Capital Allowances

Capital allowances are deductions claimable for the wear and tear of qualifying fixed assets. They are generally granted in place of depreciation, which is not deductible.

What Qualifies for Capital Allowances

Fixed assets suffer 'wear and tear' and depreciate over time. Depreciation accounted for in financial statements is not tax-deductible.

Your company can instead claim capital allowances for the wear and tear of qualifying fixed assets bought and used in its trade or business.

Claiming capital allowances over a period of time is also known as 'writing off the asset'.

Your company can claim capital allowances when the expense is incurred. An expense is incurred when the legal liability to pay arises, regardless of the date of actual payment of the money.

Capital allowances are no longer given on expenditure funded by capital grants from the Government or Statutory Boards that are approved on or after 1 Jan 2021, as announced in Budget 2020.

Example

A company bought a qualifying fixed asset for $400,000 for use in its business. This expenditure is partially funded by a government capital grant of $100,000 approved on 1 Jan 2021. Capital allowances are given on the net expenditure of $300,000.

Learn more through our e-Learning video on Capital Allowances.

Qualifying Fixed Assets

Qualifying fixed assets must be 'plant and machinery' used in your company’s trade, business or profession. For example, a company making glass bottles may claim capital allowances on the cost of a machine that packs these bottles into boxes.

Capital allowances cannot be claimed on the costs of assets bought solely for donation purposes as they are not used in the trade or business.

Capital allowances also cannot be claimed on the costs of assets specifically prohibited under the Income Tax Act 1947 (e.g. S-plated private passenger car).

'Plant and machinery' generally refers to a fixed asset that has the following characteristics:

• Is not a trading stock of your company (not for resale purposes);
• Functions as an apparatus used for carrying out the business or trade activities of your company; and
• Is not part of the setting or part of the premises where your business is conducted. Expenses incurred on items that are part of the setting or part of the premises may be included as renovation or refurbishment expenses to be claimed instead.

Examples of Assets Qualifying as Plant or Machinery

• Carpet
• Containers used for carriage of goods by any mode of transportation
• Electrical and electronic equipment (e.g. air-conditioning system, security/ alarm system, sprinkler system and electrical appliances)
• Furniture and fixtures
• Industrial plant and machinery
• Motorcycle and bicycle
• Motor vehicle (e.g. goods/ commercial vehicle such as pick up, van, truck, lorry and bus)
• Movable partitions
• Office equipment (e.g. computer, printer, photocopier, fax machine and telecommunication equipment)
• Showcase or display lightings
• Signboard and other signage
• Venetian blind and curtain

Examples of Assets which do not Qualify as Plant or Machinery

• Awning*
• Container office
• Designer's fees on renovation
• Doors, roller shutters and gates*
• Electrical fittings* (except cabling for identifiable plant, switchboard and transformer)
• False ceiling, ceiling boards and other ceiling work*
• Fixed partitions, walls, wall tiles and other wall finishes*
• Floor tiles, raised floors or other flooring work*
• Lightings and light fittings*
• [NEW!] Manholes
• Motor vehicle (e.g. S-plated private passenger car)
• Water and gas pipings*

* Refer to Section 14N deduction for the tax treatment of such renovation costs.

Assets Purchased for Use by Subcontractors and Other Parties

Your company may also claim capital allowances on the costs of plant and machinery used by its subcontractors in outsourcing arrangements. However, there must be commercial justifications for allowing your subcontractors to use the plant and machinery purchased by your company. Your company must also show that this was done for its business.

An example is where your company derives cost savings from outsourcing the manufacturing of its products and provides plant and machinery to the subcontractor for the exclusive use of manufacturing its products.

The following documents should be prepared and retained by your company and submitted upon IRAS’ request:

• The business arrangement with your company’s subcontractor (e.g. a contract)
• The connection between the expenditure incurred on the plant and machinery and your company's trade (i.e. how providing the plant and machinery to the sub-contractor benefits your company)
• The level of control your company has over the plant and machinery
• Compliance with the arm's length principle for subcontractors who are related parties

Capital Allowance Claim for Motor Vehicles

Capital allowances cannot be claimed on the costs of private cars (e.g. S-plated cars) and business cars (e.g. Q-plated and RU-plated cars), unless 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.

Capital allowances can be claimed on the costs of other motor vehicles such as vans, lorries and motor cycles acquired for business use, as well as on capital expenditure incurred on a foreign registered car used exclusively outside Singapore for business purposes, under Section 19 or 19A of the Income Tax Act 1947.

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 allowances, the expenditure incurred on obtaining the COE may be included when claiming capital allowances on the cost of the motor vehicle. The amount paid by a registered owner of an existing vehicle upon renewal of the COE to enable the continued operation of the vehicle is also regarded as an additional cost of the vehicle.

However, capital allowances cannot be claimed on expenditure incurred to obtain a COE that is not subsequently used to acquire a motor vehicle.

How to Calculate Capital Allowances

There are a few methods for calculating capital allowances. Your company may write off the cost of an asset over 1 year, 3 years or the prescribed working life of the asset. For assets acquired during the basis periods for the Years of Assessment (YAs) 2021, 2022 and 2024, your company has an additional option to write-off the cost over 2 years.

Indicate clearly in your capital allowance schedule the assets being claimed and the method(s) adopted and submit the capital allowance claims in your Corporate Income Tax Returns.

Methods for Calculating Capital Allowances

• 100% Write-Off in 1 Year
• Write-Off Over 2 Years
• Write-Off Over 3 Years
• Write-Off Over the Prescribed Working Life of the Asset

100% Write-Off in 1 Year [Sections 19A(2) and 19A(10A)]

Under Section 19A of the Income Tax Act 1947, assets that qualify for 100% write-off are:

• Computers [Section 19A(2)]
• Prescribed automation equipment [Section 19A(2)]
• Low-value assets [Section 19A(10A)]

Computers and Prescribed Automation Equipment

Commonly claimed prescribed automation equipment include computers, laptops, printers and computer software. View the full list of prescribed automation equipment (PDF, 25KB).

Under the 100% write-off, capital allowance is given in the form of annual allowance (AA) where:

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)

Example 1: Asset Purchased with Cash

Your company purchased a computer for $2,000 and a printer for $200 with cash in the financial year 2020.

AA for computer = 100% x $2,000 = $2,000

AA for printer = 100% x $200 = $200

Your company’s capital allowance schedule is as follows:

Example 2: Asset Purchased under Hire Purchase

Your company purchased a computer for $2,000 under hire purchase in the financial year 2020.

The details of the hire purchase agreement are as follows:

A deposit of $100 and 2 instalments were paid in the financial year 2020 and the remaining 3 instalments were paid in the financial year 2021.

Deposit and principal payments in the year 2020 = $100 + (2 x $380) = $860

Principal payments in the year 2021 = 3 x $380 = $1,140

YA 2021 AA = 100% x $860 = $860

YA 2022 AA = 100% x $1,140 = $1,140

Your company’s capital allowance schedule is as follows:

Low-Value Assets

Your company may choose to write off low-value assets in 1 year. The total claim for a 1-year write-off of all low-value assets must not exceed $30,000 per YA.

A low-value asset is one that does not cost more than $5,000. An asset acquired under hire purchase terms also qualifies for the 1-year write-off on the instalments paid in any YA if its original cost does not exceed $5,000.

If your company does not wish to use the 1-year write-off, you may write off the cost of the asset over 2 years (for YAs 2021 and 2022 as announced in Budget 2020 and 2021), 3 years or its prescribed working life.

In any YA, the low-value assets that can be written off in 1 year, subject to a total claim of $30,000, are:

• Low-value assets acquired in the YA
• Low-value assets acquired before the YA where:
  • No claim for capital allowance has been made before (i.e. claim for capital allowance was deferred previously)
  • A claim for capital allowance was previously made under Sections 19, 19A(1) or 19A(1E) and there is a tax written down value brought forward to the current YA

  If the amount of all the low-value assets exceeds $30,000, you can still claim capital allowances over 2 years (for YAs 2021 and 2022), 3 years or the prescribed working life for the low-value assets exceeding the cap for the YA.

  Example: 1-Year Write-Off of Low-Value Assets

  Company A purchased 7 pieces of Asset X at $4,400 each in the financial year 2020.

  In the financial year 2019, Company A also purchased:

  • Asset Y at $1,500, for which the capital allowance claim was deferred
  • Asset Z at $3,000, for which a capital allowance claim of $1,000 was made in YA 2020 under Section 19A(1) (i.e. 3-year write-off), and the tax written down value carried forward to YA 2021 is $2,000

  All 9 pieces of assets qualify for capital allowances.

  Company A can claim a 1-year write-off on the cost of the following assets in YA 2021:

  Cost of 6 pieces of new Asset X ($4,400 x 6)	$26,400
  Add: Cost of Asset Y purchased in the year 2019	$1,500
  Add: TWDV of Asset Z brought forward from YA 2020	$2,000
  Total claim under 1-year write-off	$29,900*

  * Within the total cap of $30,000 per YA.

  Company A cannot claim the 7 th piece of Asset X under Section 19A(10A) in YA 2021 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 the 7 th piece of Asset X over 2 years, 3 years or over its working life instead. Assuming that capital allowances are claimed over 3 years, the capital allowance for YA 2021 for this asset is $1,467 ($4,400/ 3 years).

  In total, the capital allowance claim for YA 2021 is $31,367 ($29,900 + $1,467).

  Write-Off Over 2 Years [Section 19A(1E)]

  Your company may accelerate the write-off over 2 years, instead of 3 years or the prescribed working life of the asset, on the cost incurred in acquiring the asset during the basis periods for YAs 2021 and 2022. This is to support businesses that intend to invest in new assets and ease the cash flow of businesses.

  As announced in Budget 2023, your company will also have the option to accelerate the write-off over 2 years, instead of 3 years or the prescribed working life of the asset, on the cost incurred in acquiring the asset during the basis period for YA 2024.

  The rates of accelerated capital allowances are as follows:

  1. 75% of the cost incurred to be written off in the first year (i.e. YA 2021 or YA 2022 or YA 2024); and
  2. 25% of the cost incurred to be written off in the second year (i.e. YA 2022 or YA 2023 or YA 2025).

  No deferment of capital allowance claim is allowed under this option.

  The write-off over 2 years is optional and your company can continue to claim capital allowances over 1 year, 3 years or the prescribed working life.

  For new assets acquired under a hire purchase agreement during the basis periods for YAs 2021, 2022 and 2024 the accelerated rates of 75% and 25% apply to all the instalments (principal component) paid on such hire purchase assets in the relevant basis periods, notwithstanding that the instalments may be paid in a basis period after the basis periods for YAs 2021, 2022 and 2024.

  Example 1: Asset Purchased with Cash

  Your company purchased office equipment for $3,000 with cash in the financial year 2020.

  Your company’s capital allowance schedule is as follows:

  Description	Office Equipment ($)
  Cost	3,000
  YA 2021 AA (75% of cost)	2,250
  TWDV c/f	750
  YA 2022 AA (25% of cost)	750
  TWDV c/f	0

  Example 2: Asset Purchased under Hire Purchase

  Your company acquired an office equipment for $2,000 under hire purchase in the financial year 2020.

  The details of the hire purchase agreement are as follows:

  Purchase Price	$2,000
  Deposit	$100
  Hire purchase interest	$50
  Number of instalments	5
  Amount payable per instalment	$390
  Hire purchase interest per instalment	$50/ 5 = $10
  Principal payment per instalment	$390 - $10 = $380

  A deposit of $100 and 2 instalments were paid in the financial year 2020 and the remaining 3 instalments were paid in the financial year 2021.

  Deposit and principal payments in the year 2020 = $100 + (2 x $380) = $860

  Principal payments in the year 2021 = 3 x $380 = $1,140

  AA for each YA is computed as follows:

  Year of Payment	Deposit and Principal Amount Paid ($)	YA 2021 AA ($)	YA 2022 AA ($)	YA 2023 AA ($)
  2020	860	645	215
  2021	1,140	855	285
  Total	645	1,070	285

  Your company’s capital allowance schedule is as follows:

  Description	Office Equipment ($)
  Cost	2,000
  YA 2021 AA	645
  TWDV c/f	1,355
  YA 2022 AA	1,070
  TWDV c/f	285
  YA 2023 AA	285
  TWDV c/f	0

  Write-Off Over 3 Years [Section 19A(1)]

  Your company may choose to write-off all assets that qualify for capital allowances over 3 years.

  Under the 3-year write-off, capital allowance is given in the form of annual allowance (AA) where:

  AA for each year = 1/3 of the cost of asset

  • For assets purchased under hire purchase:

  AA = 1/3 of the principal payment (and deposit paid where applicable)

  Example 1: Asset Purchased with Cash

  Your company purchased office equipment for $3,000 with cash in the financial year 2020.

  AA for each YA = 1/3 x $3,000 = $1,000

  Your company’s capital allowance schedule is as follows:

  Description	Office Equipment ($)
  Cost	3,000
  YA 2021 AA	1,000
  TWDV c/f	2,000
  YA 2022 AA	1,000
  TWDV c/f	1,000
  YA 2023 AA	1,000
  TWDV c/f	0

  Example 2: Asset Purchased under Hire Purchase

  Your company acquired office equipment for $2,000 under hire purchase in the financial year 2020.

  The details of the hire purchase agreement are as follows:

  Purchase Price	$2,000
  Deposit	$100
  Hire purchase interest	$50
  Number of instalments	5
  Amount payable per instalment	$390
  Hire purchase interest per instalment	$50/ 5 = $10
  Principal payment per instalment	$390 - $10 = $380

  A deposit of $100 and 2 instalments were paid in the financial year 2020 and the remaining 3 instalments were paid in the financial year 2021.

  Deposit and principal payments in the year 2020 = $100 + (2 x $380) = $860

  Principal payments in the year 2021 = 3 x $380 = $1,140

  AA for each YA is computed as follows:

  Year of Payment	Deposit and Principal Amount Paid ($)	YA 2021 AA ($)	YA 2022 AA ($)	YA 2023 AA ($)	YA 2024 AA ($)
  2020	860	287	287	286
  2021	1,140	380	380	380
  Total	287	667	666	380

  Your company’s capital allowance schedule is as follows:

  Description	Office Equipment ($)
  Cost	2,000
  YA 2021 AA	287
  TWDV c/f	1,713
  YA 2022 AA	667
  TWDV c/f	1,046
  YA 2023 AA	666
  TWDV c/f	380
  YA 2024 AA	380
  TWDV c/f	0

  Write-Off Over the Prescribed Working Life of the Asset (Section 19)

  Under this method, capital allowances are given over an asset's prescribed working life based on the Sixth Schedule of the Income Tax Act 1947.

  To simplify capital allowance claims under Section 19, the prescribed working life of assets in the Sixth Schedule has been streamlined to 6, 12 and 16 years:

  • If the prescribed working life of the asset in the Sixth Schedule is 12 years or less, your company may make an irrevocable election to claim capital allowances over either 6 or 12 years
  • If the prescribed working life of the asset in the Sixth Schedule is 16 years, your company may make an irrevocable election to claim capital allowances over 6, 12 or 16 years

  The above change applies to assets acquired in the basis periods relating to YA 2023 and subsequent YAs. It also applies to assets acquired in the basis periods relating to YA 2022 and prior YAs, if your company had deferred and is yet to start its capital allowance claims for the assets.

  Your company must make the irrevocable election for the number of years of working life for the asset at the time of its tax filing for the YA relating to the basis period in which the asset is acquired. For assets acquired in basis periods prior to the basis period for YA 2023, your company must 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:

  In the first YA relating to the year in which the fixed asset is purchased:

  1. IA = 20% x the cost of asset
  2. AA = (80% x the cost of asset)/ number of years of working life*

  In the second and subsequent YAs:

  1. IA is not applicable
  2. AA = (80% x the cost of asset)/ number of years of working life* (same as the first YA)
  • For assets purchased under hire purchase:

  In the YA where there is a deposit paid and/or instalment payments:

  1. IA = 20% of the principal amount (and deposit paid where applicable)
  2. AA = (80% x the cost of asset)/ number of years of working life*

  In the YA where there is no payment made:

  1. IA is not applicable
  2. 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 1947 (e.g. the working life for motor vehicle is 6 years).

  Summary of the Different Methods to Claim Capital Allowances

  • Applies to all qualifying assets
    
  • Refer to Sixth Schedule of the Income Tax Act 1947 for working life
    
  • From YA 2023, option to claim:
    
    • 6 or 12 years for prescribed working life of 12 years or less
      
    • 6, 12 or 16 years for prescribed working life of 16 years
    • Applies to all qualifying assets
    • Applies to all qualifying assets acquired during the basis periods relating to YAs 2021, 2022 and 2024
    • Computers
    • Prescribed automation equipment listed in Income Tax (Automation Equipment) Rules 2004; and Amendment Rules 2010 (effective from 15 Dec 2010)
    • Cost of each low-value asset not more than $5,000
      
    • Total claim for 1-year write-off of all such assets capped at $30,000 per YA

    Deferring Capital Allowance Claims

    Generally, companies defer capital allowances when:

    • The company is in a loss position; or
    • The company qualifies for the tax exemption for new start-up companies.

    Companies in a loss position may still claim capital allowances instead of deferring the claim. Any unutilised capital allowance can be carried forward for set-off against the income for subsequent YAs, subject to the shareholding test and business continuity test.

    Initial allowance (IA) must be claimed in the YA the capital expenditure is incurred. In the event that IA is not claimed, annual allowance (AA) is computed based on the full cost (i.e. 100% of the cost over the prescribed working life).

    AA can be deferred and it does not need to be claimed consecutively over the prescribed working life of the asset.

    Example 1: Asset Purchased with Cash

    Your company purchased a machine for $120,000 with cash in the basis period relating to YA 2017. It defers its claim for capital allowances in YAs 2017 and 2019, and only makes a claim in YAs 2018, 2020 and 2021.

    Your company’s capital allowance schedule is as follows:

    Description	Machine ($)
    Cost	120,000
    YA 2017 AA	Deferred
    Tax written down value (TWDV) c/f	120,000
    YA 2018 AA (1/3 of cost)	40,000
    TWDV c/f	80,000
    YA 2019 AA	Deferred
    TWDV c/f	80,000
    YA 2020 AA (1/3 of cost)	40,000
    TWDV c/f	40,000
    YA 2021 AA (1/3 of cost)	40,000
    TWDV c/f	0

    Example 2: Asset Purchased under Hire Purchase

    Your company purchased office equipment for $12,000 under hire purchase in YA 2019.

    The details of the hire purchase agreement are as follows:

    Purchase Price	$12,000
    Deposit	$600
    Hire purchase interest	$300
    Number of instalments	6
    Amount payable per instalment	$1,950
    Hire purchase interest per instalment	$300/ 6 = $50
    Principal payment per instalment	$1,950 - $50 = $1,900

    The deposit of $600 and 3 instalments were paid in the basis period relating to YA 2019 and the remaining 3 instalments were paid in the basis period relating to YA 2020.

    Deposit and principal payments in YA 2019 = $600 + (3 x $1,900) = $6,300
    Principal payments in YA 2020 = 3 x $1,900 = $5,700

    Scenario A: Your company makes a claim for capital allowances in YAs 2019, 2021, 2022 and 2023 but defers its claim in YA 2020.

    AA for each YA is computed as follows:

    Year of Payment	Deposit and Principal Amount Paid ($)	YA 2019 AA ($)	YA 2020 AA ($)	YA 2021 AA ($)	YA 2022 AA ($)	YA 2023 AA ($)
    2018	6,300	2,100	Deferred	2,100	2,100
    2019	5,700	Deferred	1,900	1,900	1,900
    Total	2,100	Deferred	4,000	4,000	1,900

    Your company’s capital allowance schedule is as follows:

    Description	Office Equipment ($)
    Cost	12,000
    YA 2019 AA	2,100
    TWDV c/f	9,900
    YA 2020 AA	Deferred
    TWDV c/f	9,900
    YA 2021 AA	4,000
    TWDV c/f	5,900
    YA 2022 AA	4,000
    TWDV c/f	1,900
    YA 2023 AA	1,900
    TWDV c/f	0

    Scenario B: Your company makes a claim for capital allowances as follows:

    • On the YA 2019 deposit and principal payments - claims capital allowances in YAs 2019, 2020 and 2021
    • On the YA 2020 principal payments - defers its claim for capital allowances in YA 2020 and claims in YAs 2021, 2022 and 2023

    AA for each YA is computed as follows:

    Year of Payment	Deposit and Principal Amount Paid ($)	YA 2019 AA ($)	YA 2020 AA ($)	YA 2021 AA ($)	YA 2022 AA ($)	YA 2023 AA ($)
    2018	6,300	2,100	2,100	2,100
    2019	5,700	Deferred	1,900	1,900	1,900
    Total	2,100	2,100	4,000	1,900	1,900

    Your company’s capital allowance schedule is as follows:

    Description	Office Equipment ($)
    Cost	12,000
    YA 2019 AA	2,100
    TWDV c/f	9,900
    YA 2020 AA	2,100
    TWDV c/f	7,800
    YA 2021 AA	4,000
    TWDV c/f	3,800
    YA 2022 AA	1,900
    TWDV c/f	1,900
    YA 2023 AA	1,900
    TWDV c/f	0

    Deferment of Capital Allowances under the Productivity & Innovation Credit (PIC) Scheme

    The PIC scheme has expired after YA 2018 and your company is not allowed to claim PIC benefits on expenditure incurred after the basis period of YA 2018.

    If your company incurred qualifying PIC expenditure on equipment while the scheme was available, and the equipment has a tax written down value brought forward to the current YA, your company may choose to defer its capital allowance claims. However, your company needs to defer both the base capital allowances (100%) and enhanced capital allowances (300%) at the same time. It cannot choose to defer only the base allowances or only the enhanced allowances.

    Example

    Your company purchased a computer for $5,000 with cash in YA 2018. It wishes to defer its claim for capital allowance in YA 2018 as the company is in a loss position.

    The capital allowance to be deferred is as follows:

    Description	Computer ($)
    Cost	5,000
    Base allowance (100%)	5,000
    Enhanced allowance (300%)	15,000
    Total capital allowance deferred	20,000

    FAQs

    1. Can my company claim 100% of the cost of energy efficient equipment and technology in 1 year? Yes, your company may claim the full cost of such equipment as capital allowance in 1 year, if the equipment is certified by a company approved by the National Environmental Agency (NEA) and is installed at any time from 1 Jan 1996 to 31 Dec 2017 (both dates inclusive).
    2. Can my company claim 100% of the cost of equipment purchased for chemical hazard control or noise control in 1 year? Yes, your company may claim the full cost of such equipment as capital allowance in 1 year, if the equipment is certified by a company approved by the Ministry of Manpower (MOM). Find out more about the details of accelerated capital allowance for equipment used for Chemical Hazard Control or Noise Control at MOM’s website.
    3. Can my company claim 100% of the cost of purchasing or developing a website? Yes. A website qualifies as plant or machinery under Section 19A(10) and your company may claim capital allowance on the development cost or purchase cost of a website in 1 year. From YAs 2014 to 2018, the website development cost, including costs incurred for the one-time registration of a domain name for the website, also qualifies for PIC benefits.

    How to Claim Capital Allowances

    Your company must make the capital allowance claims in its Corporate Income Tax Return for the relevant Year of Assessment (YA) and prepare the following supporting schedules in its tax computation. The tax computation must be filed with Form C. If you are filing Form C-S/ Form C-S (Lite), retain the tax computation and submit it only upon IRAS’ request.

    1	Fixed assets additions	Give a brief description and cost of the new assets purchased during the accounting year.
    2	Fixed assets disposals	Give a brief description, cost, sale proceeds and profit/ loss on disposal in respect of fixed assets sold/ written off during the accounting year.
    3	Capital allowances	Show your basis of calculating the total capital allowance claimed, giving a breakdown of the cost/ tax written down value brought forward, capital allowance amount and tax written down value carried forward for each category of assets.

    If you need help in preparing the capital allowance schedule, you may use our Basic Corporate Income Tax Calculator.

    Sale/ Disposal/ Conversion/ Transfer of Fixed Assets

    Selling, Converting or Scrapping Fixed Assets

    When a fixed asset is sold, converted to trading stock or written off, you need to calculate balancing allowance (BA) or balancing charge (BC) if capital allowances have been claimed on the cost of the asset previously. BA is tax-deductible and BC is taxable as income.

    Calculating BA/ BC

    BA or BC is derived by calculating the difference between the sale proceeds and the tax written down value (TWDV) of the asset disposed. TWDV is the cost of the asset less the amount of capital allowances allowed previously.

    Sale Proceeds - TWDV = BA or BC

    Where the sale proceeds are lower than the TWDV, the difference is known as BA. BA is tax-deductible.

    Where the sale proceeds are higher than the TWDV, the difference is known as BC. BC is taxable as income. The amount of BC taxable is restricted to the total amount of capital allowances allowed previously in respect of the asset disposed.

    When a fixed asset is converted to trading stock, BA or BC is computed based on the difference between the TWDV of the asset and its open market value (OMV) as at the date of conversion. The BC, if applicable, is capped at the amount of capital allowance previously granted in respect of that fixed asset.

    OMV - TWDV = BA or BC

    Example

    Description	Furniture ($)	Computer ($)	Van ($)
    Cost	3,000	2,000	20,000
    Sale proceeds	200	200	21,000
    Less: TWDV	1,000	0	13,333
    BA	800
    BC	200	6,667*

    * Amount of BC taxable is restricted to $6,667 ($20,000 - $13,333), which is the total amount of capital allowances allowed previously, instead of $7,667 ($21,000 - $13,333).

    Donation of Computers Before 21 Feb 2017

    Donors are granted tax deduction for the donation of computers to prescribed educational, research or other institutions and all IPCs before 21 Feb 2017. The Infocomm Media Development Authority (IMDA) is required to perform a valuation of the computers to be donated.

    A company may have incurred capital expenditure on a computer bought for its own trade and claimed capital allowance on the computer in full over 1 year. If the computer was subsequently donated to an IPC, a BC equal to the value of the donated items (as assessed by IMDA) will be taxed.

    Transferring Fixed Assets to Related Companies

    When a company takes over or buys fixed assets from a related company where there are 50% or more common shareholders, both companies may 'elect' to transfer the assets under Section 24 of the Income Tax Act 1947.

    The effect of electing for Section 24 is to disregard the sale, except for the change in person entitled to the allowances. In other words, the transaction is not considered a sale but a transfer of the assets and its allowances.

    Implications of a Section 24 Election

    The implications of electing for Section 24 are:

    • The asset is treated as sold for a sum equal to the tax written down value (TWDV) of the asset immediately before the sale
    • It is not necessary to calculate balancing allowance (BA) or balancing charge (BC) for the seller
    • No initial allowance (IA) is given to the buyer
    • The buyer will claim annual allowance (AA) based on the TWDV of the asset over the remaining working life
    • If the buyer subsequently sells the asset, the buyer will be subject to the BC/ BA rules
      

    Example

    In 2018, Company A bought a machine for $30,000 with cash. In 2020, the machine was sold to Company B (a subsidiary of Company A) for $25,000. Both companies have a 31 Dec year end.

    Company A was claiming capital allowances over a 3-year write-off under Section 19A before selling the machine to company B.

    Scenario A: Section 24 is Elected

    It is not necessary to compute BA/ BC for Company A in the Year of Assessment (YA) 2021.

    The capital allowance schedule for Company A (seller) is as follows:

    Description	Machine ($)
    Cost	30,000
    YA 2019 AA	10,000
    TWDV c/f	20,000
    YA 2020 AA	10,000
    TWDV c/f	10,000

    Company B claims AA based on the TWDV of the asset over the remaining working life of the asset. In this case, the remaining working life is 1 year, so AA = $10,000/ 1 = $10,000.

    The capital allowance schedule for Company B (buyer) is as follows:

    Description	Machine ($)
    Cost	10,000
    YA 2021 AA	10,000
    TWDV c/f	0

    Scenario B: Section 24 is Not Elected

    It is necessary to compute BA/ BC for Company A based on the selling price of $25,000. In this case, there is a BC of $15,000 which is taxable as income.

    The capital allowance schedule for Company A (seller) is as follows:

    Description	Machine ($)
    Cost	30,000
    YA 2019 AA	10,000
    TWDV c/f	20,000
    YA 2020 AA	10,000
    TWDV c/f	10,000
    YA 2021 Sale Proceeds	25,000
    BC (Sale Proceeds - TWDV)	15,000

    Company B claims capital allowances based on the selling price of $25,000. It can decide on the method of capital allowance claim.

    Assuming that Company B decides to write off the asset over 3 years under Section 19A, the AA is 1/3 of $25,000, that is, $8,333.

    The capital allowance schedule for Company B (buyer) is as follows:

    Description	Machine ($)
    Cost	25,000
    YA 2021 AA	8,333
    TWDV c/f	16,667
    YA 2022 AA	8,333
    TWDV c/f	8,334
    YA 2023 AA	8,334
    TWDV c/f	0

    How to Elect for Section 24

    To elect for Section 24 on the transfer of fixed assets, both parties (buyer and seller) must prepare a 'Section 24 Notice of Election' and document details of the fixed assets transferred.

    Companies filing Form C should file the Notice and details of the fixed assets transferred with the Form C in the YA relating to the year where the sale took place. Companies filing Form C-S/ Form C-S (Lite) do not need to file the Notice and details of the fixed assets transferred. However, the documents should be prepared and retained by the companies and submitted only upon IRAS’ request.

    Section 24 Notice of Election

    In this Notice, you have to state the names of both the buyer and the seller, and confirm that Section 24 is elected in respect of the fixed assets transferred. Both parties must sign the letter.

    In the case of a sole-proprietorship/ partnership converted to a company, both the sole-proprietorship/ partnership (i.e. the transferor) and the company (i.e. the transferee) have to prepare and sign on the 'Section 24 Notice of Election'.

    You may refer to the Basic Format of Section 24 Notice of Election (for Companies) (PDF, 45KB) when preparing your Notice.

    Details of the Fixed Assets Transferred

    Both the buyer and seller must document details of fixed assets transferred, including the description, cost, tax written down value carried forward and the remaining working life of each category of asset.