What is capital allowance
Capital allowances are deductions that you can claim on the wear and tear of fixed assets bought and used in your trade or business.
Capital allowances are given in place of depreciation and other capital expenditure, which are not deductible for income tax purposes.
Who can claim capital allowance
If your company carries on a trade or business, your company can claim capital allowances on expenditure incurred on the provision of "plant and machinery" for use in the trade or business. The exception is where capital allowance for an asset is 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 (for example, computers) bought solely for donation purpose.
What is "plant and machinery"
"Plant and machinery" generally refers to a fixed asset having the following characteristics:
For more details, please refer to e-Tax Guide on Machinery and Plant: Section 19/19A of the Income Tax Act (147KB).
Examples of qualifying fixed assets:
- Containers used for carriage of goods by any mode of transportation
- Electrical & electronic equipment (e.g. air-conditioning system, security/alarm system, sprinkler system and electrical appliances)
- Furniture and fixtures
- Industrial plant and machinery
- Motorcycle and bicycle
- Motor vehicle (goods / commercial vehicle such as pick up, van, truck, lorry and bus)
- Movable partitions
- Office equipment (e.g. computer, printer, photocopier, fax machine and telecommunication equipment)
- Showcase or display lightings
- Signboard and other signage
- Venetian blind & curtain
Examples of non-qualifying fixed assets:
- Container office
- Designer's fees on renovation
- Doors, roller shutters and gates*
- Electrical fittings* (except cabling for identifiable plant, switchboard and transformer)
- False ceiling, ceiling boards and other ceiling work*
- Fixed partitions, walls, wall tiles and other wall finishes*
- Floor tiles, raised floors or other flooring work*
- Lightings and light fittings*
- Motor vehicle (S-plate private passenger car)
- Water and gas pipings*
*For expenditure incurred from 16 Feb 2008, please refer to Section 14Q deduction for the tax treatment on such renovation costs.
Tax treatment of capital allowance for plant and machinery used by persons other than your company
Your company may also claim CA if it incurs expenditure on plant and machinery (P&M) where the P&M is used by a subcontractor in an outsourcing arrangement. The P&M must however be used for the purpose of your company’s business, to enable your company to carry on business and produce income.
Please maintain sufficient documentation that will enable you to substantiate the following:
- the business arrangement with your subcontractor (e.g. a contract);
- the connection between the expenditure incurred on the P&M and your trade. For example, how does the provision of the P&M to the sub-contractor benefit your business;
- the levels of controls your company has over the P&M;
- compliance with the arm’s length principle, if the arrangement is made with a sub-contractor who is a related party.
The documentation need not be submitted until IRAS requests them.
Yes, your company may claim the full cost of such equipment as capital allowance in one year, if the equipment is certified by a company approved by the National Environmental Agency (NEA).
Please refer to the NEA’s website for details of accelerated capital allowance for Energy Efficient Equipment and Technology