When your fixed asset is sold or written off, you need to calculate balancing allowance (BA) or balancing charge (BC) if capital allowance had been claimed previously in respect of this asset.
BA and BC are the difference between the sale proceeds and the written down value (WDV) of the asset disposed.
WDV is the cost of the asset less the amount of capital allowances allowed previously.
Where the sale proceeds is lower than the WDV, the difference is known as BA. BA is deductible for tax purposes.
Where the sale proceed is higher than the WDV, the difference is known as BC. BC is a taxable income. The amount of BC taxable is restricted to the total amount of capital allowance allowed previously in respect of the asset disposed.
A company may have incurred capital expenditure on computers bought for the purpose of its own trade and claimed capital allowance on the computers. However, it subsequently did not use them and decided to donate them to Institutions of a Public Character. In such a case, a BC equal to the value of the donated items assessed by Infocomm Development Authority of Singapore will be taxed.
Examples on how BA / BC are calculated:
Computation of BA / BC
| Description |
Furniture |
Computer |
Van |
| Cost |
3,000 |
2,000 |
20,000 |
| WDV |
1,000 |
0 |
13,333 |
| Less: Sale proceed |
200 |
200 |
21,000 |
| BA |
800 |
|
|
| BC |
|
200 |
(7,667)
restricted to 6,667* |