Generally, you can claim deduction for expenses that are wholly and exclusively incurred in the production of income.

To qualify for tax deduction, the expenses must also satisfy the following conditions:

• The expenses must be revenue in nature, (generally refers to the normal day-to-day operating expenses). Capital expenditure is not allowable as a tax deduction.
• The deduction must not be prohibited under the Income Tax Act.
• The expenses must be incurred. Contingent liability is not allowable as a tax deduction.

*Voluntary CPF contributions refer to CPF contributions exceeding the statutory rate. 
**If the vehicle qualifies for capital allowance (goods / commercial vehicle), you can include the cost of COE to the cost of vehicle and claim capital allowance 

Section 14Q deduction for 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 for capital allowances (unless they form part of an industrial building which qualifies for industrial building allowances) 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”.

To help businesses, particularly small and medium enterprises, reduce their business costs, tax deduction will be granted on all qualifying R&R costs incurred during 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 every relevant three-year period, starting from the year in which the R&R costs were incurred and a deduction is claimed by the company.

Section 14Q deduction must be claimed over three consecutive Years of Assessment (YAs), starting from the YA relating to the basis period in which the R&R costs were first incurred (i.e 1/3 of the R&R costs can be claimed each YA over the three consecutive YAs).  Any amount of qualifying R&R costs, which are not claimed in the YA relating to the basis period in which they were first incurred, will not qualify for deduction in subsequent YAs.

If your company permanently ceases business in any of the three YAs, it will not be allowed a deduction on the balance of the R&R costs.

Special provisions for YAs 2010 and 2011

To encourage companies to refit their business premises during the current period of economic downturn, companies that incur qualifying R&R expenses in the basis periods relating to YAs 2010 and 2011 can claim such expenses over one year instead of over three years.

The accelerated write-down from three years to one year will have a direct impact of reducing the income tax payable by companies, thereby easing the cash-flow pressures that companies may face.

The cap of $150,000 for every relevant three-year period remains unchanged.

Section 14Q deduction is to be deducted from the adjusted profit/loss after allowance has been made to other tax deductions. Any amount of Section 14Q deduction that could not be fully utilised will form part of the adjusted trade loss of the company. However, the unutilised Section 14Q deduction cannot be transferred under the group relief system.

The adjusted trade loss (after deducting Section 14Q deduction) can be offset against other income of the company. The amount of unutilised trade losses, if any can be:

- carried forward to offset against the company’s assessable income for future YAs if there is no substantial change in the shareholders and their shareholdings; or
- carried back to the immediate preceding YA to be offset against the assessable income under the loss carry-back relief.

For examples on how to compute Section 14Q deduction, please refer to the Annex to the e-Tax Guide “Deduction For Expenditure Incurred on Renovation or Refurbishment Works" (124KB). 

Qualifying expenditure

The following items will generally qualify for Section 14Q deduction if they do not affect the structure of the business premises:

General electrical installation and wiring to supply electricity;
General lighting;
Hot/cold water system (pipes, water tanks etc);
Gas system;
Kitchen fittings (sinks, pipes etc);
Sanitary fittings (toilet bowls, urinals, plumbing, toilet cubicles, vanity tops, wash basins etc.);
Doors, gates and roller shutters (manual or automated);
Fixed partitions (glass or otherwise);
Wall coverings (such as paint, wall-paper etc.);
Floorings (marble, tiles, laminated wood, parquet etc.);
False ceilings and cornices;
Ornamental features or decorations that are not fine art (mirrors, drawings, pictures, decorative columns etc.);
Canopies or awnings (retractable or non-retractable);
Windows (including the grilles etc.);
Fitting rooms in retail outlets.

No deduction will be allowed on expenditure relating to:

Any designer fees or professional fees;
Any antique; or
Any type of fine art including painting, drawing, print, calligraphy, mosaic, sculpture, pottery or art installation.

How to claim for Section 14Q deduction?

If you wish to claim for Section 14Q deduction on the qualifying expenditure, you have to show the Section 14Q deduction in your tax computation and submit an itemised list of the renovation or refurbishment works. You also have to confirm on the itemised list that the renovation or refurbishment works do not require the approval of the Commissioner of Building Control.

For more details on the Section 14Q deduction, please refer to the e-Tax  Guide “Deduction For Expenditure Incurred On Renovation or Refurbishment Works” (124KB).
 

Donations

Donations are not deductible expenses as they are not incurred in the production of income.

However, you can claim for deduction on donations made to an approved Institution of a Public Character (IPC) or the Singapore Government which benefit the local community.

For approved donations made on or after 1 Jan 2002, you can claim for double deduction, that is, twice the amount donated.

For approved donations with naming opportunity, only single deduction is allowed if the donations was made before 1 Jan 2005. However, double deduction is allowed for donations with naming opportunity made on or after 1 Jan 2005.

To encourage greater charitable giving in Singapore during the economic downturn, approved donations made during 1 Jan 2009 to 31 Dec 2009 will qualify for 2.5 times deduction. To encourage greater charitable giving in Singapore as the economy recovers, this enhanced tax deduction will be extended for another year for donations made during 1 Jan 2010 to 31 Dec 2010.

With effect from Year of Assessment (YA) 2003, any unutilised donations can be carried forward to set-off against the income for the subsequent YA up to a maximum of 5 years if there is no substantial change in shareholders.

For more details on donations and tax deductions, please refer to Charities / IPCs.

Medical expenses

With effect from 1 Apr 2004
With effect from 1 Apr 2004, the amount of medical expenses deductible is subject to a cap of 1% of the total remuneration accrued for the year.

However, if your company has implemented the Portable Medical Benefits Scheme (PMBS) or Transferable Medical Insurance Scheme (TMIS) and it meets the qualifying conditions under the respective schemes, the capping for medical expenses is 2% of the total remuneration.

With effect from YA 2008

With effect from YA 2008, in recognition 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, your company will be granted a tax deduction of up to 2% of the total remuneration if your company:

1. has provided your employees with inpatient medical insurance benefits in the form of portable medical shield plans (but the deduction will exclude 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) during the relevant basis period.

Tax deduction will remain capped at 1% of total remuneration if your company is not on PMBS/TMIS or does not provide portable medical shield plans or make ad-hoc medisave contributions for your employees.

For more details on the schemes and the qualifying conditions, please refer to the MOM website - "Implement Portable Medical Benefits and Enjoy Higher Tax Deduction For Medical Expenses"  

Impairment loss on trade debts

Under FRS 39, impairment losses are incurred under certain circumstances described in the Accounting Standard*. For income tax purposes, impairment losses incurred on financial assets on revenue account will be allowed as a deduction and any reversal amount will be taxed.

With the adoption of FRS 39, general and specific provision for bad and doubtful debts would no longer be made. There is no differentiation between general and specific provision for doubtful debts and impairment losses on debts will be deductible as long as the debts are relating to trade and are revenue in nature.

However, for companies that opted for pre-FRS 39 tax treatment, only specific provision for doubtful debts will be deductible for tax purposes. General provision for doubtful debts will continue to be not deductible for tax purposes.

To facilitate the review of claims for impairment loss in respect of bad or doubtful debts, please provide the following information, where applicable, in your tax computation:

• details of debts (name and amount owing by each debtor) which was not incurred in respect of the trade or business such as loans and advances;
• details of debts which were taken over in the case of a transfer or merger of business;
• details of debts in respect of a trade that had ceased, including any activity granted with pioneer incentive that had ceased;
• segregation of debts relating to the different tax rate categories.

The following additional information is required for trade debts owing by related parties, where the amount of impairment loss exceeds $250,000:

• relationship between the company and the trade debtor;
• whether normal credit policy and terms were extended to the related party. If not, please provide the reasons for the extended credit policy and terms;
• whether steps were taken to recover and enforce the debts. If not, please provide the reasons for not enforcing the debts;
• reasons why the related party was unable to repay the trade debt.

*Paragraphs 58 to 62 of FRS 39   

Interest adjustment

Interest expenses relating to non-income producing assets are not deductible for income tax purposes.

As such, you have to make interest adjustments in your tax computation if there are any interest expenses applicable to non-income producing assets.

What are non-income producing assets?

Non-income producing assets are assets which do not produce any income.

Examples of non-income producing assets are:

• Vacant properties acquired for long-term investment,
• Investments in shares/securities which have not yielded dividends,
• Interest-free loan or amount owing by non-trade/sundry debtors,
• Interest-free loan or amount owing by related companies (non-trade)/shareholders.

Interest adjustments are normally made using the total asset method. This method works on the principle that total funds are used to finance total assets.

Interest-free loan on amount owing by directors

Interest adjustment is not required for interest-free loan or amount owing by directors as it constitutes staff cost. The interest-free benefits are taxable as employment benefits of the directors. (Note: Interest benefits must be included in directors' Form IR8A).

The interest-free benefits can be calculated based on:
Interest-free loan due from each director as at the Balance Sheet date multiply by the average prime lending rates
You can refer to Monetary Authority of Singapore (MAS) website for the prime lending rates .

When you file Form C for the company, you need to furnish the details of the interest-free loans to individual directors/shareholders in the Appendix to Form C (Form IRIN 312). 

Life insurance

If it is your company policy to buy insurance policies for the employees and the beneficiaries of the policy are the employees, the life insurance premiums paid are tax-deductible expenses as it constitutes as staff cost. (Please note that the life insurance premiums are taxable as employment benefits of the employees and these benefits must be declared in their Form IR8A)

If your company is the beneficiary, the insurance premiums are not deductible unless they satisfy the conditions of a "keyman" insurance. For details on deductibility of "keyman" insurance, please refer to "Keyman" insurance: Deductibility of premiums - addendum to practice note 1993/IT/5 dated 25 Feb 1993 (100KB). 

Motor vehicle expenses

Motor vehicle expenses incurred in respect of private passenger cars (S-plate cars) are not deductible for income tax purposes regardless of whether the cars have been used for business purposes (except where the company is carrying on business of hiring out cars or providing driving instruction). The deduction is specifically prohibited under the Income Tax Act.

Reimbursement of employees' S-plate car expenses incurred by employees for company's business is also not deductible.

However, if your company pays transport allowance to the employees as part of their remuneration package, the transport allowance is a deductible expense, as it is part of staff cost. (Please note that the transport allowance is taxable as part of the employment income for your employees) If you own Q-plate business passenger cars that were registered before 1 Apr 1998, motor vehicle expenses relating to these Q-plate cars are allowable but subject to a capping of:

Motor vehicle expenses for foreign registered cars used exclusively outside Singapore are deductible if the expenses are incurred for business purposes.

For more details on deductibility of motor vehicle expenses, please refer to Changes in Tax Treatment of Motor cars consequent to Vehicle Tax Rationalisation (126KB). 

Private hire car

With effect from 1 Apr 1998, private hire car expenses and hiring charges (SZ-plate or S-plate cars) and are not deductible for income tax purposes. Deduction is not allowed regardless of whether the hired cars have been used for business purposes, except where the company is carrying on business of hiring out cars or providing driving instruction.

The private hire car expenses and hiring charges for foreign rental cars used exclusively outside Singapore are deductible if the cars are used for business purposes.

For more details on deductibility of motor vehicle expenses, please refer to Changes in Tax Treatment of Motor cars consequent to Vehicle Tax Rationalisation (126KB). 

Research & development expenses

With effect from YA 2003, if your company is

• carrying on a trade in manufacturing; or

• carrying on a business for the provision of any services;

• incurred by your company; or

• incurred on R&D activities outsourced to any R&D organisations

For R&D services that are outsourced to overseas R&D organisations, the ownership rights of any intellectual property created must belong to your company. Your company has to complete a declaration form to undertake that the benefit of the R&D work will go to your company. To claim the tax deduction for R&D outsourced to an overseas R&D organisation, please refer to Further Details on Enhanced Tax Deduction for Research & Development.

In addition, your company may enjoy double tax deduction on the R&D expenditure incurred if it is approved by Economic Development Board (EDB).

From YA 2009 to YA 2015

With effect from Year of Assessment 2009, 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 in respect of R&D done in Singapore;
   
   That is, if the R&D is done in Singapore, your company can qualify for tax deduction regardless of whether  the R&D expenses are incurred in respect of your company’s existing trade or business.

2. Enhanced deduction for qualifying 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 qualifying R&D expenditure incurred on R&D done in Singapore.
   
   From YA 2011 to YA 2015, the enhanced tax deduction is 250% on the first $300,000 of qualifying expenditure and 150% on the balance expenditure.

3. New R&D tax allowance (RDA) scheme
   
   The allowance will be given up to an amount of 50% of the first $300,000 of the company’s chargeable income.
   
   For the purpose of this scheme, companies are required to declare their Base Year and Base Expenditure via myTax Portal. For more details on this e-Service, please refer to "Research & Development Allowance Account".
   
   With effect from YA 2011, RDA scheme will be phased out and no RDA will be granted on the chargeable income from YA 2011.
   
   RDA credited in YA 2009 and YA 2010 can be drawn down up to YA 2016, subject to the existing conditions (please refer to our e-Tax guide on "Research and Development Tax Measures" (480KB)). RDA not utilised by YA 2016 will be disregarded.
   
   Alternatively, from YA 2011 to YA 2015, companies can also choose to claim the 250% tax deduction on the first $300,000 of their qualifying R&D expenses incurred in the corresponding YA under the Productivity and Innovation Credit. 

4. New R&D Incentive for start-up Enterprise (RISE) scheme
   
   Under RISE, a qualifying start-up company is allowed to surrender their tax adjusted losses in exchange for a cash grant computed at a prescribed rate, subject to certain conditions.
   
   From YA 2011, RISE will be consolidated under the Productivity and Innovation Credit. RISE claims can still be made for YA 2009 and YA 2010 subject to the existing conditions.

You can view the summary of the R&D-related income tax changes (140KB). For more details, please refer to e-Tax Guide "Research And Development Tax Measures" (480KB).