At a glance
Allowable business expenses
Allowable business expenses are expenses that you can claim as deduction against your business revenue to reduce the amount of tax you have to pay.
Illustration: How allowable business expenses reduce taxes payable
Total business expenses = $15,000
Income subject to tax
$80,000 - $5,000 = $75,000
(Business revenue minus allowable business 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.
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 expenses||Disallowable business expenses|
Finance and professional costs
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. These expenses are not deductible even if the private cars were used for business purposes.
With effect from Year of Assessment (YA) 2019, private-hire car drivers can claim car-related expenses. For more details, please refer to Pre-filling of income and fixed expense deduction ratio for self-employed persons (SEPs).
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)
Other disallowable expenses
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.
Renovation or refurbishment works expenditure (Section 14N)
To help businesses particularly small and medium enterprises reduce their business costs, qualifying expenditure incurred on or after 16 Feb 2008 under Section 14N of the Income Tax Act will be tax deductible provided the expenditure on repairs or replacements do not affect the structure of the premises.
The following items qualify for Section 14N 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.);
- fitting rooms in retail outlets;
- hacking work on premises;
- water meter installed to enable renovation works;
- hoarding works; and
- insurance for renovation works qualifying for S14N deduction.
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
- any works carried out to a place of residence provided to or to be provided to employees.
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 will be applied at the partnership level. Tax deduction will be allowed up to the expenditure cap over the three-year period.
|YA 2012||YA 2013||YA 2014|
Total qualifying R&R
|Qualifying R&R expenditure||$150,000*||$30,000*||$120,000#|
($150,000 / 3 years)
($50,000 + $10,000 [$30,000/3])
$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 14N deduction
To claim Section 14N 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.
Businesses claiming Section 14N 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 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 Business Premises (PDF, 175KB).
To provide cash flow relief and encourage businesses to refit their business premises, businesses are allowed the option to claim R&R deduction in one year for qualifying expenditure incurred on R&R for the YA 2021 and YA 2022. The cap of $300,000 for every relevant three-year period, starting from the year in which the R&R costs are incurred, will still apply. The option is irrevocable.
To provide support to businesses’ restructuring efforts and cash flow in 2023, businesses will be allowed the option to claim a deduction of expenses incurred on R&R over an accelerated period of one year in the basis period for YA 2024, with the same parameters as YA 2022.
Research & development (R&D) expenditure
Who can claim R&D tax benefits
Only taxpayers who are the beneficiaries of the R&D activities can claim R&D deductions on the R&D expenditure incurred.
A beneficiary of R&D activities:
- bears the financial burden of carrying out the R&D activities; and
- effectively owns and can commercially exploit the know-how, intellectual property or other results of the R&D activities.
Taxpayers in the trade or business of providing R&D services will generally not be able to claim the R&D tax benefits, unless the R&D is performed on its own account such that it is the beneficiary of the R&D activities. Please refer to Research and development (R&D) tax measures for more information.
Claiming R&D tax benefits
To claim R&D deduction, you must include the amount to be claimed under " Allowable Business Expenses " in your 4-line statement in Form B (Self-Employed) or Form P (Partnership).
Businesses with revenue > $500,000
If your revenue is $500,000 or more, a breakdown of the R&D expenditure is to be submitted together with the certified statement of accounts and tax computation.
You may be able to claim tax deductions on any of the following provided you satisfy the qualifying conditions:
- Productivity and Innovation Credit (PIC)
- Capital expenditure incurred on renovation or refurbishment works (S14N - R&R cost)
- Capital allowances (CA) on fixed assets
- Medical expenses
- R&D expenditure
- Land intensification allowance (LIA)
- Expenses incurred before commencement of business
- Business losses and unutilised capital allowances
- Business and IPC Partnership Scheme (BIPS)
- Double Tax Deduction for Internationalisation Scheme