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 income to reduce the amount of tax you have to pay.

Illustration: How Allowable Business Expenses Reduce Taxes Payable

Income

$80,000

Business Expenses

$15,000

- Allowable Business Expenses

$5,000

- Disallowable Business Expenses

$10,000

Income Subject to Tax

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

(Income minus allowable 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.

See Also:

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. 

 

Medical Expenses

You may claim deduction for medical expenses up to 1% of the total employee remuneration accrued for the year. Total employee remuneration:

  1. includes employees' salaries, allowances, bonuses and allowable CPF contributions;
  2. excludes sole-proprietor and partner's salary, bonus, allowances, Medisave and CPF contributions; and
  3. excludes Foreign Workers Levy (FWL).

You may claim a tax deduction of up to 2% for employers who have:

  1. Implemented the Portable Medical Benefits Scheme (PMBS);
  2. Implemented the Transferable Medical Insurance Scheme (TMIS);
  3. Provided employees with approved portable medical shield plans^; or
  4. Made ad-hoc contributions to employees' Medisave accounts (subject to a cap of $1,500 per employee per year) during the relevant basis period.

^ Excludes premiums for riders that cover deductibles and co-payments. If the medical expenses (including rider premiums) do not exceed 1% of the total remuneration of the employees for the relevant basis period, the full amount of medical expenses will be deductible. If the expenses exceed 1%, any excess amount which does not relate to rider premiums, will be deductible up to another 1% of the total remuneration of the employees for the relevant basis period.

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.); and
    • fitting rooms in retail outlets.

    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
    •  

       

    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 (e-Tax Guide, 97KB).

    Research & Development (R&D) Expenditure

    Businesses carrying on trade or business in Singapore can claim tax deductions of up to 150% for research and development (R&D) expenditure provided the expenses are:
    1. directly incurred by the business; or
    2. incurred on R&D activities outsourced to any R&D organisations.

    In addition, businesses may enjoy double tax deduction on the R&D expenditure incurred if the Economic Development Board (EDB) approves it.

    Enhancement of R&D Tax Deductions from YA 2009 to YA 2013

    Effective YA 2009, the tax deductions on R&D expenditure were enhanced as follows:

    1. R&D expenses are no longer restricted to manufacturing and services businesses.
    2. R&D expenses incurred in Singapore are no longer required to be related to the existing trade or business.
    3. The tax deduction of R&D expenses incurred in Singapore is raised from 100% to 150% under Section 14DA.

    Claiming R&D Deduction

    To claim R&D 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).

    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.

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