Industrial Building Allowances (IBA)

As IBA has been phased out, companies will not be allowed to claim allowances on the capital expenditures on the construction or purchase of industrial buildings or structures incurred from 23 Feb 2010 except in specified scenarios provided under the transitional rules.

Capital Expenditure Allowances under IBA

Companies can claim Industrial Building Allowances (IBA) on capital expenditure incurred on the construction or purchase of industrial buildings or structures provided:

(a) the company used the industrial buildings or structures for any of the qualifying trades or activities ("qualifying trade"); or

(b) the company leased the industrial buildings or structures to persons who used them for any of the qualifying trades

"Industrial building or structure" is defined in Section 18(1) of the Income Tax Act. Qualifying trades are likewise specified in the Act.

Some examples of qualifying trade include:

  1. Trade carried on in a mill, factory or other similar premises
  2. Transport, dock, water or electricity undertaking
  3. Trade which consists in the manufacture of goods or materials or the subjection of goods or materials to any process
  4. Trade which consists in the storage of goods or materials which are to be used in the manufacture of other goods or to be subjected, in the course of a trade, to any process
  5. Trade which consists of the storage of goods or materials on their arrival in Singapore

For details, please refer to the e-Tax Guide on "Phasing Out of Industrial Building Allowance" (99KB).

Transitional Rules for Existing Buildings

Case 1: Purchase of an Existing Industrial Building

Criteria to be met for transitional rules to apply

 

Capital expenditure qualifying for IBA under the transitional rules

 

The option to purchase was granted on or before 22 February 2010
or
The agreement to purchase was signed on or before 22 February 2010

Purchase costs (including legal fees, stamp duties relating to the title of the building) of the industrial building

Case 2: Construction of an Adjoined or a Separate Extension to an Existing Industrial Building

Criteria to be met for transitional rules to apply

Capital expenditure qualifying for IBA under the transitional rules

     

  1. A Qualified Person (QP) was engaged on or before 22 February 2010 
  1. And

  2. The development application (DA) is submitted to URA on or before 31 December 2010

Construction costs of the extension incurred up to the earlier of the following dates:

  1. date of issue of temporary occupation permit ("TOP")

    or
  2. last day of the basis period for YA 2016

Qualified Person (QP) refers to a registered architect or registered professional engineer as defined in the First Schedule of the Planning Act. A Development Application (DA) is a building project application submitted to URA for planning permission and other regulatory approvals. Only a QP can submit a DA.

Case 3: Construction of an Extension to an Existing Building

Criteria to be met for transitional rules to applyCapital expenditure qualifying for IBA under the transitional rules
  1. A Qualified Person (QP) was engaged on or before 22 February 2010
  2. And

  3. The Development Application (DA) is submitted to URA on or before 31 December 2010

Construction costs of the extension incurred up to the earlier of the following dates:

  1. date of issue of TOP

    or
  2. last day of the basis period for YA 2016
  3. And

    Construction or purchase costs or residue of expenditure ("ROE"), as the case may be, of the existing building which is converted to an industrial building upon completion of the construction of the extension.

Qualified Person (QP) refers to a registered architect or registered professional engineer as defined in the First Schedule of the Planning Act. A Development Application (DA) is a building project application submitted to URA for planning permission and other regulatory approvals. Only a QP can submit a DA.

Case 4: Renovation of an Existing Industrial Building

Criteria to be met for transitional rules to apply

Capital expenditure qualifying for IBA under the transitional rules

A renovation contractor was engaged on or before 22 February 2010

Renovation costs incurred up to the earlier of the following dates:

  1. end of the renovation project

    or
  2. last day of the basis period for YA 2016

This applies only to renovation works that do not require a development application to URA.

Case 5: Renovation of an Existing Building

Criteria to be met for transitional rules to apply

Capital expenditure qualifying for IBA under the transitional rules

A renovation contractor was engaged on or before 22 February 2010

Renovation costs incurred up to the earlier of the following dates:

  1. end of the renovation project

    or
  2. last day of the basis period for YA 2016
  3. And

    Construction or purchase costs or ROE, as the case may be, of the existing building which is converted to an industrial building upon completion of renovation works.

This applies only to renovation works that do not require a development application to URA.

Transitional Rules for New Industrial Buildings

Case 1: Construction of a New Industrial Building

Criteria to be met for transitional rules to applyCapital expenditure qualifying for IBA under the transitional rules

 

  1. Any one of the following:
    1. the option to purchase the land (on which the building is to be built) was granted by the private land owner on or before 22 February 2010
    2. the agreement to purchase the land was signed with the private land owner on or before 22 February 2010
    3. the lease agreement to lease the land from the private land owner was signed on or before 22 February 2010
    4. an application to bid, buy or lease the land was submitted to the government on or before 22 February 2010
    5. And

  2. The DA to build the industrial building is submitted to the URA on or before 31 December 2010

Construction costs of the industrial building incurred up to the earlier of the following dates:

  1. date of issue of TOP
  2. or

  3. last day of the basis period for YA2016

Case 2: Purchase of a New Industrial Building

Criteria to be met for transitional rules to apply

Capital expenditure qualifying for IBA under the transitional rules

The option to purchase was granted on or before 22 February 2010

or

The agreement to purchase was signed on or before 22 February 2010

Purchase cost (including legal fees, stamp duties relating to the title of the building) of the industrial building

Qualifying Expenditure under IBA

Qualifying expenditure refers to expenditure that is incurred for the construction of a building. Land cost does not qualify for IBA.

Examples of qualifying capital expenditure are:

  • cost of preparing plans in connection with obtaining building approval;
  • architect fees; and
  • expenditure incidental to the construction of the building e.g. plumbing, drainage, electrical installations.

Non-Qualifying Expenditure under IBA

Under Section 18(6) of the Income Tax Act, an "industrial building or structure" does not include any building or structure in use as, or as part of, a dwelling-house, retail shop, showroom, hotel (other than a Sentosa hotel) or office or for any purpose ancillary to any such purpose.

Where part of a building or structure does not qualify as an industrial building or structure, but the expenditure incurred on the construction of the non-qualifying part is 10% or less of the total expenditure on construction of the whole building or structure, the whole building or structure qualifies as an industrial building or structure [Section 18(7) of the Income Tax Act].

Computing IBA Claims

Generally, IBA is computed as follows:

  • Initial allowance (IA): 25% of the qualifying expenditure
  • Annual allowance (AA): 3% of the qualifying expenditure

The following table summarises the IBA claims:

Type of buildingBuilding purchased before 1 Jan 2006Building purchased from 1 Jan 2006 to 22 Feb 2010 (except for the specified scenarios given above)

Newly constructed building

IA and AA granted based on construction cost

No change

New building with leasehold interest of less than 25 years

No IA and AA granted

IA and AA granted based on the purchase price of the building

New building with leasehold interest of 25 years or more

IA and AA granted based on the lower of construction cost and purchase price

IA and AA granted based on the purchase price of the building

Used building with leasehold interest of less than 25 years

AA granted based on the remaining balance of expenditure

AA granted based on the purchase price of the building

Used building with leasehold interest of 25 years or more

AA granted based on the remaining balance of expenditure

AA granted based on the purchase price of the building

Building which is more than 50 years old since it was first used

No AA granted

AA granted based on the purchase price of the building

Application of Section 24 Election

For a transfer of an industrial building between related persons, the election under Section 24 of the ITA shall no longer be available to the transferor and transferee where:

  1. the option to purchase is granted after 22 February 2010; or
  2. the agreement for sale or transfer is signed after 22 February 2010.

Consequently, balancing adjustment shall be made on the transferor. The transferee shall not be entitled to claim IBA on the industrial building.

Illustration of IBA Claims

Case 1: IBA claims for Constructed Buildings

Type of AllowancesInitial AllowancesAnnual Allowances

For Constructed Buildings

Acquired land for $1mil and incurred $0.5mil on construction of IB on the land.

As land cost of $1mil is a non-qualifying cost, IBA will be given only on the construction cost of $0.5mil.

IA = 25% x $500,000
= $125,000

IA can only be claimed in respect of the year in which the expenditure is incurred. In subsequent years, only AA can be claimed.

AA = 3% x $500,000
= $15,000

Case 2: IBA claims for Purchased Buildings

For Purchased Buildings

Purchased a new building for $2mil. Based on valuation, the amount applicable to land was $1.8mil.

As land cost of $1.8mil is a non-qualifying cost, IBA will be given only on $0.2mil.

IA = 25% x $200,000
= $50,000

IA can only be claimed in respect of the year in which the new building is acquired. In subsequent years, only AA can be claimed.

AA = 3% x $200,000
= $6,000

Applying for IBA

You can make your claim in your tax computation.

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