IRAS Capital Allowance Calculator

Fixed assets depreciate over time and you can’t claim any tax relief on that depreciation cost. Instead, you can claim capital allowances. When you claim capital allowance over a period of time, it’s called “writing off the asset”.

According to IRAS these allowances can be claimed only when you have incurred an expense. For example, if you have decided to purchase computers for your business, but haven’t signed any agreement yet, you can’t claim capital allowances. But when you are legally liable to pay for your purchase, no matter when you make the actual payment, you can claim capital allowances.

Capital Allowance Calculation

There are different methods that you can use for calculating capital allowances. You can claim it in one, two, three years, or over the expected life of the asset.

Claiming 100% Allowance in One Year (Section 19A)

This is allowed for assets like computers, prescribed automation equipment (such as laptops, printers, computers, and computer softwares), and low-cost assets. The capital allowance is claimed as annual allowance (AA).

Computers and prescribed automation equipment: Check out the illustrations below to find out how to write-off computer and prescribed automation equipment completely in one year.

  • When the asset is bought with cash: Assume that you purchased a computer for S$5,000 and a computer software for S$1,000 in cash in the year 2017. The AA would be S$5,000 (100% of S$5,000) for the computer and S$1,000 (100% of S$1,000) for the computer software.
  • When the asset is bought under hire purchase: Assume that you purchased the computer for S$5,000 under hire purchase. In this case, the AA would be 100% of the principal amount and the deposit paid.

Low-value assets: To write-off your low-cost assets (assets worth up to S$5,000) in one year, there are certain conditions that need to be satisfied:

  • The asset must be plant/machinery eligible for such allowances under Sections 19A, 19, or 19A(1B) of the Income Tax Act.
  • It must be purchased for the purpose of your business.
  • It should not be worth over S$5,000 (effective 2013 onwards), or S$1,000 (effective 2005 to 2012).
  • Your combined claim for all low-cost assets being written off in one year must not exceed S$30,000. If it exceeds S$30,000, you can claim the allowances over three years or over the expected working life of the assets.

Claiming Capital Allowance Over Three Years (Section 19A)

With effect from Year of Assessment 2009 (YA 2009), you can claim your capital allowance for the qualifying assets over a period of three years. The capital allowance would be claimed as AA, where the AA for each year would be calculated as:

  • Asset purchased for cash: AA for each year = 1/3 of total asset cost
  • Asset bought under hire purchase: AA for each year = 1/3 of the principal amount + deposit where applicable

Claiming Capital Allowance Over Two Years (Section 19A)

This method was introduced in Budget 2009 to boost investments in the industry while the overall economy reeled under global financial crisis. The move was aimed at encouraging companies to invest in new assets by allowing them quick write-downs over two-year period. With this development, the plant and machinery bought during YAs 2010 and 2011 were allowed to be written off over a two-year period.

The method allows companies to write-down the cost of plant and machinery purchased during 2010 and 2011 over two years - 75% in the first year and the rest in the second year. Capital allowance claims can be deferred to subsequent years, but the rule of 75% and 25% would still apply.

Here’s an illustration of this method works: Assume you purchased some office equipment worth S$5,000 for cash in 2010. So, your AA for 2011 would be S$3,750 (75% of S$5,000) and for 2012 S$1,250 (25% of S$5,000).

If the same asset was bought under hire purchase, you AA for 2011 would be 75% of the principal amount and the deposit amount that you might have paid. The AA for 2012 would be 25% of the principal amount.

Claiming Capital Allowances Over the Asset’s Prescribed Working Life (Section 19)

Under this method, you can write-off an asset over its expected working life, which is determined according to the Sixth Schedule of the Income Tax Act. For example, a motor vehicle’s working life is six years, while a motorcylce’s expected working life is eight years. Under this method, the allowance is claimed as Initial Allowance (IA) and AA. IA is 20% of the asset cost, which has to be claimed in the year when the asset was bought. AA is the 80% of the asset cost which has to be claimed over the total working life of the asset.

  • When the asset is purchased in cash: Your first year capital allowance would be the total of IA (20% of the asset cost) and AA (80% of the asset cost/expected working life of the asset). For the second and subsequent years, the IA won’t be applicable and your AA would remain the same as in the first year.
  • When the asset is bought under hire purchase: In this case, your first year total capital allowance would be the total of IA (20% of the principal amount and deposit when applicable) and AA (80% of the asset cost/expected working life of the asset). Second year onwards, there will be no IA, while the AA remains the same.

Claiming Capital Allowance for Motor Vehicles

When you buy cars for your car-hire business or for using them to provide driving instructions at your company, you can claim capital allowance. Apart from these vehicles, you can also claim capital allowance for vehicles like vans, motorcycles, and lorries purchased for business use. If your motor vehicle is eligible for capital allowance, you can also claim the expenses incurred on acquiring the Certificate of Entitlement.

If you have a vehicle that’s registered in a foreign country and is used exclusively in that country for your business purposes, you can claim capital allowance. Starting YA 2014, there is no limit on the capital allowance you can claim for foreign registered vehicles.

Here’s how to calculate capital allowance on your qualifying motor vehicle: As per Section 19A and Section 19, you can claim the capital allowance on your motor vehicles over a period of three years or over the expected working life of the vehicle. If these vehicles were acquired during 2010 or 2011, you can go for accelerated write-down and claim the allowance over two years.

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