How to claim for Section 14Q deduction? Business expenses
Answer: If you wish to claim for Section 14Q deduction on the qualifying expenditure, you have to show the Section 14Q deduction in your tax computation and submit an itemised list of the renovation or refurbishment works. You also have to confirm on the itemised list that the renovation or refurbishment works do not require the approval of the Commissioner of Building Control. For more details on the Section 14Q deduction, please refer to the e-Tax Guide “Deduction For Expenditure Incurred On Renovation or Refurbishment Works” (124KB).Donations Donations are not deductible expenses as they are not incurred in the production of income. However, you can claim for deduction on donations made to an approved Institution of a Public Character (IPC) or the Singapore Government which benefit the local community. For approved donations made on or after 1 Jan 2002, you can claim for double deduction, that is, twice the amount donated. For approved donations with naming opportunity, only single deduction is allowed if the donations was made before 1 Jan 2005. However, double deduction is allowed for donations with naming opportunity made on or after 1 Jan 2005. To encourage greater charitable giving in Singapore during the economic downturn, approved donations made during 1 Jan 2009 to 31 Dec 2009 will qualify for 2.5 times deduction. With effect from Year of Assessment (YA) 2003, any unutilised donations can be carried forward to set-off against the income for the subsequent YA up to a maximum of 5 years if there is no substantial change in shareholders. For more details on donations and tax deductions, please refer to Charities / IPCs.
How to qualify for tax deduction under the purview of business expenses? Business expenses
Answer: Generally, you can claim deduction for expenses that are wholly and exclusively incurred in the production of income. To qualify for tax deduction, the expenses must also satisfy the following conditions:
- The expenses must be revenue in nature, (generally refers to the normal day-to-day operating expenses). Capital expenditure is not allowable as a tax deduction.
- The deduction must not be prohibited under the Income Tax Act.
- The expenses must be incurred. Contingent liability is not allowable as a tax deduction.
|Deductible expenses||Not deductible expenses|
|Accounting fee Administrative expenses Advertisement Auditors’ remuneration||Amortisation|
|Bad debts (trade debtors) Bank charges Book-keeping services||Bad debts (non-trade debtors)|
|Commission CPF, skill development levy, foreign workers’ levy||CPF contributions (Voluntary*) Certificate of entitlement (COE) for motor vehicles**|
|Directors’ fees Directors’ remuneration||Depreciation (you may claim capital allowances)Donations|
|Entertainment Exchange loss (trade and revenue in nature) Exhibition expenses||Entrance fee (country club or other clubs) Exchange loss (non-trade or capital in nature)|
|Fixed assets written off Fixed assets acquisition cost Fines|
|Impairment loss on trade debts Insurance (e.g. fire, workmen compensation) Interest expenses||Impairment loss on non-trade debts Income tax Installation of fixed assets Insurance (certain life insurance) Interest expenses (interest adjustment)|
|Legal and professional fees (trade and revenue transactions)||Legal and professional fees (non-trade or capital transactions|
|Medical expenses (restricted to 1% of total remuneration) Motor vehicle expenses (goods / commercial vehicles, e.g. van, lorry and bus)||Medical expenses (amount exceeding 1% of total remuneration) Motor vehicle expenses (“S” plate private passenger cars)|
|Periodicals & newspapers Postage Printing & stationery Property tax Provision for bad and doubtful debts (specific)(note impairment loss on trade debts) Provision for obsolete stocks (specific)||Penalties Preliminary expenses Private and domestic expenses Private hire car Provision for bad and doubtful debts (general)(note impairment loss on trade debts) Provision for obsolete stocks (general)|
|Rental of business premises Repairs and maintenance Restoration costs (according to tenancy agreement) Research and development||Renovation or refurbishment works (you may claim Section 14Q deduction for qualifying expenditure incurred from 16 Feb 2008 to 15 Feb 2013)|
|Secretarial fees Staff remunerations (salary, bonus and allowances) Staff training Staff welfare/benefits Stock obsolescence|
|Tax fees (service fees paid to tax agent) Telephone Transport (public transport and goods / commercial vehicles) Travelling||Transport (“S” plate private passenger cars)|
|Wages Water & electricity|
*Voluntary CPF contributions refer to CPF contributions exceeding the statutory rate and CPF contributions for foreign employees holding professional visit pass, employment pass or work permit **If the vehicle qualifies for capital allowance (goods / commercial vehicle), you can include the cost of COE to the cost of vehicle and claim capital allowance Section 14Q deduction for expenditure incurred on renovation or refurbishment works Currently, capital expenditure incurred on renovation or refurbishment works (R&R costs) carried out on the business premises is not allowable as a tax deduction (unless the R&R costs constitute expenditure on repairs or replacements with no element of improvement). Such R&R costs also do not qualify for capital allowances (unless they form part of an industrial building which qualifies for industrial building allowances) because they are incurred in relation to the business setting within which the business is carried on and not on the provision of “plant or machinery”. To help businesses, particularly small and medium enterprises, reduce their business costs, tax deduction will be granted on all qualifying R&R costs incurred during the period 16 Feb 2008 to 15 Feb 2013 under Section 14Q of the Income Tax Act. Under Section 14Q, the amount of R&R costs that will qualify for tax deduction is subject to an expenditure cap of $150,000 for every relevant three-year period, starting from the year in which the R&R costs were incurred and a deduction is claimed by the company. Section 14Q deduction must be claimed over three consecutive Years of Assessment (YAs), starting from the YA relating to the basis period in which the R&R costs were first incurred (i.e 1/3 of the R&R costs can be claimed each YA over the three consecutive YAs). Any amount of qualifying R&R costs, which are not claimed in the YA relating to the basis period in which they were first incurred, will not qualify for deduction in subsequent YAs. If your company permanently ceases business in any of the three YAs, it will not be allowed a deduction on the balance of the R&R costs. Special provisions for YAs 2010 and 2011 To encourage companies to refit their business premises during the current period of economic downturn, companies that incur qualifying R&R expenses in the basis periods relating to YAs 2010 and 2011 can claim such expenses over one year instead of over three years. The accelerated write-down from three years to one year will have a direct impact of reducing the income tax payable by companies, thereby easing the cash-flow pressures that companies may face. The cap of $150,000 for every relevant three-year period remains unchanged. Section 14Q deduction is to be deducted from the adjusted profit/loss after allowance has been made to other tax deductions. Any amount of Section 14Q deduction that could not be fully utilised will form part of the adjusted trade loss of the company. However, the unutilised Section 14Q deduction cannot be transferred under the group relief system. The adjusted trade loss (after deducting Section 14Q deduction) can be offset against other income of the company. The amount of unutilised trade losses, if any can be: – carried forward to offset against the company’s assessable income for future YAs if there is no substantial change in the shareholders and their shareholdings; or – carried back to the immediate preceding YA to be offset against the assessable income under the loss carry-back relief. For examples on how to compute Section 14Q deduction, please refer to the Annex to the e-Tax Guide “Deduction For Expenditure Incurred on Renovation or Refurbishment Works”
What about buying Life insurance policies? Business expenses
Answer: If it is your company policy to buy insurance policies for the employees and the beneficiaries of the policy are the employees, the life insurance premiums paid are tax-deductible expenses as it constitutes as staff cost. (Please note that the life insurance premiums are taxable as employment benefits of the employees and these benefits must be declared in their Form IR8A) If your company is the beneficiary, the insurance premiums are not deductible unless they satisfy the conditions of a “keyman” insurance. For details on deductibility of “keyman” insurance, please refer to “Keyman” insurance: Deductibility of premiums – addendum to practice note 1993/IT/5 dated 25 Feb 1993 (100KB).
What about Motor vehicle expenses? Business expenses
Answer: Motor vehicle expenses incurred in respect of private passenger cars (S-plate cars) are not deductible for income tax purposes regardless of whether the cars have been used for business purposes (except where the company is carrying on business of hiring out cars or providing driving instruction). The deduction is specifically prohibited under the Income Tax Act. Reimbursement of employees’ S-plate car expenses incurred by employees for company’s business is also not deductible. However, if your company pays transport allowance to the employees as part of their remuneration package, the transport allowance is a deductible expense, as it is part of staff cost. (Please note that the transport allowance is taxable as part of the employment income for your employees) If you own Q-plate business passenger cars that were registered before 1 Apr 1998, motor vehicle expenses relating to these Q-plate cars are allowable but subject to a capping of: 35,000 _ __ x motor vehicle expenses relating to that vehicle Cost of vehicle Motor vehicle expenses for foreign registered cars used exclusively outside Singapore are deductible if the expenses are incurred for business purposes. For more details on deductibility of motor vehicle expenses, please refer to Changes in Tax Treatment of Motor cars consequent to Vehicle Tax Rationalisation (126KB). Private hire car With effect from 1 Apr 1998, private hire car expenses and hiring charges (SZ-plate or S-plate cars) and are not deductible for income tax purposes. Deduction is not allowed regardless of whether the hired cars have been used for business purposes, except where the company is carrying on business