Calculating Capital Allowances

Businesses can claim capital allowances when the expense has been incurred. An expense is incurred when the legal liability to pay has arisen, regardless of the date of actual payment of the money. 

Methods for Calculating Capital Allowances

There are a few methods for calculating capital allowances. You may write off the cost of an asset over one year, three years or over the prescribed working life of the asset.

Section 19A

Section 19

100% Write-Off in One Year (Section 19A)

Under Section 19A, assets that qualify for 100% write-off are: a. computers b. prescribed automation equipment c. low-value assets

Computers and Prescribed Automation Equipment

The prescribed automation equipment are found in this list: Some commonly-claimed prescribed automation equipment are computers, laptops, printers and computer software.

 

Under the 100% write-off, capital allowance is allowed in the form of annual allowance (AA) where:

For assets purchased by cash:

AA = 100% of the cost of the asset

For assets purchased under hire purchase:

AA = 100% of the principal payment (and deposit paid where applicable)

You can also choose to defer the capital allowance claims to subsequent YAs. Please refer Deferring Capital Allowance Claims to find out more. 

Examples of 100% Write-Off in One Year for Computer and Prescribed Automation Equipment

 

Your company purchased a computer for $2,000 and a printer for $200 by cash in the year 2019.

AA for computer = 100% x $2,000 = $2,000

AA for printer = 100% x $200 = $200

Your capital allowance schedule is as follows

Description

Computer ($)

Printer ($)

Cost

2,000

200

YA 2020 AA

2,000

200

Tax written down value (TWDV) c/f

0

0

You company purchased a computer for $2,000 in the year 2018 under hire purchase. The company has a 31 Dec year end.

AA = 100% of the principal payment (plus deposit paid where applicable)

Assuming the details of the hire purchase agreement are as follows:

Purchase price 

$ 2,000

Deposit

 

$ 100

Hire purchase interest

 

$ 50

Number of instalments

 

5

Amount payable per instalment

 

$ 390

Hire purchase interest per instalment

$50 / 5

$ 10

Principal payment per instalment

$390 - $10

$ 380

Assuming a deposit of $100 and 2 instalments were paid in the year 2018 and the remaining three instalments were paid in the year 2019.

The deposit and principal payments in the year 2018 = $100 + (2 x $380) = $860
The principal payments in the year 2019 = 3 x $380 = $1,140

YA 2019 AA = 100% x $860 = $860

YA 2020 AA = 100% x $1,140 = $1,140

Your capital allowance schedule is as follows:

Description

Computer ($)

Cost

2,000

YA 2019 AA

860

Tax written down value (TWDV) c/f

1,140

YA 2020 AA

1,140

TWDV c/f

0

Low Value Assets

Companies may choose to write off low-value assets in one year provided certain conditions are satisfied. A low-value asset is one that does not cost more than $5,000.

Companies that do not wish to use the one-year write-off may write off the cost of the asset over three years or its prescribed working life.

Plant and machinery that already qualify for a one-year write-off are not covered here.

Conditions for One Year Write-Off of Low-Value Assets

To claim a one-year write-off of low-value assets under Section 19A(10A) of the Income Tax Act (ITA), including those acquired on hire purchase, the following conditions must be satisfied:

  1. The assets must be plant and machinery that qualify for capital allowances under Sections 19, 19A or 19A(1B) of the ITA;
  2. The assets must be acquired for the purposes of your trade, profession or business;
  3. Each low-value asset must not cost more than $5,000; and 
    1. The total claim for a one-year write-off of all low-value assets must not exceed $30,000 per YA.

    If the amount exceeds $30,000, you can still claim capital allowances over three years or the prescribed working life for the low-value assets exceeding the cap for the YA.

    How the One-Year Write-Off for Low-Value Assets Works

    The low-value assets that can be written off in one year in any YA, subject to a total claim of $30,000, are:

    1. Low-value assets that are acquired in the YA; and
    2. Low-value assets that are acquired before the YA where:
      1. no claim for capital allowance has been made before (i.e. claim for capital allowance was deferred previously).
      2. a claim for capital allowance was previously made under Sections 19, 19A(1) or 19A(1B) and there is a tax written down value brought forward to the current YA.
    3. Hire Purchase Assets

      An asset acquired under hire purchase terms must cost no more than $5,000 in order to qualify for the one-year write-off on its instalment paid in any YA.

      Indicate clearly in your capital allowance schedule the assets that are claimed on the basis of Section19A(10A) and submit the capital allowance claims accordingly in your income tax returns.

      Identifying Low-Value Assets that Qualify for 100% Write-Off

      Company A purchased 7 pieces of Asset X at $4,400 each at a total cost of $30,800 in the year 2019.

      In the year 2018, Company A also purchased:

      1. Asset Y at $1,500 for which claim for capital allowance was deferred; and
      2. Asset Z at $3,000, for which claim for capital allowance was made under Section 19A(1) (i.e. three-year write-off).

        Company A claimed capital allowance of $1,000 ($3,000 / 3 years) on Asset Z in YA 2019, and a tax written down value of $2,000 ($3,000 - $1,000) on Asset Z was carried forward to YA 2020.

      3. All the 9 pieces of assets qualify for capital allowance.

      Computing the Total Claim under One-Year Write-Off

      Company A can claim a one-year write-off on the cost of the following assets in YA 2020:

      Cost of 6# pieces of new Asset X ($4,400 x 6)

      $ 26,400

      Add: Cost of Asset Y purchased in the year 2018

      $ 1,500

        
      Tax written down value of Asset Z brought forward from YA 2019

      $ 2,000

      Total claim under one-year write-off

      $ 29,900*

      Explanation of the Claim

      * Within the total cap of $30,000 per YA.

      # Company cannot claim the 7th piece of Asset X under Section 19A(10A) as the additional cost of $4,400 will exceed the $30,000 cap, i.e. $4,400 x 7 = $30,800.

      Company A can claim capital allowances on this 7th piece of Asset X over three years or over its useful life instead. Assuming that capital allowances are claimed over three years, the capital allowances for YA 2020 for this asset will be $1,467 ($4,400 / 3 years).

      In total, the capital allowance claim for YA 2020 will be $31,367 ($29,900 + $1,467).

    See Also

    Write-Off Over Three Years (Section 19A)

    From YA 2009, you can use this method to claim capital allowance for all assets that qualify for capital allowance. You can also choose to defer the capital allowance claims to subsequent YAs. Please refer to Deferring Capital Allowance Claims to find out more about deferring your capital allowance claims.

    Under the three-year write-off, capital allowance is allowed in the form of Annual allowance (AA) where:

    For asset purchased by cash:
    AA for each year = 1/3 of the cost of asset

    For asset purchased under hire purchase:
    AA = 1/3 of the principal payment (and deposit paid where applicable)

    Examples of Write-Off Over Three Years

    Your company purchased office equipment for $3,000 with cash in the year 2019.
    AA for each YA = 1/3 x $3,000 = $1,000

    Your capital allowance schedule is as follows:

    Description

    Office equipment ($)

    Cost

    3,000

    YA 2020 AA

    1,000

    Tax written down value (TWDV) c/f

    2,000

    YA 2021 AA

    1,000

    TWDV c/f

    1,000

    YA 2022 AA

    1,000

    TWDV c/f

    0

    Your company acquired an office equipment for $2,000 in the year 2019 by hire purchase. The details of the hire purchase agreement are as follows:

    Purchase price 

    $ 2,000

    Deposit 

    $ 100

    Hire purchase interest 

    $ 50

    Number of instalments 

    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 the year 2019 and the remaining three instalments were paid in the year 2020.

    The deposit and principal payments in the year 2019 = $100 + (2 x $380) = $860
    The principal payments in the year 2020 = 3 x $380 = $1,140

    AA for each YA is computed as follows:

    Year of payment

    Deposit and principal amount paid ($)

    Amount of AA ($) to be claimed in:

      

    YA 2020

    YA 2021

    YA 2022

    YA 2023

    2019

    860

    287

    287

    286

     

    2020

    1,140

     

    380

    380

    380

    Total

    287

    667

    666

    380

    Your capital allowance schedule is as follows:

    Description

    Office equipment ($)

    Cost

    2,000

    YA 2020 AA

    287

    Tax written down value (TWDV) c/f

    1,713

    YA 2021 AA

    667

    TWDV c/f

    1,046

    YA 2022 AA

    666

    TWDV c/f

    380

    YA 2023 AA

    380

    TWDV c/f

    0

    Write-Off Over Two Years

    New! As announced in Budget 2020, businesses are given an option to accelerate the write-off over two years, instead of three years or over the prescribed working life of the asset, on the cost incurred in acquiring the asset during the basis period for YA 2021. This is to support businesses who intend to invest in new assets and ease the cashflow of businesses.

    The rates of accelerated capital allowance allowed are as follows:

    1. 75% of the cost incurred to be written off in the first year (i.e. YA 2021); and
    2. 25% of the cost incurred to be written off in the second year (i.e. YA 2022).

     No deferment of capital allowance claim is allowed under this option.

    Businesses can continue to claim capital allowance based on the current one year or three year write-off or write-off over the prescribed working life under section 19 or 19A if they do not wish to claim capital allowance over two years.

    For new assets acquired under a hire-purchase agreement (“HP asset”) during the basis period for YA 2021, the accelerated rates of 75% and 25% will apply to all the instalments (principal component) paid on such HP assets notwithstanding that the instalments may be paid in a basis period subsequent to the basis period for YA 2021.

    Examples of Write-Off Over Two Years

    Your company purchased office equipment for $3,000 with cash in the year 2020.  

    Your capital allowance schedule is as follows:

    Description

    Office equipment ($)

    Cost

    3,000

    YA 2021 AA (75% of cost)

    2,250

    Tax written down value (TWDV) c/f

    750

    YA 2022 AA (25% of cost)

    750

    TWDV c/f

    0

    Your company acquired an office equipment for $2,000 in the year 2020 by hire purchase. The details of the hire purchase agreement are as follows:

    Purchase price 

    $ 2,000

    Deposit 

    $ 100

    Hire purchase interest 

    $ 50

    Number of instalments 

    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 the year 2020 and the remaining three instalments were paid in the year 2021.

    The deposit and principal payments in the year 2020 = $100 + (2 x $380) = $860
    The principal payments in the year 2021 = 3 x $380 = $1,140

    AA for each YA is computed as follows:

    Year of payment

    Deposit and principal amount paid ($)

    Amount of AA ($) to be claimed in:

      

    YA 2021

    YA 2022

    YA 2023

    2020

    860

    645

    215

     

    2021

    1,140

     855

    285

    Total

    645

    1,070

    285

    Your capital allowance schedule is as follows:

    Description

    Office equipment ($)

    Cost

    2,000

    YA 2021 AA

    645

    Tax written down value (TWDV) c/f

    1,355

    YA 2022 AA

    1,070

    TWDV c/f

    285

    YA 2023 AA

    285

    TWDV c/f

    0

    Write-Off Over the Prescribed Working Life of the Asset (Section 19)

    Under this method, capital allowance is granted over an asset's prescribed working life based on the Sixth Schedule of the Income Tax Act.

    New! To simplify capital allowance claims under section 19, the prescribed working life of assets in the Sixth Schedule will be streamlined to 6, 12 and 16 years, in the following manner:

    • If the prescribed working life of the asset in the Sixth Schedule is 12 years or less, businesses may make an irrevocable election to claim capital allowance over either 6 or 12 years;

    • If the prescribed working life of the asset in the Sixth Schedule is 16 years, businesses may make an irrevocable election to claim capital allowance over 6, 12 or 16 years.

    The above change will apply to assets acquired in the basis periods relating to YA 2023 and subsequent YAs. It will also apply to assets acquired in basis periods relating to YA 2022 and prior YAs, if the business had deferred and yet to start its capital allowance claims for the assets. 

    To qualify for the above, businesses are to make the irrevocable election for the number of years of working life for the asset at the time of their tax filing for the YA relating to the basis period in which the asset was acquired.  For assets acquired in basis periods prior to the basis period for YA 2023, businesses are to make the election at the time of the tax filing for YA 2023.

    The initial allowance (IA) and annual allowance (AA) are computed as follows:

    For asset purchased with cash :

    In the first YA relating to the year in which the fixed asset was purchased:

    IA = 20% x the cost of asset

    AA = (80% x the cost of asset) / number of years of working life*

    In the second and subsequent YA:

    IA is not applicable

    AA = (80% x the cost of asset) / number of years of working life* (same as the first YA)

    For asset purchased under hire purchase:

    In the YA where there is a deposit paid and/ or instalment payments:

    IA = 20% of the principal amount (and deposit paid where applicable)

    AA = (80% x the cost of asset) / number of years of working life*

    In the YA where there is no payment made:

    IA is not applicable

    AA = (80% x the cost of asset) / number of years of working life*

    *The number of years of 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 motorcycle is eight years)

    You can also choose to defer the capital allowance claims to subsequent YAs. Please refer to Deferring Capital Allowance Claims to find out more about deferring your capital allowance claims. 

    Capital allowance claim for motor vehicles 

    No capital allowance is to be given on private cars (S-plated cars), RU-plated cars and company cars (Q-plated or S-plated cars), except where the cars are registered as "private hire cars"/"cars for instructional purpose" and are hired out or used for providing driving instruction in the course of the company's business.

    Apart from private cars (S-plated cars), RU-plated cars and company cars (Q-plated or S-plated cars), costs of other motor vehicles such as vans, lorries and motor cycles acquired for business use would qualify for capital allowances under Section 19 or 19A of the Income Tax Act.

    Expenditure incurred on obtaining a Certificate of Entitlement (COE) to acquire a motor vehicle is part of the cost of the motor vehicle. If the motor vehicle qualifies for capital allowance, the cost of obtaining the COE may be included when claiming capital allowance on the motor vehicle. In addition, the amount paid by a registered owner of an existing vehicle upon renewal of the COE to enable the continued operation of the vehicle will be regarded as an additional cost of the vehicle for the purposes of claiming allowances under Section 19 or 19A. 

    However, for expenditure incurred to obtain a COE which is not subsequently used to acquire a vehicle, the expenditure incurred will not be granted capital allowance. 

    Foreign registered vehicles 

    From YA 2014 onwards, capital expenditure incurred on a car registered outside Singapore and used exclusively outside Singapore for business purposes will be granted capital allowance. There is no cap on the capital allowance.

    Summary table showing the different ways to claim capital allowances  

    How to calculate

    Qualifying assets

    Annual
    allowance (AA)

    Over working life of asset
    [Section 19]

    • Apply to all qualifying assets
    • Refer to Sixth Schedule of the Income Tax Act for working life

    New!  From YA 2023, option to claim:

    • 6 or 12 years for prescribed working life of 12 years or less
    • 6,12 or 16 years for prescribed working life of 16 years

    • Initial allowance (IA)
      = 20% of cost
    • AA = (80% of cost) / No. of years of working life

    Three-year write-off
    [Section 19A(1)]

    Apply to all qualifying assets

    AA = 1/3 of cost

    New! Two-year write-off Apply to all qualifying assets acquired during the basis period relating to YA 2021

    YA 2021

    AA = 75% of cost

    YA 2022

    AA = 25% of cost

    One-year write-off
    (for specific assets)
    [Section 19A(2)]

    • Computers
    • Prescribed automation equipment listed in Income Tax (Automation Equipment) Rules 2004; and Amendment Rules 2010 (effective from 15 Dec 2010)

    AA = 100% of cost

    One-year write-off
    (only for low-value assets)
    [Section 19A(10A)]

    Low-value assets

    • Cost of each asset not more than $5,000
    • Total claim for one-year write-off of all such assets capped at $30,000 per YA

     

    AA = 100% of cost