seller

Section 19 Y/A 2019

$ $

Cost 60,000
IA (20%) 12,000
AA [(60K–12K/6]
- Y/A 2017 8,000
- Y/A 2018 8,000
(28,000)
TWDV b/f to Y/A 2019 32,000
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Example – Seller
Section 19A
$
Y/A 2019
Y/A 2015
(a) TWDV b/f 20,000
Less: Sales proceeds (10,000)
Balancing allowance 10,000

(b) TWDV b/f 20,000

2017
Less: Sales proceeds (50,000)
2018
Balancing charge (30,000)

2019
(c) TWDV b/f 20,000
Less: Sales proceeds (70,000)
Balancing charge (50,000)

Balancing charge (restricted to) 40,000

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S21- Replacement of assets

Sold and bought a new asset to replace it
Elect for any BC arising from the disposal of the old asset to
be set off against the cost of the new asset.
Advantageous where the cost of the new asset > balancing
charge on the disposal of the old asset.
• BC on the disposal of the old asset is not taxed
• Cost of the new asset is reduced by the BC
• CA on the new asset are calculated based on the reduced
cost
• Upon disposal of the new asset, the balancing adjustment
is calculated based on the difference between the sales
proceeds of the new asset and the reduced cost of the
new asset
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S21- Example
An existing plant with TWDV of $20,000 was disposed
off for $75,000 in the year ended 31 December 2019. A
replacement asset costs $120,000.

Without S21
Old Asset
TWDV 20,000
Less sales proceed 75,000
BC 55,000
New Asset
Cost 120,000
Less AA 40,000
TWDV c/f 80,000
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S21- Example
Without S21- Summary
BC on disposal of old asset (55,000)
Less AA 40,000
Net effect (15,000)

There is a negative effect of $15,000 if no election is

made as the AA claim of $40,000 is more than offset by
the BC $55,000
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S21- Example
With S21
New Asset
Cost 120,000
S21 election (BC transferred in) (55,000)
Deemed cost 65,000
Less AA 21,667
TWDV C/f 43,333

There is a net capital allowance of $21,667. Thus

electing S21 is better
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Sales between associated persons

• Buyer and seller under common control, or if one has control
over the other (50% or more common shareholders)
• Election under Section 24 ITA
– Buyer “takes over” TWDV of asset from seller, as though
no sale was made
– No balancing allowances/charges are made on the seller
• The selling price of asset = tax written down value (TWDV)
of the asset before the sale;
• No balancing allowance or balancing charge for the seller;
• No initial allowance is given to the buyer;
• Buyer will claim annual allowance based on the written down
value of the asset over the remaining useful life;
• If the buyer subsequently sells the asset, the buyer will be
subject to the balancing charge / allowance.
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Example - (without S24 Election)

A Ltd has two wholly-owned subsidiaries, B Ltd and C Ltd. During the year 2019, B Ltd
transferred a machinery to C Ltd for $240,000. The machinery was acquired in 2017 at
a cost of $450,000.

B Ltd C Ltd
$ $

Cost 450,000
AA – Y/A 2018 (150,000) Cost 240,000
300,000 AA – Y/A 2020 ( 80,000)
AA – Y/A 2019 (150,000) TWDV c/f 160,000
TWDV at 1 Jan 2019 150,000
Less: Sales proceeds (240,000)
Balancing charge 90,000
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Example –(with S24 Election)

B Ltd C Ltd
$ $

Cost 450,000 TWDV 150,000

AA – Y/A 2018 (150,000) AA – Y/A 2020 (150,000)
300,000 TWDV c/f -
AA – Y/A 2019 (150,000)
TWDV at 1 Jan 19 150,000
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Sales between associated persons

When should businesses elect for Section 24?
Election hinges on the tax positions of each entity
• Group may be neutral if both entities are in
somewhat similar tax payable or tax loss positions
• Choice may be obvious if one entity is in a tax
payable position whilst another is in a tax loss
position
• Example: If B Ltd is in a tax loss position while C
Ltd is expected to be profitable, B may not elect
for S24 as the BC can be setoff against the tax
losses. C Ltd can claim a higher CA amount (No
S24 Asset cost is $240K Vs S24 Asset cost is
$150k)
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Sample Tax Computation

Net Profit (Loss) before tax XXX
Less: Non-taxable/exempt income (XX)
Less: Non-trade (separate source) income (XX)

Add: Non-deductible expenses XX

Add: Taxable income not included in P&L XX

Less: Special (14Q)/ further deductions (XX)

XXX
Adjusted Profit [(S10(1)(a)] XXX
Less: Capital allowances Deductible against S10(1)(a) income only(XXX)

Adjusted Profit after CAs XXX

Add: Non-trade (separate source) income XXX
Statutory income XXX
Less: approved donations XXX
Chargeable income XXX
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Writing Down Allowances (WDA)

• Intellectual property rights" (IPR)
– Section 19B
• Approved cost-sharing arrangement for research
and development activities
– Section 19C
• Indefeasible rights of use (IRUs) of international
telecommunications submarine cable system
– Section 19D
https://www.iras.gov.sg/irashome/Businesses/Companies/Working-out-Corporate-Income-Taxes/Claiming-Allowances/Writing-
Down-Allowances-for-Intellectual-Property-Rights--IPRs-/
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IP Rights S19B
• WDA applies for acquisition of any IP for use in any trade or
business

• capital expenditure incurred by a company up to the last

day of the basis period for Year of Assessment (YA) 2025
in acquiring IPRs for use in its trade or business

• Must acquire legal and economic ownership of IP rights

unless approve by EDB
Legal ownership means the legal assignment of the said IPR
granted to the transferee
Economic ownership means the future economic benefits
attributable to the IPR which will accrue to the transferee
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IP Rights
• “IP rights“: -
– Patents
– Copyrights
– Trademarks
– Registered designs
– Geographical indications
– Lay-out designs of integrated circuits
– Trade secrets or information of commercial value
• “Capital expenditure” excludes legal fees, registration fees,
stamp duty and other costs related to the acquisition of the
IPR
• an irrevocable election to claim the WDA over a 5-year,
10-year or 15-year period (on a straight line basis)
beginning from the YA of the basis period in which the
capital expenditure is incurred in acquiring the IPR
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IP Rights
Illustration: irrevocable election to claim WDA over 5, 10 or 15 years
(Singapore Budget 2016)

SingCo acquired an IPR for $500,000 in YA 2020 (excluding legal fees,

registration fees, stamp duty and other costs related to the acquisition).
Singco can claim writing-down allowances depending on the election
made:
• $100,000 ($500,000/5) per YA from YA 2020 to YA 2024; or
• $50,000 ($500,000/10) per YA from YA 2020 to YA 2029; or
• $33,333 ($500,000/15) per YA from YA 2020 to YA 2034.

The election to claim the writing-down allowances over a 5-year, 10-year or

15-year period should be submitted via a Declaration Form at the time of
filing of its corporate tax return
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IP Rights – Tax Charge

• Where the life of the IPRs comes to an end, or a company permanently ceases
to carry on the trade or business for which the IPRs were acquired,
• no WDA shall be made to the company for the year in which the event occurs
• Where a company sells, transfers or assigns all or any part of the IPRs:

Proceeds from disposal of IPR is greater than the tax written down value
(“TWDV”)

The difference between the sale price and the TWDV of the IPR shall be
deemed as income (i.e. a balancing charge*) and brought to tax in the year of
disposal.

* Capped at the amount of writing-down allowances granted previously.

Proceeds from disposal of IPR is less than or equals to the TWDV

The difference between the sale price and the TWDV of the IPR is not available
to the company as a balancing allowance in the year of disposal.
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Conditions for IBA Claim

Claim Industrial Building Allowance if:
• he has the relevant interest (i.e. incurs capital
expenditure);
• on construction of a qualifying building or structure;
and
• the building or structure is used for qualifying purposes
• Initial allowance (IA): 25% of the qualifying expenditure
• Annual allowance (AA): 3% of the qualifying expenditure
(25 years of AA)

Note: IBA was phased out from 23 Feb 10, no IBA for
expenditure incurred after 22 Feb 10.
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Land Intensification Allowance (LIA)

• Promote the intensification of industrial land use towards more land
efficient and higher value activities
• Claim the new LIA on qualifying capital expenditures incurred for the
construction, renovation or extension of a qualifying building or
structure.
• The qualifying expenditure can be written down over 15 years.
• IA – 25%, AA – 5%
• Administered by the Economic Development Board (EDB)
• up to 31 December 2025
• Administered by EDB
• Available to businesses in industry sectors which have large land takes
and low Gross Plot Ratios (GPR) and which use the LIA building or
structure for qualifying activities e.g manufacture of pharma products

• https://www.iras.gov.sg/irashome/Businesses/Companies/Working-out-Corporate-Income-Taxes/Claiming-
Allowances/Land-Intensification-Allowance--LIA-/
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Land Intensification Allowance (LIA)

IA: 25% of qualifying capital expenditure - Granted in the year of
assessment (YA) relating to the basis period in which the capital
expenditure is incurred.

Annual allowance (AA): 5% of qualifying capital expenditure

The above will be granted as long as the following conditions are met:
• The construction/ renovation/ extension works have been completed;
• The completed building or structure meets the relevant GPR
benchmark; and
• At least 80% of the total floor area of the building or structure is in use
by a single user for carrying out the qualifying activity. If less than 80%
of the total floor area is used by the single user for the qualifying
activity, AA will not be granted for the YA relating to that basis period.
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Land Intensification Allowance (LIA)

Qualifying expenditure

• Cost of feasibility study on the layout of the building or structure;

• Design fees of the building or structure;
• Cost of preparing plans for obtaining approval for the building or
structure;
• Piling, construction and renovation/ extension costs;
• Demolition costs of an existing building or structure;
• Legal and other professional fees in relation to the approved
construction or approved renovation/ extension; and
• Stamp duties payable in respect of title of the building or structure.
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Land Intensification Allowance (LIA)

What if there are changes to the use of the LIA building or structure or GPR condition
is not met

• Ceases permanently to be used/ Ceases permanently to be used for approved

qualifying activities - No AA will be granted to the taxpayer from the YA relating to the
basis period during which the permanent disuse occurs and the LIA incentive shall be
terminated with effect from that YA.

• Changes on qualifying activity to a different qualifying activity - If approval is granted

by EDB for the change in use, the taxpayer shall be allowed to continue the claim of LIA
under the new qualifying activity.
• The building or structure is sold/ transferred - Any balance of the qualifying capital
expenditure still remaining will be disregarded and there will not be any balancing
adjustment on the seller of the building.

• The building or structure is transferred to an amalgamated company under a

qualifying amalgamation under Section 34C of the Income Tax Act - AA will be
granted to the amalgamated company until the remaining capital expenditure is fully
claimed, subject to the amalgamated company meeting the same conditions for the LIA
incentive.

• If the completed building or structure fails to meet the relevant GPR benchmark -
The IA and/ or AA will be recovered through re-assessment of preceding tax years.
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Land Intensification Allowance (LIA)

Example (adapted from EDB):-

Company A (with accounting year-end 31 December), which

manufactured qualifying activities approved by EDB for the LIA incentive.
It incurs the following qualifying capital expenditure on the construction
of the approved LIA building:

Year ended: Capital expenditure incurred

31 Dec 2011 $1,000,000
31 Dec 2012 $3,000,000
31 Dec 2013 $2,000,000

Upon completion of the construction works in June 2013, the GPR of the
completed building meets the relevant GPR benchmark.
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Land Intensification Allowance (LIA)

Solution:-

The computation of LIA for the years of assessment (YA) 2012 to 2028 is as follows:
Qualifying capital expenditure –
Year ended 31 Dec 2011 1,000,000
Year ended 31 Dec 2012 3,000,000
Year ended 31 Dec 2013 2,000,000
6,000,000

YA 2012 – initial allowance [25% x 1,000,000] 250,000

YA 2013 – initial allowance [25% x 3,000,000] 750,000
YA 2014 – initial allowance [25% x 2,000,000] 500,000
YA 2014 to 2028 – annual allowance [5% x 6,000,000 x 15 years] 4,500,000
Total allowances claimed 6,000,000
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IN SUMMARY…
• Concept of capital allowances
• What is considered “Plant and machinery”
• Claiming of CAs under S19 and S19A
• Conditions to claim
• How to compute CAs
• Balancing Adjustments – S24
• IBA / LIA
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