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       - Existing building       

       - New industrial building 

What is an industrial building

For tax purposes, an industrial building or structure is one that is used for any one of the qualifying purposes stated in Section 18(1) of the Income Tax Act.

Who can claim the Industrial Building Allowance (IBA)

To claim IBA, you must have used the building or structure for a qualifying purpose or leased it to a person who used it for a qualifying purpose.

IBA is phased out with effect from 22 Feb 2010.  With the phase-out, IBA will not be allowed on capital expenditures on the construction or purchase of industrial buildings or structures incurred after 22 Feb 2010 except in specified scenarios provided under the transitional rules.

Please read the e-Tax Guide on "Phasing Out of Industrial Building Allowance" (99KB) for more details.

Transitional Rules

For existing building:

The table below summarizes the transitional rules for capital expenditure incurred on an
existing building or existing industrial building.

Event Criteria to be met for transitional rules to apply Capital expenditure qualifying for IBA under the transitional rules

Purchase of an existing industrial building

The option to purchase  was granted on or before 22 February 2010 or

The agreement to purchase was signed on or before 22 February 2010

Purchase costs (including legal fees, stamp duties relating to the title of the building) of the industrial building
Construct an adjoined or a separate extension to an existing industrial building

(a) A Qualified Person  (QP)1 was engaged on or before 22 February 2010

And

(b) The development application (DA) is submitted to URA on or before 31 December 2010

Construction costs of the extension incurred up to the earlier of the following dates:

(a) date of issue of temporary occupation permit (“TOP”); or

(b) last day of the basis period for YA 2016

Construct an extension to an existing building which is used as an industrial building upon completion of the construction of the extension

(a) A QP was engaged on or before 22 February 2010

And

(b) The DA is submitted to URA on or before 31 December 2010

Construction costs of the extension incurred up to the earlier of the following dates:

(a)  date of issue of TOP; or

(b)  last day of the basis period for YA 2016

And

Construction or purchase costs or residue of expenditure (“ROE”), as the case may be, of the existing building which is converted to an industrial building upon completion of the construction of the extension.

Renovate2  an existing industrial building A renovation contractor was engaged on or before 22 February 2010

Renovation costs incurred up to the earlier of the following dates:

(a) end of the renovation project or

(b) last day of the basis period for YA 2016

Renovate2 an existing building which is used as an industrial building upon completion of the renovation A renovation contractor was engaged on or before 22 February 2010

Renovation costs incurred up to the earlier of the following dates:

(a) end of the renovation project or
(b) last day of the basis period for YA 2016

And

Construction or purchase  costs or ROE, as the case may be, of the existing building which is converted to an industrial building upon completion of renovation works.

1Qualified Person refers to a registered architect or registered professional engineer as defined in the First Schedule of the Planning Act.
2For renovation works that do not require a development application to URA.

For new industrial building:

The table below shows the transitional rules for capital expenditure incurred on the construction or
purchase of a new industrial building.

Event Criteria to be met for transitional rules to apply Capital expenditure qualifying for IBA under the transitional rules

Construct a new industrial building

(a) Either one of the following:

(i) the option to purchase the land (on which the building is to be built) was granted by the private land owner on or before 22 February 2010 or

(ii) the agreement to purchase the land was signed with the private land owner on or before 22 February 2010 or

(iii) the lease agreement to lease the land from the private land owner was signed on or before 22 February 2010 or

(iv) an application to bid, buy or
lease the land was submitted to the government on or before 22 February 2010

And

(b) The DA to build the industrial building is submitted to the URA on or before 31 December 2010

Construction costs of the industrial building incurred up to the earlier of the following dates:

(a) date of issue of TOP or

(b) last day of the basis period for YA2016

Purchase of new industrial building

The option to purchase was granted on or before 22 February 2010 or

The agreement to purchase was signed on or before 22 February 2010

Purchase cost (including legal fees, stamp duties relating to the title of the building) of the industrial building

What are qualifying expenditure

Qualifying expenditure refer to expenditure that are incurred for the construction of a building. Examples are:

  • cost of preparing plans in connection with obtaining building approval
  • architect fees
  • expenditure incidental to the construction of the building: e.g. plumbing, drainage, electrical installations

Note: Land cost does not qualify for IBA

What are non-qualifying expenditure

Under S18(6) of the Income Tax Act, an “industrial building or structure” does not include any building or structure in use as, or as part of, a dwelling house, retail shop, showroom, hotel (other than a hotel on Sentosa) or office or for any purpose ancillary to any such purpose.

Where part of a building or structure does not qualify as an industrial building or structure, but the expenditure incurred on the construction of the non-qualifying part is 10% or less of the total expenditure on construction of the whole building or structure, the whole building or structure qualifies as an industrial building or structure (S18(7) of the Income Tax Act)]

How to compute IBA

Generally IBA is computed as follows:

  • Initial allowance (IA): 25% of the qualifying expenditure
  • Annual allowance (AA): 3% of the qualifying expenditure

The following table summarises the IBA claims:

Type of building Building purchased before 1 Jan 2006 Building purchased from 1 Jan 2006 to 22 Feb 2010 (except for the specified scenarios given above)

Newly constructed building

IA and AA granted based on construction cost

No change
New building with leasehold interest of less than 25 years

No IA and AA granted

IA and AA granted based on the purchase price of the building
New building with leasehold interest of 25 years or more IA and AA granted based on the lower of construction cost and purchase price IA and AA granted based on the purchase price of the building
Used building with leasehold interest of less than 25 years AA granted based on the remaining balance of expenditure AA granted based on the purchase price of the building
Used building with leasehold interest of 25 years or more AA granted based on the remaining balance of expenditure AA granted based on the purchase price of the building
Building which is more than 50 years old since it was first used No AA granted AA granted based on the purchase price of the building

 

Application of Section 24 election

For a transfer of industrial building between related persons, the election under section 24 of the ITA shall no longer be available to the transferor and transferee where:

(a) the option to purchase is granted after 22 February 2010; or
(b) the agreement for sale or transfer is signed after 22 February 2010.

Consequently, balancing adjustment shall be made on the transferor. The transferee shall not be entitled to claim IBA on the industrial building. 

Illustration

The following illustrates the IBA claims:

Types of Allowances Initial Allowances Annual Allowances

For Constructed Buildings

Acquired land for $1mil and incurred $0.5mil on construction of IB on the land.

As land cost of $1mil is a non-qualifying cost, IBA will be given only on the construction cost of $0.5mil.

IA = 25% x $500,000
= $125,000

IA can only be claimed in respect of the year in which the expenditure is incurred.  In subsequent years, only AA can be claimed.

AA = 3% x $500,000   
= $15,000

For Purchased Buildings

Purchased a new building for $2mil. Based on valuation, the amount applicable to land was $1.8mil. As land cost of $1.8mil is a non-qualifying cost, IBA will be given only on $0.2mil. 

IA = 25% x $200,000
     = $50,000

IA can only be claimed in respect of the year in which the new building is acquired.  In subsequent years, only AA can be claimed.

AA = 3% x $200,000   
= $6,000

How to apply for IBA

You can make your claim in your tax computation.

 

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Last Updated on 28 October 2014


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