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Initial and annual allowances for machinery or plant

Income Tax Act 1947

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—(1) Where a person carrying on a trade, profession or business incurs capital expenditure on the provision of machinery or plant for the purposes of that trade, profession or business, there is to be made to the person, on due claim for the year of assessment in the basis period for which the expenditure is incurred an allowance, to be known as an “initial allowance”, equal to one‑fifth of that expenditure or such other allowance as may be prescribed either generally or for any person or class of persons in respect of any machinery or plant or class of machinery or plant.(1A) For the purposes of subsection (1), in the case of any trade, profession or business —(a)where 2 basis periods overlap, the period common to both is deemed to fall in the first basis period only;(b)where there is an interval between the end of the basis period for a year of assessment and the commencement of a basis period for the next succeeding year of assessment, then, unless the second‑mentioned year of assessment is the year of the permanent discontinuance of the trade, the interval is deemed to be part of the second basis period; and(c)where there is an interval between the end of the basis period for the year of assessment preceding that in which the trade is permanently discontinued and the commencement of the basis period for the year in which it is permanently discontinued, the interval is deemed to form part of the first basis period.(1B) Any capital expenditure incurred for the purposes of a trade by a person about to carry on that trade is treated for the purposes of subsection (1) as if it had been incurred by that person on the first day on which that person does carry on that trade.(2) Where at the end of the basis period for any year of assessment, a person has in use machinery or plant for the purpose of the person’s trade, profession or business, there is to be made to the person, on due claim, in respect of that year of assessment an allowance for depreciation by wear and tear of those assets (to be known as an annual allowance) which is to be calculated in accordance with the following provisions:(a)subject to subsection (2AA), the annual allowance in respect of any machinery or plant acquired by a person either in the basis period for a year of assessment before the year of assessment 2023 or under a hire‑purchase agreement signed in the basis period for a year of assessment before the year of assessment 2023 is —(i)in the case of an asset, other than an asset acquired under a hire‑purchase agreement — the amount ascertained by dividing the excess of the original cost of the asset over any initial allowance granted under subsection (1) by the number of years of working life of the asset as specified in the Sixth Schedule unless otherwise provided under paragraph (b) or (ba);(ii)in the case of an asset acquired under a hire‑purchase agreement — the amount ascertained by dividing the excess of the original cost of the asset over the total amount of initial allowance allowable in respect of the asset under subsection (1) by the number of years of working life of the asset as specified in the Sixth Schedule unless otherwise provided under paragraph (b) or (ba);(b)for the purposes of paragraph (a), the number of years of working life of any aircraft acquired between 1 March 1995 and 29 February 2012 (both dates inclusive) is, if it had been extended under section 19(2)(b) in force immediately before 1 March 2012, the number of years of its working life as specified in the Sixth Schedule together with the extension;(ba)for the purposes of paragraph (a), the total number of years of working life of an aircraft acquired on or after 1 March 2012 but before the basis period for the year of assessment 2023 by an approved aircraft leasing company mentioned in section 43N is, if the company has made an election under subsection (2A) —(i)the sum of —(A)the number of years of working life of an aircraft as specified in the Sixth Schedule; and(B)the period of extension specified by the company under subsection (2A); or(ii)20 years,whichever is less;(bb)the annual allowance in respect of any machinery or plant acquired by a person in the basis period for the year of assessment 2023 or a subsequent year of assessment or under a hire‑purchase agreement signed in the basis period for the year of assessment 2023 or a subsequent year of assessment is —(i)in the case of an asset that is not acquired under a hire‑purchase agreement — the amount ascertained by dividing the excess of the original cost of the asset over any initial allowance granted under subsection (1) by any of the following number of years as elected by the person:(A)where the number of years of working life of the asset as specified in the Sixth Schedule is less than 16 years and unless otherwise provided under paragraph (bd) — 6 or 12 years;(B)where the number of years of working life of the asset as specified in the Sixth Schedule is 16 years — 6, 12 or 16 years; or(ii)in the case of an asset acquired under a hire‑purchase agreement — the amount ascertained by dividing the excess of the original cost of the asset over the total amount of the initial amount allowable in respect of the asset under subsection (1) by any of the following number of years as elected by the person:(A)where the number of years of working life of the asset as specified in the Sixth Schedule is less than 16 years and unless otherwise provided under paragraph (bd) — 6 or 12 years;(B)where the number of years of working life of the asset as specified in the Sixth Schedule is 16 years — 6, 12 or 16 years;(bc)the election under paragraph (bb) must be made to the Comptroller at the time of lodgment of the person’s return of income for the year of assessment relating to the basis period in which the asset was acquired or the hire‑purchase agreement was signed or within such further time as the Comptroller may allow, and such election is irrevocable;(bd)for the purposes of paragraph (bb), the total number of years of working life of an aircraft acquired in the basis period for the year of assessment 2023 or a subsequent year of assessment by an approved aircraft leasing company mentioned in section 43N is, if the company has made an election under subsection (2A) —(i)the sum of —(A)either 6 or 12 years as elected by the company under paragraph (bb); and(B)the period of extension specified by the company under subsection (2A); or(ii)20 years,whichever is less;(c)the annual allowance in respect of any asset for any year of assessment must not exceed the amount of the capital expenditure of the asset still unallowed under this section as at the beginning of the basis period for that year of assessment;(d)for the purposes of the Sixth Schedule, where any question arises as to the classification of an asset under any item of that Schedule, the asset is treated as falling under such item as the Comptroller considers proper.(2AA) Where —(a)a machinery or plant is acquired by a person either in the basis period for a year of assessment before the year of assessment 2023 or under a hire‑purchase agreement signed in the basis period for a year of assessment before the year of assessment 2023; and(b)no due claim for an allowance in respect of that asset has been made under subsection (1) or (2)(a) for any year of assessment before the year of assessment 2023,then, if the person makes a claim for an annual allowance in respect of that asset for the year of assessment 2023 or a subsequent year of assessment, the annual allowance in respect of that asset is ascertained by dividing the original cost of that asset by the number of years of working life of that asset, as elected by the person under subsection (2AB).(2AB) For the purposes of subsection (2AA), the person may elect for the number of years of working life of the asset to be —(a)if the number of years of its working life as specified in the Sixth Schedule is less than 16 years — 6 or 12 years; or(b)if the number of years of its working life as specified in the Sixth Schedule is 16 years — 6, 12 or 16 years.(2AC) An election under subsection (2AB) must be made by the person to the Comptroller at the time of lodgment of the person’s return of income for the year of assessment 2023 or within such further time as the Comptroller may allow, and such election is irrevocable.(2A) An approved aircraft leasing company which acquired any aircraft on or after 1 March 2012 may, at the time of lodgment of its return of income for the year of assessment relating to the basis period in which the aircraft was acquired, make an irrevocable election to the Comptroller for the number of years of the working life of the aircraft as specified in the Sixth Schedule or as elected by the person under subsection (2)(bb), to be extended by a period specified by the company.(2B) [Deleted by Act 41 of 2020](3) Despite subsection (1) or (2) or section 19A(1), (1B) or (1E), in respect of a motor car to which this subsection applies —(a)the initial allowance to be made under subsection (1) is to be calculated on an amount equal to the capital expenditure incurred in respect of that motor car or $35,000, whichever is less;(b)the annual allowance to be made under subsection (2) or section 19A(1), (1B) or (1E) is to be calculated on the basis that the original cost of that motor car is the capital expenditure incurred or $35,000, whichever is less; and(c)the aggregate of the initial and annual allowances to be made under this subsection for all relevant years of assessment must not exceed $35,000.(4) Subsection (3) applies to a motor car which is constructed or adapted for the carriage of not more than 7 passengers (exclusive of the driver) and the weight of which unladen does not exceed 3,000 kilograms and which —(a)was registered before 1 April 1998 as a business service passenger vehicle for the purposes of the Road Traffic Act 1961 but excludes such a motor car which is —(i)used principally for instructional purposes; and(ii)acquired by a person who carries on the business of providing driving instruction and who holds a driving school licence or driving instructor’s licence issued under that Act; or(b)was acquired in the basis period for the year of assessment 2013 or any preceding year of assessment, and is registered outside Singapore and used exclusively outside Singapore.(5) No allowance under this section or section 19A may be made in respect of a motor car which is constructed or adapted for the carriage of not more than 7 passengers (exclusive of the driver) and the weight of which unladen does not exceed 3,000 kilograms except —(a)a taxi, and then only to the following:(i)a person that is not an individual and that holds a street‑hail service licence granted (on renewal or otherwise) or deemed granted under the Point‑to‑Point Passenger Transport Industry Act 2019 (called in this paragraph a street‑hail service licence);(ii)an individual who is a partner of the partnership that acquired the taxi and holds a street‑hail service licence;(iii)an individual who —(A)acquired the taxi as a replacement or a subsequent replacement of a taxi acquired by him or her any time before 1 January 1975; and(B)holds a vocational licence granted under section 110 of the Road Traffic Act 1961 authorising him or her to drive a taxi;(b)a motor car registered outside Singapore and used exclusively outside Singapore;(c)a private hire car acquired by a person who carries on the business of hiring out cars and which is used by the person principally for hiring;(d)a motor car which was registered before 1 April 1998 as a business service passenger vehicle for the purposes of the Road Traffic Act 1961;(e)a motor car registered on or after 1 April 1998 which is used principally for instructional purposes and acquired by a person who carries on the business of providing driving instruction and who holds a driving school licence or driving instructor’s licence issued under the Road Traffic Act 1961; and(f)a chauffeured private hire car as defined in section 14ZA(8) —(i)that is acquired in the basis period for the year of assessment 2021 or a subsequent year of assessment by a person that carries on the business of providing chauffeur services, and used by the person principally for such business; or(ii)that was initially acquired by a person carrying on the business of hiring out cars and used by the person principally for such business, and is then used in the basis period for the year of assessment 2021 or a subsequent year of assessment by the same person principally for the business of providing chauffeur services carried on by the person.(5A) Unless otherwise provided in this Act or the Economic Expansion Incentives (Relief from Income Tax) Act 1967, where, in the basis period for any year of assessment, the trade, profession or business, for which purpose the machinery or plant is provided, produces income that is exempt from tax as well as income chargeable with tax, the allowances for that year of assessment must be made against each income for that year of assessment in such proportion as appears reasonable to the Comptroller in the circumstances.(5B) For the purposes of subsection (2), where, at the end of the basis period for the year of assessment 2009, a person has in use any of the following motor vehicles within the meaning of the Road Traffic Act 1961:(a)a motor car;(b)a motor cycle;(c)a goods vehicle the maximum weight of which laden does not exceed 3,000 kilograms,in respect of which allowances have been made under this section, there is to be made to the person, on due claim for that or any subsequent year of assessment and in lieu of any further annual allowance under this section, an annual allowance of 331/3% in respect of the capital expenditure remaining unallowed under this section in respect of the motor vehicle as at the beginning of the basis period for the year of assessment 2009.(6) In subsection (1), “prescribed” means prescribed by an order made by the Minister.(7) Every order made under this section must be presented to Parliament as soon as possible after publication in the Gazette.(8) Subject to subsection (9), this section applies, with the necessary modifications, to a person carrying on any trade or business who incurs during the basis period for any year of assessment between the year of assessment 2009 and the year of assessment 2025 (both years inclusive) capital expenditure on the provision of machinery or plant for any research and development undertaken by the person directly in Singapore or by a research and development organisation on the person’s behalf in Singapore, even though the machinery or plant is not for the purposes of that trade or business.(9) Section 14C(4) and (5) applies in relation to the allowance for the capital expenditure referred to in subsection (8) as it applies in relation to the deduction of the expenditure and payments referred to in section 14C(1)(aa), (c) and (f), subject to the following modifications:(a)a reference to the amount of the expenditure or payments (after deducting any amount in respect of which an election for a cash payout has been made under section 37G) in section 14C(4) is a reference to the remaining amount of the allowance after deducting the amount of the allowance that corresponds to the capital expenditure in respect of which an election for a cash payout has been made under section 37G;(b)a reference to the specified amount of the expenditure or payments is a reference to an amount computed in accordance with the formulawhere Ais the remaining amount of the allowance after deducting the amount of the allowance that corresponds to the capital expenditure in respect of which an election for a cash payout has been made under section 37G;Bis the rate of tax specified in section 43(1)(a); andCis — (i)in a case where the concessionary income derived by the person from the trade or business carried on by the person is subject to tax at a single concessionary rate of tax, that rate; or (ii)in a case where the concessionary income derived by the person from the trade or business carried on by the person is subject to tax at 2 or more concessionary rates of tax, the higher or highest of those rates; and(c)a reference to “unabsorbed losses” is a reference to “unabsorbed allowances”.(10) This section applies to a person carrying on any trade or business who appropriates any trading stock of that trade or business for use as machinery or plant for the purpose of any of the person’s trades, professions or businesses in circumstances that give rise to a reasonable inference that the appropriation is permanent, subject to the following modifications:(a)a reference to the capital expenditure incurred on the provision of machinery or plant is to the open market value of the trading stock as at the date of the appropriation;(b)the capital expenditure is treated as having been incurred on the date of the appropriation of the trading stock.(11) In subsection (10), “open market value” and “trading stock” have the meanings given by section 10J(9).

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