Business Expenses

Business expenses are expenses you have paid to run the business. Some examples are CPF contributions, wages, renovation, advertising, etc.

Business expenses may be deductible or non-deductible. When deductible, they reduce your taxable income and the amount of tax you need to pay.

Example

Income  $80,000
Business Expenses $15,000
 - Deductible Business Expenses $5,000
 - Non-Deductible Business Expenses $10,000
 Income Subject to Tax ("Taxable Income") $80,000 - $5,000 = $75,000

(Income minus deductible expenses)

 

Deductible Business Expenses

Generally, deductible business expenses are those 'wholly and exclusively incurred in the production of income'. In other words, they must satisfy all these conditions:

Expenses are solely incurred in the production of income.

Expenses are not a contingent liability, i.e. it does not depend on an event that may or may not occur in the future. In other words, the legal liability to pay the expenses must have arisen, regardless of the date of actual payment of the money. 

Expenses are revenue, and not capital, in nature.

Expenses are not prohibited from deduction under the Income Tax Act.

Non-Deductible Business Expenses

Non-deductible business expenses are activities you or your employees pay for that do not fulfil the conditions above. This includes personal expenses such as travel or entertainment not related to the running of the business, and capital expenses such as expenses incurred to incorporate a company and purchase of fixed assets.

Examples of Deductible and Non-Deductible Business Expenses

DeductibleNon-Deductible

Accounting fee
Administrative expenses
Advertisement
Auditors' remuneration

Amortisation

Bad debts (trade debtors)
Bank charges
Book-keeping services

Borrowing costs as a substitute for interest expense or to reduce interest costs

Bad debts (non-trade debtors)

Commission
CPF, skills development levy, foreign workers' levy

Certificate of entitlement (COE) for motor vehicles*

CPF-related
Statutory contributions to CPF
Ad-hoc contributions to employees' Medisave Account (from 1 Jan 2018, the maximum deduction allowed as medical expenses, subject to the medical expenses cap, will be raised from $1,500 to $2,730 per employee per year) 
Topping-up of Employees' CPF Minimum Sums
Voluntary cash contributions to self-employed persons' Medisave Account

CPF-related
Voluntary contributions to CPF (refers to CPF contributions exceeding the statutory rate)

Interest incurred on late CPF contributions

Directors' fees
Directors' remuneration

Depreciation (you may instead claim capital allowances )
Dividend payments made on preference shares
Donations

Employee Equity-Based Remuneration (EEBR) Scheme
Employment Assistance Payment (EAP)
Entertainment
Exchange loss (trade and revenue in nature)
Exhibition expenses

Entrance fee (country club or other clubs)
Exchange loss (non-trade or capital in nature)
Expenses incurred before commencement of business

 

Fixed assets written off
Fixed assets acquisition cost (you may instead claim capital allowances )

Fines

 

Goodwill payment

Employee's income tax borne by employer (in accordance with employment contract)
Insurance premium (group term life insurance where employees are the intended beneficiaries, keyman insurance, workman injury compensation)
Insurance for underwriting bad trade debts
Interest expenses

Interest incurred on late payment of fees to a Management Corporation for a Strata Title Plan (MCST)
Interest incurred on loans to re-finance earlier loans or borrowings

Intellectual property (IP) licensing expenditure

Impairment loss on non-trade debts
Singapore income tax and any tax on income in country outside Singapore
Installation of fixed assets
Interest expenses on non-income producing assets ( interest adjustment)

Legal and professional fees (trade and revenue transactions)

Legal and professional fees (non-trade or capital transactions)

Medical expenses (restricted to 1%/ 2% of total remuneration if company is under Portable Medical Benefits Scheme (PMBS) or Transferable Medical Insurance Scheme (TMIS)
Motor vehicle expenses (such as upkeep, maintenance, running and financing costs of goods / commercial vehicles, e.g. van, lorry and bus)

Medical expenses (amount exceeding 1%/ 2% of total remuneration if company is under PMBS or TMIS)
Motor vehicle expenses (S-plated and RU-plated cars)

Office upkeep

 

Periodicals & newspapers
Postage
Printing and stationery
Property tax
Provision for bad and doubtful debts (specific)

(note impairment loss on trade debts)
Provision for obsolete stocks (specific)

Penalties
Prepaid expenses (not relating to the relevant basis period)
Private and domestic expenses (expenses not incurred for business purpose)
Private hire car
Provision for bad and doubtful debts (general)(note impairment loss on trade debts)
Provision for obsolete stocks (general)

Reinstatement costs (expenses incurred to reinstate
premises to its original condition prior to vacating 
it at the end of the tenancy agreement)

Rental of business premises
Registration of patents, trademarks, designs and plant varieties
Repairs and maintenance
Research and development 

Renovation or refurbishment works (you may claim Section 14Q deduction for qualifying expenditure incurred from 16 Feb 2008)

Retrenchment payments
Contractual retrenchment payments

Ex-gratia retrenchment payments and outplacement support costs, where there is no complete cessation of business

Retrenchment payments
Ex-gratia retrenchment payments and outplacement support costs, where there is a complete cessation of business.

Secretarial fees
Staff remunerations (salary, bonus and allowances)
Staff training
Staff welfare/benefits ** 
Statutory and Regulatory expenses
Stock obsolescence
Supplementary Retirement Scheme (SRS)

 

Tax fees (service fees paid to tax agent)
Telephone bills
Transport (public transport and goods / commercial vehicles)
Travelling

Transport (S-plated and RU-plated cars)

Wages
Water & electricity

 

* If the vehicle qualifies for capital allowance (goods/commercial vehicle), you can include the cost of COE to the cost of vehicle and claim capital allowance.

**Expenses incurred by the company on staff welfare or benefits that are taxable in the hands of employees do not automatically qualify for tax deduction and vice versa. Such expenses must meet the tax deductibility conditions to qualify for tax deduction.

For more details, refer to:

(1) Tax Treatment of Business Expenses (A-H)

(2) Tax Treatment of Business Expenses (I- P)

(3) Tax Treatment of Business Expenses (Q- R)

(4) Tax Treatment of Business Expenses (S - Z)

For more information on how to make tax adjustments (such as adding back non-deductible business expenses) to arrive at the income that is chargeable to tax, please refer to Preparing a Tax Computation.

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