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

• 100% Write-Off in One Year
• Write-Off Over Three Years
• Write-Off Over Two Years
  
  

Section 19

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

Computers and Prescribed Automation Equipment

• Prescribed automation equipment list for expenditure incurred on/after 15 Dec 2010 (PDF, 25KB)

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

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.

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 
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 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:
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 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 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.

   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 7^th 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 7^th 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

• Tax Treatment of Computer Software (PDF, 19KB)
  
  

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

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

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

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