What is Deductible
Deductible business expenses reduce your company’s taxable income and the amount of tax you need to pay.
Example
| Computation | $ |
|---|---|
| Income | 80,000 |
| Business Expenses | 15,000 |
| - Deductible Business Expenses | 5,000 |
| - Non-Deductible Business Expenses | 10,000 |
| Income Subject to Tax ('Taxable Income') | 80,000 - 5,000 = 75,000 (Income minus deductible expenses) |
Generally, deductible business expenses are those 'wholly and exclusively incurred in the production of income'. In other words, they must satisfy all these conditions:
- The expenses are solely incurred in the production of income.
- The expenses must be incurred. It is considered incurred when the legal liability to pay arises, regardless of whether the actual payment has been made.
- The expenses are revenue in nature, and not capital expenses. Revenue expenses are generally costs incurred in the day-to-day operations of a business to generate revenue (such as salaries, rent, and utilities), while capital expenses are investments in the business that are expected to provide long-term benefits (such as acquisition of fixed assets).
- The expenses are not prohibited from deduction under the Income Tax Act 1947.
Learn more about the tax deductibility of expenses by watching our e-Learning video.
What is Non-Deductible
Non-deductible business expenses are expenses you or your employees pay for that do not fulfil the conditions above. These include personal expenses (such as travel, or entertainment not fully related to the running of the business) and capital expenses (such as expenses incurred to incorporate a company and the purchase of fixed assets).
Learn how to make tax adjustments (such as adding back non-deductible business expenses) to arrive at the income that is chargeable to tax.
Examples of Deductible & Non-Deductible Business Expenses
| Deductible | Non-Deductible |
|---|---|
| Accounting fee Administrative expenses Advertisement Auditors' remuneration | Amortisation |
Bad debts (trade debtors) Bank charges Book-keeping services Borrowing costs as a substitute for interest expense or to reduce interest costs | Bad debts (non-trade debtors) |
Commission CPF, skills development levy CPF-related Ad-hoc contributions to employees' CPF MediSave Account via the Additional MediSave Contribution Scheme Topping-up Employees' CPF Retirement Accounts/ Special Accounts on Their Behalf Voluntary cash contributions to self-employed persons' MediSave Account | Certificate of entitlement (COE) for motor vehicles1 CPF-related |
Digital taxes imposed in the form of turnover taxes (not income taxes) Directors' fees
Directors' remuneration | Depreciation (you may instead claim capital allowances) Digital taxes imposed as income taxes |
Employee Equity-Based Remuneration (EEBR) Scheme Employment Assistance Payment (EAP) Entertainment Exchange loss (trade and revenue in nature) Exhibition expenses | Entrance fee (country club or other clubs) |
| Foreign worker levy (FWL) (only the reduced FWL incurred by your company, after deducting the FWL rebate for the corresponding period, is allowed tax deduction) | Fixed assets written off Fixed assets acquisition cost (you may instead claim capital allowances) Fines |
| Goodwill payment | |
Income tax of employee borne by employer (in accordance with employment contract) Insurance for underwriting bad trade debts Interest incurred on late payment of fees to a Management Corporation for a Strata Title Plan (MCST) Interest incurred on loans to re-finance prior loans or borrowings | Impairment loss on non-trade debts Singapore income tax and any tax on income in country/ territory outside Singapore
Installation of fixed assets Interest expenses on non-income producing assets (interest adjustment) |
Legal and professional fees (trade and revenue transactions) Upfront lease expenses incurred by tenants (commission, advertising, legal fees and stamp duty incurred in obtaining, renewing or extending leases), subject to Section 14ZE of the Income Tax Act 1947 | Legal and professional fees (non-trade or capital transactions) |
Medical expenses (restricted
to 1%/ 2% of total remuneration if company is under Portable Medical Benefits Scheme (PMBS) or Transferable Medical Insurance Scheme (TMIS))
Motor vehicle expenses (such as upkeep, maintenance, running and financing costs of goods/ commercial vehicles e.g. van, lorry and bus) | Medical expenses (amount exceeding 1%/ 2% of total remuneration if company is under PMBS or TMIS) Motor vehicle expenses (S-plated, Q-plated and RU-plated cars) |
| Office upkeep | |
Periodicals and newspapers Postage Printing and stationery Property tax Provision for bad and doubtful debts (specific) (note impairment loss on trade debts) Provision for obsolete stocks (specific) Additional Petrol Duty Rebate (Budget 2021)2 | Penalties Prayer expenses Prepaid expenses (not relating to the relevant basis period) Private and domestic expenses (expenses not incurred for business purpose) Provision for bad and doubtful debts (general) (note impairment loss on trade debts) Provision for obsolete stocks (general) |
Reinstatement costs (expenses
incurred to reinstate premises to its original condition prior to vacating it at the end of the tenancy agreement) Registration of patents, trademarks, designs and plant varieties Road tax rebate (Budget 2021)3 Retrenchment payments Ex-gratia retrenchment payments and outplacement support costs, where there is no complete cessation of business | Renovation or refurbishment works (you may claim Section 14N deduction for qualifying expenditure) Retrenchment payments |
Secretarial fees Staff remunerations (salary, bonus and allowances) Staff training4 | |
Tax fees (service fees paid to tax agent) Telephone bills Transport (public transport and goods/ commercial vehicles) Travelling | Transport (S-plated, Q-plated and RU-plated cars) |
Wages Water and electricity | Withholding tax on interest payments borne by companies on-behalf of non-residents |
1 If the vehicle qualifies for capital allowances (goods/ commercial vehicle), you can include the cost of COE to the cost of vehicle and claim capital allowances.
2 Taxi operators and private-hire car (PHC) operators who disburse the additional petrol duty rebate (APDR) on behalf of the Government to active drivers of petrol and petrol-hybrid taxis and PHCs, can claim a tax deduction on such payments to the drivers. Learn more about the APDR at the Land Transport Authority’s (LTA) website.
3 Taxi operators and vehicle lessors who received the road tax rebate (RTR) for their petrol and petrol-hybrid vehicles and passed on the savings from the RTR to eligible taxi and PHC drivers, can claim a tax deduction on such payments to their drivers. Learn more about the RTR at LTA's website.
4 As announced in Budget 2023, under the Enterprise Innovation Scheme (EIS) , an additional 300% tax deduction is granted on the first $400,000 of qualifying training expenditure incurred on courses that are eligible for SkillsFuture Singapore (SSG) funding and are aligned with the Skills Framework in each YA from YA 2024 to YA 2028.
5 Expenses incurred by your company on staff welfare or benefits that are taxable in the hands of employees do not automatically qualify for tax deduction and vice versa. Such expenses must meet the tax deductibility conditions to qualify for tax deduction.
Learn more about the tax treatment of business expenses:
Further/ Enhanced/ Double Deductions
There are various tax schemes that provide for further/ enhanced/ double deductions on qualifying business expenses.
Learn about the following tax schemes:
- Corporate Volunteer Scheme (CVS)
- Double Tax Deduction for Internationalisation scheme
- Enterprise Innovation Scheme (EIS) (as announced in Budget 2023)
- Productivity and Innovation Credit (PIC) scheme (The PIC scheme has expired after the Year of Assessment (YA) 2018. Businesses are no longer allowed to claim PIC benefits on expenditure incurred after the basis period of YA 2018.)
- Research and Development (R&D) tax measures