You’re having a wonderful holiday trip with your girlfriend that costs you an arm and a kidney, and you thought to yourself, “Hey, why not let my company pay for it? After all, it’s my company. What’s the difference? I’ll just receive lesser dividends at the end of the year.” Without realising it, you’ve just committed a mistake. While it is tempting to declare as many expenses as possible as expenditure for your company, there are accounting standards and rules to follow.
Let’s look at the types of expenses that are tax-deductible and the kinds that are not.
What Are Deductible Expenses?
Your business can only claim a tax deduction from its income if the expenses satisfy all of the following conditions:
- It incurred wholly and solely for the production of income.
- The expense is not a contingent liability (meaning that the expense may or may not happen in the future and the timing and amount are not presently sure).
- Expenses that are revenue instead of capital in nature (e.g. rent is a revenue expense while buying a property is an expense of capital nature).
- Expenses that are not prohibited from deduction under the Income Tax Act.
What Are Non-Deductible Expenses?
Any expenses that are incurred for activities that do not fit the above conditions are considered non-deductible expenses. Examples of non-deductible expenses are personal travel expenses, personal entertainment expenses that are not related to the operation of the business, and capital expenses such as acquisition of fixed assets.
List Of Deductible And Non-Deductible Expenses
Okay, let’s get to the specific. Here’s a non-exhaustive list of deductible and non-deductible expenses from the IRAS.
|Deductible Business Expense||Non-deductible Business Expense|
|– Accounting fee|
– Administrative expenses
– Auditors’ remuneration
|– Bad debts|
– Bank charges
– Bookkeeping services
|– Bad debts (non-trade debtors)|
– CPF, skills development levy, foreign workers’ levy
|– Certificate of Entitlement (COE) for motor vehicles|
– Statutory contributions to CPF
– Contributions to employees’ Medisave Account (maximum deduction of $1,500 for each employee per year)
– Topping-up of employees’ CPF minimum sums
– Voluntary cash contributions to Self-employed persons’ Medisave account
– Voluntary contributions to CPF (Refers to CPF contributions
– Exceeding the interest incurred on late CPF contributions
|– Directors’ fees|
– Directors’ remuneration
|– Depreciation (you may instead claim capital allowances)|
– Dividend payments made on preference shares
|– Employee Equity-based Remuneration (EEBR) Scheme|
– Employment Assistance Payment (EAP)
– Exchange loss (trade and revenue in nature)
– Exhibition expense
|– Entrance fee (Country club or other clubs)|
– Exchange loss (non-trade or capital in nature)
– Expenses incurred before the commencement of business
|– Fixed assets write-offs |
– Fixed asset acquisition cost (you may instead claim capital allowances)
|– Goodwill payment|
|– Employees’ income tax borne by employer (in accordance with employment contract)|
– Insurance premium (group term life insurance where employees are intended beneficiaries, keyman insurance, workman injury compensation)
– Insurance for underwriting bad trade debts Interest expenses
– Interest incurred for late payment of fees to a management corporation for a Strata Title plan (MCST)
– Interest incurred on loans to re-finance earlier loans or borrowings
|– Impairment loss on non-trade debts|
– Singapore income tax and any tax on income in a country outside Singapore
– Installation of fixed assets
– Interest expenses on non-income-producing assets(Interest adjustment)
|– Legal and professional fees (trade and revenue transactions)||– Legal and professional fees (Non-trade or capital transactions)|
|– Medical expense (restricted to 1%/2% of total remuneration if the company is under portable medical benefits Scheme or Transferable Medical Insurance Scheme|
– Motor vehicle expenses (Such as upkeep, maintenance, running and financing cost of goods/ commercial vehicles, e.g. van, lorry and bus)
|– Medical expense (amount exceeding 1%/2% of total remuneration if the company is under PMBS or TMIS|
– Motor vehicle expenses (S-plated and RU-Plated cars)
|– Office upkeep|
|– Periodicals & newspapers|
– Printing and stationery
– Property tax
– Provision for bad and doubtful debts (specific) (Note impairment loss on trade debts)
– Provision for obsolete stocks (specific)
– Prepaid expenses (not relating to the relevant basis period)
– Private and domestic expenses (expenses not incurred for business purpose)
– Private hire car
– Provision for bad and doubtful debts (general)(Note impairment loss on trade)
– Provision of obsolete stocks (general)
|– Reinstatement cost (expenses incurred to reinstate premises to its original condition prior to vacating it at the end of the tenancy agreement)|
– Rental of business premises
– Registration of patents, trademarks, designs and plant varieties
– Repairs and maintenance
– Research and development
|– Renovation or refurbishment works (you may claim Section 14Q deduction for qualifying expenditure incurred from 16 Feb 2008)|
|– Retrenchment payments|
– Contractual retrenchment payments
– Ex-gratia retrenchment payments and outplacement support costs, where there is no complete cessation of business
|– Ex-gratia retrenchment payments and outplacement support cost, where there is a complete cessation of business.|
|– Secretarial fees|
– Staff remuneration (Salary, bonus and allowance)
– Staff training
– Staff Welfare/Benefits
– Statutory and regulatory expenses
– Stock obsolescence
– Supplementary retirement scheme
|– Tax fee (services fee paid to tax agent)|
– Telephone bills
– Transport (Public transport)
|– Transport (S-plated and RU-plated cars)|
– Water & Electricity
Final Note on Expenses: You can’t deduct an expense if you don’t have any proof to show that the expense has incurred. That’s why you ask for and keep the receipt for every deductible expense. Remember that maintaining good bookkeeping and accurate business records are important in ensuring a healthy bottom-line for your business!