Minimum Ownership Period for PIC IT and Automation Equipment and Intellectual Property Rights (IPRs)

There is a minimum ownership period for PIC IT and Automation Equipment and IPRs. Claw-back provisions will apply if the minimum ownership requirement is not met.

Minimum Ownership Period for PIC IT and Automation Equipment and Intellectual Property Rights (IPRs)

Businesses must have:

  • For Acquisition of PIC IT and Automation Equipment - owned the equipment for at least one year from the date of purchase to the date of disposal/ lease.
  • For Acquisition of Intellectual Property Rights (IPRs) - owned the IPR for at least five years from the date of acquisition of IPR.
  • For Registration of IPRs - owned the IPR for at least one year from the date of filing of IPR.

 

Claw-back provisions will apply to the enhanced deduction/ allowance, cash payout and PIC Bonus if the minimum ownership requirement is not met.

Disposal of PIC IT and Automation Equipment before the Minimum Ownership Period

If the one-year ownership period is not met, the enhanced deduction or cash payout made may be clawed back or recovered. Similarly, any PIC bonus granted will be recovered.

PIC benefits

Equipment disposed of within one year

Equipment disposed of after one year

Claim allowance

Base allowance

Compute balancing adjustments based on current rules

Enhanced allowance

Deemed as income chargeable to tax in the year of disposal

Adjustments not required

Convert qualifying expenditure into cash

Claw-back of cash payout

No claw-back of cash payout

PIC bonus

Claw-back of PIC bonus

No claw-back of PIC bonus

For more information, such as where the disposal of equipment relates to one acquired on hire purchase, please refer to Annex A of the e-Tax Guide "Productivity and Innovation Credit (1.02MB)" Revised!.

For details on how to compute balancing adjustments, please refer to Capital Allowance.

Waiver of Claw-Back Provisions

The claw-back/recovery provision can be waived under the following circumstances: 

If in the year of disposal, the cost of remaining qualifying equipment (excluding cost of the equipment disposed of) acquired in the same basis period as the equipment disposed of is more than or equal to the expenditure cap applicable for the period, waiver will be given automatically.  You only need to make this declaration in your tax return.  There is no need to apply or get prior approval of the waiver. 

Example

Company A acquired $1,300,000 worth of qualifying equipment during its accounting year that ended on 31 Dec 2015. It claimed enhanced allowances on equipment cost of $1,200,000, (which is the combined expenditure cap for YA 2016 to YA 2018) in its return for YA 2016. 

In Oct 2016 (YA 2017), it disposed of a piece of qualifying equipment with a cost of $80,000 which it acquired in year 2015 and claimed enhanced allowances of $240,000 (300% x $80,000) in YA 2016.

As the cost of the remaining qualifying equipment is $1,220,000 ($1,300,000 - $80,000) which is higher than the expenditure cap of $1,200,000, the enhanced allowances of $240,000 will not be clawed back i.e. $240,000 will not be deemed as income chargeable to tax in the year of disposal.

Where, in the year of disposal, the cost of remaining qualifying equipment acquired in the same basis period as the equipment disposed of is less than the expenditure cap applicable for the period, you will need to apply to IRAS for case-by-case waiver of the claw-back provision. For this waiver, you would need to provide the commercial reasons for such disposal for IRAS' consideration. You will be granted the waiver if IRAS accepts the commercial reasons for the disposal.   

Where Enhanced Allowance was Claimed Previously

You may apply to IRAS for case-by-case waiver by submitting the Disposal of Qualifying Assets Form (43KB) together with your Income Tax Return for the Year of Assessment in which the asset was disposed of by the filing due date (15 Apr for sole-proprietorship and partnership; and 30 Nov for company). Please state clearly the commercial reasons for the disposal in the Form.

Where Cash Payout and/or PIC Bonus have been Granted Previously

You may apply to IRAS for case-by-case waiver by submitting the Disposal of Qualifying Assets Form (43KB) to IRAS within 30 days from the date of disposal. Please state clearly the commercial reasons for the disposal in the Form.

Disposal of Intellectual Property Rights (IPRs) before the Minimum Ownership Period

If the minimum ownership period is not met, the enhanced deduction or cash payout made may be clawed back or recovered. Similarly, any PIC bonus granted will be recovered.

IPR ceases when any of the following events occurs:

  1. the company or partnership sells, transfers or assigns all or any part of the IPR;
  2. the IPR acquired comes to an end without being subsequently revived; or
  3. the company/ partnership permanently ceases to carry on the trade or business for which the IPR was acquired.

 

PIC benefits   Event occurred within 1st  yearEvent occurred within the 2nd - 5th year# or before the end of the elected writing down period*Event occurred after the 5th year# or end of the elected writing-down period*
Claim written down allowance (WDA)Base WDAIf sale price is more than TWDV, balancing charge (capped at the amount of allowance granted previously) is brought to tax.
If sale price is less than TWDV, balancing allowance is not allowed.
Balancing charge (capped at the amount of allowance granted previously) is brought to tax
Enhanced WDAAny enhanced WDA granted previously is deemed as income in the year of disposal; balance of enhanced WDA is forfeitedNo claw-back of enhanced WDA previously granted; balance of enhanced WDA is forfeitedNo claw-back of enhanced WDA previously granted

#5 years for capital expenditure incurred on acquiring the IPR before YA2017.
*
5/10/15 years for capital expenditure incurred on acquiring the IPR from YA2017 as elected in the Declaration Form (878KB).

PIC benefitsEvent occurred within 1st yearEvent occurred within the 2nd - 5th yearEvent occurred after the 5th year
Convert qualifying expenditure into cashClaw-back of cash payoutClaw-back of proportionate amount of cash payout in the year of disposalNo claw-back of cash payout
PIC bonusClaw-back of cash payoutClaw-back of proportionate amount of PIC bonus in the year of disposalNo claw-back of PIC bonus

For more information, please refer to Annex B of the Productivity and Innovation Credit guide (1.02MB).

For details on writing down allowance on IPR, please refer to Writing Down Allowance for Intellectual Property Rights.

 

Company/ partnership permanently ceases its trade or business for which the IPR was acquired.

PIC benefitsEvent occurred within 1st yearEvent occurred within 2nd - 5th year# or before the end of the elected writing-down period*Event occurred after the 5th year# or end of the elected writing-down period*
Claim written down allowance (WDA)Base WDAFrom YA 2011, balancing charge will not be computed on the base allowance of 100%;
Balancing allowance will not be made
Enhanced WDAAny enhanced WDA granted previously is deemed as income in the year of disposal; balance of enhanced WDA is forfeitedNo claw-back of enhanced WDA previously granted; balance of enhanced WDA is forfeitedNo claw-back of enhanced WDA previously granted

#5 years for capital expenditure incurred on acquiring the IPR before YA2017
*5/10/15 years for capital expenditure incurred on acquiring the IPR from YA2017 as elected in the Declaration Form (878KB).

PIC benefitsEvent occurred within 1st yearEvent occurred within 2nd - 5th yearEvent occurred after 5th year
Convert qualifying expenditure into cashClaw-back of cash payoutClaw-back of proportionate amount of cash payout in the year of disposalNo claw-back of cash payout
PIC bonusClaw-back of PIC bonusClaw-back of proportionate amount of PIC bonus in the year of disposalNo claw-back of PIC bonus

For more information, please refer to Annex B of the Productivity and Innovation Credit guide (1.02MB).

For details on writing down allowance on IPR, please refer to Writing Down Allowance for Intellectual Property Rights.

 

When to File the Disposal of Qualifying Assets Form

Businesses have to submit the Disposal of Qualifying Assets Form if they have claimed PIC enhanced allowance/ PIC Cash Payout/ PIC Bonus and if any of the following events occur:

  1. the PIC IT and automation equipment is disposed of/ leased out within one year from the date of purchase (unless automatic waiver applies)
  2. the IPR is disposed of within one year from the date of filing of the IPR
  3. the company or partnership sells, transfers or assigns all or any part of the acquired IPR within five years from the date of acquisition of the IPR
  4. the IPR acquired comes to an end without being subsequently revived within five years from the date of acquisition of the IPR
  5. the company/ partnership permanently ceases to carry on the trade or business for which the IPR was acquired, within five years from the date of acquisition of the IPR
PIC benefitsWhen to submit Disposal of Qualifying Assets Form

Enhanced Allowances Claimed

PIC Bonus claimed

Within 30 days of disposal

PIC Bonus not claimed

Together with income tax return for the YA in which disposal of PIC IT and automation equipment occurred (15 Apr for sole proprietor and partnership; 30 Nov for company)

Cash Payout Granted

PIC Bonus claimed

Within 30 days of disposal

Penalties may apply if the 30-day notification period as above is not complied with.

Businesses have to repay the cash payout and/or PIC Bonus within 30 days from the date of the PIC Cash Payout Recovery notice and/or PIC Bonus Recovery notice, otherwise, late payment penalties may apply.

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