What is LIA and how to qualify for LIA
It was announced in Budget 2010 that to support enhanced land productivity among industrial users, businesses may claim LIA on qualifying capital expenditures incurred for the construction of a qualifying building or structure.
The LIA incentive is available to businesses in industry sectors which have large land takes and low GPR. It is administered by the Economic Development Board (EDB). Businesses that meet the qualifying criteria for the incentive must apply to EDB for approval before they can qualify for the LIA. For details of the qualifying criteria and application process, please refer to EDB's circular on “Land Intensification Allowance Incentive” on EDB website .
Qualifying expenditure
The following capital expenditure (qualifying capital expenditure) which are incurred on or after 23 February 2010 up to the date of the completion of the construction or renovation/extension of the approved LIA building or structure can qualify for LIA:
i) Cost of feasibility study on the layout of the building or structure;
ii) Design fees of the building or structure;
iii) Cost of preparing plans for obtaining approval for the building or structure;
iv) Piling, construction and renovation/extension costs;
v) Demolition costs of an existing building or structure;
vi) Legal and other professional fees in relation to the approved construction or approved renovation/extension; and
vii) Stamp duties payable in respect of title of the building or structure.
How to compute LIA
LIA is computed as follows:
1)
Initial allowance (IA): 25% of qualifying capital expenditure
The above will be granted in the year of assessment (YA) relating to the basis period in which the capital expenditure is incurred.
2)
Annual allowance (AA): 5% of qualifying capital expenditure
The above will be granted provided the following conditions are met:
How to claim LIA
Businesses claiming LIA have to submit the following documents together with their income tax returns to the IRAS:
a) A copy of the letter of offer from EDB;
b) Details of qualifying capital expenditure incurred on the construction or renovation/extension of the approved LIA building or structure and the computation of the IA and AA to be claimed. Please refer to
Annex C of EDB’s circular for a worked example;
c) A copy of the verification form submitted to EDB previously (to be submitted in the relevant YA in which the construction or renovation/extension is completed); and
d) A certificate from a qualified quantity surveyor to certify the floor area used by another user where part of the approved LIA building or structure is used by another user.
What if there is unutilised LIA
Where there is insufficient income in any YA to absorb the IA or AA, the unutilised LIA can be:
- Transferred to related companies under the Group Relief System;
- Carried back to set off against past income under the Carry-Back Relief System; or
- Carried forward to set off against the future income.
The above are subject to the taxpayer meeting the prevailing conditions under those systems.
What if there are changes to the use of the LIA building or structure or GPR condition is not met
i) Ceases permanently to be used/Ceases permanently to be used for approved qualifying activities
No AA will be granted to the taxpayer from the YA relating to the basis period during which the permanent disuse occurs and the LIA incentive shall be terminated with effect from that YA.
ii) Predominate use changes from a qualifying activity to a different qualifying activity
If approval is granted by EDB for the change in use, the taxpayer shall be allowed to continue the claim of LIA under the new qualifying activity.
iii) The building or structure is sold/transferred
Any balance of the qualifying capital expenditure still remaining will be disregarded and there will not be any balancing adjustment on the seller of the building.
iv) The building or structure is transferred to an amalgamated company under a qualifying amalgamation under Section 34C of the Income Tax Act
AA will be granted to the amalgamated company until the remaining capital expenditure is fully claimed, subject to the amalgamated company meeting the same conditions for the LIA incentive.
v) If the completed building or structure fails to meet the relevant GPR benchmark
The IA and/or AA will be recovered through re-assessment of preceding tax years.