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For sole-proprietors/self-employed (freelancers, commission agents, taxi drivers,hawkers...)

What is Capital Allowance
Who can claim Capital Allowance
Assets that qualify for Capital Allowance 
Assets that do not qualify for Capital Allowance
Calculating Capital Allowance
-One-year write-off
-Three years write-off  
-Accelerated Write-down (for plant and machinery acquired in the basis period for the Years of Assessment (YA) 2010 and 2011)
-Write-off over the working life of the asset
How to claim Capital Allowance 
Defer your capital allowance claim if your business makes a loss
What if I sell or scrap my Fixed Assets

What is Capital Allowance

Capital allowance is a deduction that you can claim for the wear and tear of the fixed assets that you have bought and used in your trade or business.

Capital allowance is given in place of depreciation of fixed assets, which are not deductible for income tax purposes.

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Who can claim Capital Allowance

If you are carrying on a trade, business or profession, you can claim Capital Allowance on the plant and machinery that you have bought and used in your trade, business or profession.

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Assets that qualify for Capital Allowance

  • Electrical and electronic equipment
  • Plant and machinery
  • Furniture and fixtures
  • Office equipment
  • Motor vehicles (only commercial vehicles & Q-plate cars registered before 1 Apr 1998)
  • Motorcycles and bicycles
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Assets that do not Qualify for Capital Allowance

  • General lightings*
  • Doors, roller shutters and gates*
  • Windows*
  • Fixed partitions*
  • False ceiling, ceiling boards and other ceiling work*
  • S-plate cars

*For renovation expenditure incurred from 16 Feb 2008, you may claim expenses incurred on renovation or refurbishment works done to your business premises.

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Calculating Capital Allowance

You may use the Capital Allowance Calculator  (828KB) to compute capital allowance for your new and existing assets.

Basically, there are three ways of calculating capital allowance:

  • One-year write-off (Section 19A)

    You can use this method if you buy computers, computer peripherals, fax machines, and other automation equipment and these are used for your business. You can also use this method for assets costing no more than $1,000 each, bought from year 2004. Please see examples.

    Under this method, the full cost of the asset may be claimed as capital allowance in one year. However, for assets costing no more than $1,000 each, the claim for one-year write-off of all such low value assets must be capped at $30,000 per Year of Assessment (YA).

    From YA 2013
    As announced in Budget 2012, with effect from YA 2013, the threshold on the cost of each low value asset will be increased from $1,000 to $5,000. The aggregate cap of $30,000 per YA for one-year write-off of all such assets remains unchanged.  

  • Three-year write-off (Section 19A)

    With effect from YA 2009, you can use this method to claim capital allowance for all assets that qualify for capital allowance. Under this method, the full cost of the asset can be claimed as capital allowance over three years. Please see examples.

    For YA 2008 and before, three years write-off is allowed for all qualifying assets except commercial vehicles with maximum laden weight not exceeding 3,000 kg and motorcycles. For details on how to compute capital allowance for motor vehicles, please refer to the next paragraph on Write-off over the working life of the asset (Section 19). 

  • Write-off over the working life of the asset (Section 19)

    You can use this method for all assets including Q-plate cars (COE issued before 1 Apr 1998), vans, pick-ups, trucks, buses, lorries, office equipment, furniture, etc. In the year that you buy the asset, you can claim:

    • initial allowance equal to 20% of the cost of the asset
    • annual allowances, which is calculated by taking 80% of the cost and dividing it by the working life of the asset.

    In the subsequent years up to the number of years of the working life of the asset, you can claim only the annual allowance. Please see examples.

Buying the asset in cash as compared to buying the asset under hire-purchase terms

There is a slight difference when you calculate capital allowances for assets bought in cash as compared to these assets bought under hire purchase terms. When you calculate capital allowances for assets bought under hire purchase terms, you have to exclude the hire purchase interest from the calculation. You can claim the hire purchase interest as a separate business expense.

One-year write off

Example 1:

In 2007, you bought a computer in cash for $3,000.
You can claim the full cost of the computer in one year.

Example 2:

On 1.9.2007, you bought a computer under hire purchase terms. The terms are:

Cash price $ 3,000
Down payment $ 300
Hire purchase interest $ 600
Hire purchase price $ 3,600
Amount for each instalment $ 275
Total number of instalments 12

Workings:

In year 2007

Down payment made   $ 300
+ Instalments paid 4 months X $275 $1,100
- Hire purchase interest paid 4/12 X $600 $ 200
Total amount paid less hire purchase interest   $1,200

In year 2008

Instalments paid 8 months X $275 $2,200
- Hire purchase interest paid 8/12 X $600 $ 400
Total amount paid less hire purchase interest   $1,800

You can claim capital allowances as follows:

  YA 2008 YA2009 YA2010
$1200 paid in 2007 to be claimed over one year $1,200    
$1,800 paid in 2008 to be claimed over one year   $1,800  
Total Capital Allowances $1,200 $1,800  

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Three-years write-off

Example 3:

In 2007, you bought an air-conditioner in cash for $3,000.
You can claim capital allowances as follows:

1st year (YA 2008) Annual Allowance

$3,000/3

$1,000
2nd year (YA 2009) Annual Allowance $3,000/3 $1,000
3rd year (YA 2010) Annual Allowance $3,000/3 $1,000

Example 4:

On 1 Sep 2007, you bought an air-conditioner under hire-purchase terms. The terms are:

Cash price $ 3,000
Hire purchase price $ 3,600
Down payment $ 300
Amount for each instalment $ 275
No. of instalments 12
Hire purchase interest $ 600

Workings:

In year 2007

Down payment made   $ 300
+ Instalments paid 4 months X $275 $ 1,100
- Hire purchase interest paid 4/12 X $600 $ 200
Total amount paid less hire purchase interest   $ 1,200

In year 2008

Instalments paid 8 months X $275 $2,200
- Hire purchase interest paid 8/12 X $600 $ 400
Total amount paid less hire purchase interest   $1,800

You can claim capital allowances as follows:

  YA 2008 YA2009 YA2010  YA2011
$1200 paid in 2007 to be claimed over 3 years $400 $400 $400  -
$1,800 paid in 2008 to be claimed over 3 years   $600 $600 $600
Total Capital Allowances $400 $1,000 $1,000 $600

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Accelerated Write-down (for plant and machinery acquired in the basis period for the Years of Assessment 2010 and 2011)

As announced in the Budget 2009 Statement, capital expenditure incurred on plant and machinery acquired in the basis periods for the Years of Assessment (YA) 2010 and 2011 can be allowed an accelerated write-down over two years instead of three years. This is to support businesses which intend to invest in new plants and machinery in preparation for the recovery from economic downturn.

With this change, businesses can write down the costs of these newly acquired plants and machinery within two years with 75% of the write-down taking place in the first year of capital allowance claim alone.

For asset bought in cash:

Annual Allowance in Year 1 = 3/4 of the cost of asset
Annual Allowance in Year 2 = 1/4 of the cost of asset

For asset bought under hire purchase terms:

Annual Allowance in Year 1 = 3/4 of the principal payment (and deposit paid where applicable)
Annual Allowance in Year 2 = 1/4 of the principal payment

Example 5 

In year 2009, you bought an office equipment for $3,000 by cash.

Annual Allowance (AA) for YA 2010 = 3/4 x 3,000 = 2,250
Annual Allowance (AA) for YA 2011 = 1/4 x 3,000 = 750

 

The capital allowance schedule is as follows:
Description Office equipment
Cost 3,000
YA 2010 Annual Allowance 2,250
Written down value (WDV) c/f 750
YA 2011 Annual Allowance 750
Written down value (WDV) c/f 0

Example 6 

In year 2009, you bought an office equipment costing $2,000 under hire purchase terms. The terms are:

 

Purchase price   $ 2,000
Deposit   $ 100
Hire purchase interest   $ 50
Number of instalment   $ 5
Amount payable per instalment   $ 390
Hire purchase interest per instalment 50 / 5 $ 10
Principal payment per instalment 390 - 10 $ 380

Assuming that a deposit of $100 and two instalments were paid in year 2009 and the remaining three instalments were paid in year 2010.

The deposit and principal payments in year 2009 = 100 + (2 x 380) = 860

The principal payments in year 2010 = 3 x 380 = 1,140

 

Annual Allowance for each YA is computed as follows:
Year of payment Deposit and principal amount paid Amount of AA to be claimed in:
    YA 2010 YA 2011 YA 2012
2009 860 645 215  
2010 1,140   855 285
Total 645 1,070 285

 

 

 

The capital allowance schedule is as follows:
Description  Office equipment 
Cost 2,000
YA 2010 Annual Allowance 645
Written down value (WDV) c/f 1,355
YA 2011 Annual Allowance 1,070
Written down value (WDV) c/f 285
YA 2012 Annual Allowance 285
Written down value (WDV) c/f 0

 

Write-off over the working life of the asset

Example 7:

In 2007, you bought a van in cash for $45,000. The van has a working life of six years.
You can claim Capital Allowances as follows:

  YA2008 YA2009 YA2010 YA2011 YA2012 YA2013
Initial Allowances
(20% x cost of van)
$9,000          
Annual Allowances
(80% x cost of van) 6
$6,000 $6,000 $6,000 $6,000 $6,000 $6,000
Total Capital Allowances $15,000 $6,000 $6,000 $6,000 $6,000 $6,000

Example 8:

On 28 Sep 2007, you bought a van under hire purchase terms. The van has a working life of six years. The terms are:

Cash price $ 45,000
Down payment $ 15,000
Hire purchase interest $ 3,000
Total no of instalments 24
Amount for each instalment $ 1,375

Workings:

In year 2007

Down payment made   $ 15,000
+ Instalments paid 4 months x $1,375 $ 5,500
- Hire purchase interest paid 4/24 x $3,000 $ 500
Total amount paid less hire purchase interest   $ 20,000

In year 2008

Instalments paid 12 months X $1,375 $ 16,500
- Hire purchase interest paid 12/24 X $3,000 $ 1,500
Total amount paid less hire purchase interest   $ 15,000

In year 2009

Instalments paid 8 months X $1,375 $ 11,000
- Hire purchase interest paid 8/24 X $3,000 $ 1,000
Total amount paid less hire purchase interest   $ 10,000

You can claim capital allowances as follows:

  YA 2008 YA2009 YA2010 YA2011 YA2012 YA2013
Initial Allowances
(20% x Total amount paid less hire purchase interest)
$4,000 $3,000 $2,000      
Annual Allowances
(80% x Cash price) / 6
$6,000 $6,000 $6,000 $6,000 $6,000 $6,000
Total Capital Allowances $10,000 $9,000 $8,000 $6,000 $6,000 $6,000

Table of assets and their working life
Assets Working
Taxis 5
Buses, lorries, trucks, trailers and vans 6
Q-plate cars with COE issued before 1 Apr 1998 6
Motorcycles and bicycles 8
Plant and machinery 6
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How to Claim Capital Allowance

You can include the capital allowance as part of your allowable business expenses when you report your 4-line statement in the income tax return.

You have to submit the certified statement of accounts of your business together with your Income Tax Return to IRAS if the turnover of your business is $500,000 or more.

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Defer your capital allowance claim if your business makes a loss

You may wish to defer your capital allowance claim if your business is in a loss position.

If you are claiming under Section 19

You must claim the initial allowance (IA) in the YA the capital expenditure was incurred. If you did not claim IA, annual allowance (AA) will be computed based on the full cost of the asset over its prescribed working life*. You can defer claiming AA and you need not claim AA consecutively over the prescribed working life of the asset.

If you are claiming under Section 19A

Before YA 2009, once a claim is made, the capital allowance will be granted for three consecutive YAs. With effect from YA 2009, you are allowed to defer the capital allowance claim made under Section 19A i.e. the claim made need not be for three consecutive YAs.

Similarly, under the two years write-off for capital expenditure incurred during YAs 2010 and 2011, you are allowed to defer your claim for capital allowance.  The rates of 75% and 25% of capital expenditure for the purpose of computing your capital allowance will continue to apply when you subsequently make a claim for the capital allowance.

*The prescribed working life is based on the Sixth Schedule of the Income Tax Act (e.g. the working life for motor vehicle is six years and that for motor cycle is eight years)

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What if I Sell or Scrap my Fixed Assets?

If you sell or scrap your fixed assets on which you have previously claimed capital allowances, you have to compute the Balancing Allowance or Balancing Charge.

Balancing Allowance is given if the Written Down Value of the asset exceeds the sale/disposal proceeds. This balancing allowance can be deducted against income.

Balancing Charge arises when the sale proceeds of the asset exceeds the Written Down Value. The amount of balancing charge is restricted to the actual capital allowances previously granted for the asset. The balancing charge is taxable.

Written Down Value is the cost of the asset minus the amount of capital allowances previously claimed.

To illustrate the Balancing Allowance/Balancing Charge computation, please see three examples below.

Example 1: Balancing Allowance

You sold your asset in the year 2007 for $1,000. The original cost of your asset is $6,000. You have previously claimed total capital allowances of $4,000. Therefore, the written down value of the asset is $2,000. The balancing allowance is computed as follows:

Written Down Value as at 31 Dec 2006 $2,000
Less: Sales proceeds in year 2007 $1,000
Balancing Allowance $1,000

As the sale proceeds is lower than the Written Down Value, you may claim $1,000 of the balancing allowance in YA 2008.

Example 2: Balancing Charge

You sold your asset in the year 2007 for $3,000. The original cost of your asset is $6,000. You have previously claimed total capital allowances of $4,000. Therefore, the written down value of the asset is $2,000. The balancing charge is computed as follows:

Written Down Value as at 31 Dec 2006 $2,000
Less: Sales proceeds in year 2007 $3,000
Balancing Charge $1,000

As the sale proceeds is higher than the Written Down Value, $1,000 is taxable as balancing charge in YA 2008.

Example 3: Balancing Charge restricted to actual capital allowances previously claimed

You sold your asset in the year 2007 for $3,500. The original cost of your asset is $3,000. You have previously claimed total capital allowances of $1,000.

Written Down Value as at 31 Dec 2006 $2,000
Less: Sales proceeds in year 2007 $3,500
Balancing Charge $1,000

As the sale proceeds is higher than the Written Down Value, $1,000 is taxable as balancing charge. The balancing charge is restricted to actual capital allowances previously claimed instead of $1,500 (i.e $3,500 - $2,000).

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Last Updated on 10 December 2014


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