Business expenses are the costs you have incurred in the course of running your business. Only allowable business expenses may be deducted against your income to reduce the amount of tax payable.
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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
| Business revenue | $80,000 |
|---|---|
Business expenses | 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.
Instead of claiming tax deductions based on the actual amount of allowable business expenses incurred, qualifying self-employed persons (SEPs) such as commission agents, private hire car/ taxi drivers and delivery workers can claim a deemed amount of business expense based on a prescribed percentage of the gross income earned.
For more details, please refer to Fixed Expense Deduction Ratio (FEDR) for self-employed persons.
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 |
|---|---|
Employee/staff costs
| Employee/staff costs
|
Finance and professional costs
| Capital expenses
|
Running costs
| Private expenses
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 Fixed Expense Deduction Ratio (FEDR) for self-employed persons (SEPs). |
Schemes
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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 renovation or refurbishment (“R&R”) expenditure incurred will be tax deductible under section 14N of the Income Tax Act 1947 provided the expenditure on the R&R works do not affect the structure of the premises.
R&R expenditure that qualifies for tax deduction as a business expense is capped at $300,000 for every relevant 3-year period. For sole-proprietorship, the expenditure cap of $300,000 is applied at the individual sole-proprietor regardless of the number of sole-proprietorships he or she owns. For partnership, the expenditure cap of $300,000 is applied at the partnership level.
Please refer to Renovation and Refurbishment Works Expenditure and Tax Deduction For Expenses Incurred on Renovation or Refurbishment Works Done to Business Premises (PDF, 347KB) for details on claiming a tax deduction on R&R expenditure under section 14N.
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.
Supporting documents:
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.
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.
Tax deductions
You may be able to claim tax deductions on any of the following provided you satisfy the qualifying conditions:
- [NEW!] Enterprise Innovation Scheme (EIS)
- 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
- Corporate Volunteer Scheme (CVS)
(formerly known as Business and IPC Partnership Scheme) - Double Tax Deduction for Internationalisation Scheme