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 expenditure incurred for the construction of a qualifying building or structure.
The LIA incentive is avaliable to businesses in industry sectors which have large land takes and low GPR. The qualifying period of the LIA incentive is from 1 July 2010 ro 30 June 2015. 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 approval 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 and structure;
iv) Piling, construction and renovation/extension costs;
v) Demolition costs of an existing building or structure;
vi) Legal and other professional fee 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 complete 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:
The construction/renovation/extension works have been completed;
The completed building or structure meets the relevant GPR benchmark; and
At least 80% of the total floor area of the building or structure is used by a single user for carrying out the qualifying activity.
If less than 80% of the total floor area is used by the single user for the qualifying activity, AA will not be granted for the YA relating to that basis period.
How to claim LIA
Businesses claming LIA have to submit the following documents together with their income tax returns to IRAS:
a) A copy of 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. You can refer to Annex C of EDB's circular "Land Intensification Allowance Incentive" on EDB website for an example;
c) A copy of 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:
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 activites
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 will be disregarded and there will not be any balancing adjustment on the seller of the building.
iv) If the completed building or structure fails to meet the relevant GPR benchmark
IRAS will recovered the IA and/or AA through re-assessment of preceding tax years.