Business Expenses

Business expenses are the costs you have incurred in the course of running your business. Only allowable business expenses may be deducted against your income to reduce the amount of tax payable.

At a Glance

Allowable Business Expenses

Allowable business expenses are expenses that you can claim as deduction against your business revenue to reduce the amount of tax you have to pay.

Illustration: How Allowable Business Expenses Reduce Taxes Payable

Business Revenue

$80,000

Business Expenses

Total Business Expenses = $15,000

Income Subject to Tax

$80,000 - $5,000 = $75,000

(Business Revenue minus Allowable Business Expenses)

General Rules for Claiming Allowable Business Expenses

  • Expenses must be incurred. An expense is 'incurred' when the legal liability to pay has arisen, regardless of the date of actual payment of the money. 
  • Expenses must be related to your business. You must be able to show why you need to incur the expenditure to earn the income.
  • Expenses that are personal and private in nature are not allowable as they do not relate to your business.
  • Expenses that are capital in nature (e.g. purchase of fixed assets such as plant and machinery) are not allowable business expenses. However, depreciation of fixed assets may be claimed as capital allowances .
  • Expenses should be supported by proper and complete source documents that should be kept for at least five years to substantiate your claims.

    Disallowable Business Expenses

     Disallowable business expenses are expenses that cannot be deducted against business income. They may be disallowed under the Income Tax Act or because, generally, they are not incurred wholly and exclusively to generate business income.

    Examples of Allowable and Disallowable Business Expenses

    Allowable Business ExpensesDisallowable Business Expenses

    Employee / Staff Costs

    • Compulsory CPF contributions by employer
    • Insurance for employees
    • Medical expenses
    • Retrenchment benefits
    • Salary, bonus, allowances of employees

    Employee / Staff Costs

    • Employees'  medical expenses exceeding the allowable amounts
    • CPF contribution for your employees above the statutory limit
    • Your own salary, bonus, allowances, and Medisave/CPF contributions
    • Your own personal drawings, medical fees, income tax, insurance, and donations

    Finance and Professional Costs

    • Accountancy fees
    • Hire purchase interest
    • Interest on money borrowed for use in business
    • Legal fees incurred in recovering trade debts, renewal of leases

    Capital Expenses

     

    Running Costs

    Private Expenses

    • Club subscriptions and entrance fees paid for the sole-proprietor's or partner's membership
    • Cost of travelling to and from your home
    • Food, household and entertainment expenses for yourself, family members, and friends
    • Insurance premiums for policies taken on the sole-proprietor's or partner's life
    • Medical expenses incurred on the sole-proprietor or partner
    • Personal income tax of sole-proprietor or partner
    • Travelling expenses for personal trips
    • Training expenditure incurred by sole-proprietor or partner, except for non-equity salaried partner (who is considered an employee)
      (Note: Sole-proprietor/partner may claim the course fee as course fee relief in his Personal Income Tax Return if he meets the qualifying conditions)

     

    Private Hire Cars/Private Car Expenses

    Expenses incurred directly or in the form of reimbursement on using private hire cars or private cars (E, Q or S-plate cars) such as repair, maintenance, parking fees, petrol costs are disallowable.

    Note: These expenses are not deductible even if the private cars were used for business purposes.

     

    Schemes

     

    Other Allowable Business Expenses

    Mosque building fund, zakat, fitrah or other religious dues authorised by law

    (These should be claimed as trade expenses and not donations.)

    Remuneration Paid to Related Parties (e.g. spouse and siblings)

    • Remuneration paid to the sole-proprietor / partner's related parties such as his parents, spouse, children and siblings who are not working in the business.
    • Excessive salary, bonus and commission paid to the sole-proprietor / partner's related parties that are not in line with market rate (not arm's length).
    • Payments made to the related parties should commensurate with the actual services performed by them (reasonable as compared to an independent employee with the same qualification and experience performing the same services).

     

    Other Disallowable Expenses

    • Fines and penalties
    • Interest on loans obtained for private use
    • Prayer expenses
    • Repayment of loans

    COE 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. 

     

    Renovation or Refurbishment Works Expenditure (Section 14Q)

    To help businesses particularly small and medium enterprises reduce their business costs, qualifying expenditure incurred on or after 16 Feb 2008 under Section 14Q of the Income Tax Act will be tax deductible provided the expenditure on repairs or replacements do not affect the structure of the premises. 

      Qualifying Expenditure

      The following items qualify for Section 14Q deduction provided they do not affect the structure of the business premises:

      • general electrical installation and wiring to supply electricity;
      • General lighting;
      • hot/cold water system (pipes, water tanks etc);
      • gas system;
      • kitchen fittings (sinks, pipes etc);
      • sanitary fittings (toilet bowls, urinals, plumbing, toilet cubicles, vanity tops, wash basins etc.);
      • doors, gates and roller shutters (manual or automated);
      • fixed partitions (glass or otherwise);
      • wall coverings (such as paint, wall-paper etc.);
      • floorings (marble, tiles, laminated wood, parquet etc.);
      • false ceilings and cornices;
      • ornamental features or decorations that are not fine art (mirrors, drawings, pictures, decorative columns etc.);
      • canopies or awnings (retractable or non-retractable);
      • windows (including the grilles etc.); 
      • fitting rooms in retail outlets;
      • hacking work on premises New!;
      • water meter installed to enable renovation works New!;
      • hoarding works New!; and
      • insurance for renovation works qualifying for S14Q deduction New!.

      Deductions are not allowed on expenditure relating to:

      • any designer fees or professional fees;
      • any antique;
      • any type of fine art including painting, drawing, print, calligraphy, mosaic, sculpture, pottery or art installation; or
      • any works carried out to a place of residence provided to or to be provided to employees.
      •  

      Expenditure Cap on Qualifying Costs

      Effective YA 2013, the amount of R&R costs that qualify for tax deduction as a business expense is capped at $300,000 for every relevant three-year period, starting from the year in which the R&R costs are incurred.

      Prior to YA 2013, the cap was $150,000 for every relevant three-year period.

      The deduction must be claimed by the business over three consecutive YAs starting from the year in which the R&R costs are incurred, i.e 1/3 of the R&R expenditure can be claimed in each of the three YAs.

      For partnerships, the expenditure cap of $150,000 will be applied at the partnership level. Tax deduction will be allowed up to the expenditure cap over the three-year period.

       

       YA2012YA2013 YA2014

      Total Qualifying R&R

      Expenditure Incurred

      $160,000 $30,000 $320,000
      Qualifying R&R Expenditure $150,000* $30,000*$120,000#
       R&R allowed

      $50,000

      ($150,000 / 3 years) 

      $60,000

      ($50,000 + $10,000 [$30,000/3])

      $100,000

      ($50,000 +

      $10,000 +

      $40,000 [120,000 / 3 years])

       

      * In YA 2013, the amount of qualifying R&R expenditure allowed is $30,000 ( as the combined qualifying R&R cost for YA 2012 and YA 2013 is still within the expenditure cap of $300,000 for the relevant three-year period).

      #In YA 2014, qualifying R&R expenditure allowed is capped at $120,000 ($300,000 - $150,000 - $30,000). 

      Claiming Section 14Q Deduction

      To claim Section 14Q deduction, include the amount to be claimed under " Allowable Business Expenses " in your  4-line statement in Form B (Self-Employed) or Form P (Partnership), starting from the YA relating to the basis period in which the R&R costs are first incurred.

      Supporting Documents:
      Businesses claiming Section 14Q deduction do not need to submit any supporting documents with their Income Tax Return. They must, however, prepare and keep the following documents / information for 5 years and submit these to the Comptroller of Income Tax upon request: 

      • An  itemised list (36KB) of the renovation or refurbishment works done to the business premises (e.g. all related costs, addresses of the premises, etc.); and
      • Confirmation that the renovation or refurbishment works in the itemised list do not require the approval of the Commissioner of Building Control; and
      • Invoices and payment details of the expenditure.
       

       

       For more details, please refer to  Tax Deduction For Expenses Incurred on Renovation or Refurbishment Works Done to Your Business Premises Revised! (e-Tax Guide, 517KB).

      Research & Development (R&D) Expenditure

      Who Can Claim R&D Tax Benefits

      Only taxpayers who are the beneficiaries of the R&D activities can claim R&D deductions on the R&D expenditure incurred.

      A beneficiary of R&D activities:

      1. bears the financial burden of carrying out the R&D activities; and
      2. effectively owns and can commercially exploit the know-how, intellectual property or other results of the R&D activities.

      Taxpayers in the trade or business of providing R&D services will generally not be able to claim the R&D tax benefits, unless the R&D is performed on its own account such that it is the beneficiary of the R&D activities. Please refer to Research and Development Expenditure for more information on the R&D tax benefits.

        Claiming R&D Tax Benefits

        To claim R&D deduction, you must include the amount to be claimed under " Allowable Business Expenses " in your 4-line statement in Form B (Self-Employed) or Form P (Partnership).

        All Businesses

        You must also submit a completed prescribed R&D Claim Form (59KB) together with the breakdown of items of qualifying R&D expenditure incurred during the basis period. 

        If you file your tax return electronically, you should send the R&D Claim Form to IRAS immediately after you have e-Filed.

        Businesses with Revenue > $500,000

        If your revenue is $500,000 or more, the completed prescribed form and the breakdown of the R&D expenditure are to be submitted together with the certified statement of accounts  and tax computation.

        RATE THIS PAGE

        • Strongly Disagree
        • Strongly Agree

        Information is easy to understand.

        Information is useful.

        Information is easy to find.

         
        Please email us if you would like us to respond to your enquiries.