Calculating Capital Allowances

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

Section 19A

• 100% Write-Off in One Year
• Write-Off Over Three Years
• Write-Off Over Two Years (for YAs 2010 and 2011 only)

Section 19

• Write-Off Over the Prescribed Working Life of the Asset

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 (from YA 2005 to 2012, the threshold was $1,000).

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.

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
   1. $5,000 (effective YA 2013 onwards); or
   2. $1,000 (effective YA 2005 to YA 2012); and
4. 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/ the prescribed working life for the low-value assets exceeding the cap for the YA.

If you do not wish to claim the one-year write-off for low value assets, you can claim capital allowances over three years/ prescribed working life for the assets instead.

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:
3. 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.

4. Hire Purchase Assets

   An asset acquired under hire purchase terms must cost no more than $5,000 (effective from YA 2013) or $1,000 (effective from YA 2005 to 2012) 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.

   Illustration:  100% Write-Off of Low-Value Assets in One Year

   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 YA 2017.

   In YA 2016, 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 this asset in YA 2016, and a tax written down value of $2,000 ($3,000 - $1,000) on Asset Z was carried forward to YA 2017.

   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 2016:

   Cost of 6# pieces of new Asset X ($4,400 x 6)	$ 26,400
   Add: Cost of Asset Y purchased in YA 2016	$ 1,500
   Tax written down value of Asset Z brought forward from YA 2016	$ 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 cause the current total claim of $29,900 to exceed the $30,000 cap.

   On the remaining piece of new Asset X costing $4,400, Company A can claim capital allowances over three years or over its useful life. Assuming that capital allowances are claimed over three years, the capital allowances for YA 2017 for this asset will be $1,467 ($4,400 / 3 years).

   In total, the capital allowance claim for YA 2017 will be $31,367 ($29,900 + $1,467).

See Also

• Tax Treatment of Computer Software (PDF, 18KB)
• Prescribed automation equipment list for expenditure incurred before 15 Dec 2010 (PDF, 83KB)
• Prescribed automation equipment list for expenditure incurred on/after 15 Dec 2010 (PDF, 25KB)

Effective 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

As announced in Budget 2009, capital expenditure incurred on plant and machinery acquired in the basis periods for the YAs 2010 and 2011 can qualify for accelerated write-down over two years instead of three years .

This was to support companies that intended to invest in new plant and machinery in preparation for the recovery after the economic downturn in 2008/2009.

With this change, companies can elect to write down the costs of plant and machinery acquired in the basis periods for YAs 2010 and 2011 over two years at the rate of 75% in the first YA of claim and the remaining 25% in the second YA. Companies can also defer their capital allowance claims to subsequent YAs. The two year write-down of 75% and 25% will still apply when a claim for the capital allowance is eventually made. Please refer to Deferring Capital Allowance Claims to find out more about deferring your capital allowance claims.

For hire purchase agreements entered into during the basis periods for YAs 2010 and 2011, the two year write-down of 75% and 25% will continue to apply to the principal payments made (including deposit paid where applicable) even though the instalments are paid after YA 2011. However, if the hire purchase agreements were entered into before YA 2010, the instalments paid in YAs 2010 and 2011 will not qualify for the accelerated write-down.

For asset purchased with cash:

AA in Year 1 = 75% of the cost of asset

AA in Year 2 =  25% of the cost of the asset

For asset purchased under hire purchase:

AA in Year 1 = 75% of the principal payment (and deposit paid where applicable)

AA in Year 2 =  25% of the principal payment

Examples of Write-Off Over Two Years

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

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.

Prior to YA 2014, capital allowance may be granted on the purchase of a motor vehicle that is registered outside Singapore and used exclusively outside Singapore for business purposes. The capital allowance on the cost of the car is subject to a cap of $35,000.

Computation of capital allowance for motor vehicles

Capital allowance can be claimed either over three years (Section 19A) or over the prescribed working life of the motor vehicle (Section 19). For qualifying motor vehicles acquired during the basis periods for the YAs 2010 and 2011, companies can claim accelerated write-down over two years instead of three years. For more details and examples, please click here .

For motor vehicle purchased with cash on or after YA 2009:

AA = 1/3 x the cost of asset

For motor vehicle purchased with cash before YA 2009, where capital allowance was previously computed based on the prescribed working life:

AA = 1/3 x the tax written down value remaining unallowed as at the beginning of YA 2009

Examples of Write-Off Over the Prescribed Working Life of the Asset

Summary table showing the different ways to claim capital allowances