IRAS issues a circular on the special allowance for furniture, fittings and installations
The Inland Revenue Authority of Singapore (IRAS) issued a circular on 18 June 2008 to provide details of the new special allowance for fixtures, fittings and installations introduced during the 2008 Budget Speech. This allowance takes the form of a special deduction, and will be governed by a new section 14Q of the Income Tax Act (the Act), which has yet to be legislated.
To qualify for the special deduction, the capital expenditure must be incurred on the renovation or refurbishment of business premises. The circular provides a list of items that should qualify for deduction, but it is not an exhaustive list. Expenditure relating to work that involves "structural changes" and "expansion of space" has specifically been excluded from the scope of the special deduction, and quite unusually, the potentially troublesome question of what these constitute has been given, what seems for now, a neat, straightforward solution - these will be determined with reference to structural changes that require prior approval from the Commissioner of Building Control. Expenditure on designer fees, professional fees, antiques and any type of fine art will also not be allowed the special deduction. And as usual, some small niggling questions have been left. Ornamental features or decorations are deductible provided they are not fine art, which begs the question of when art is "fine" since there does appear to be some overlap in the examples given in the circular, not to mention the question of personal taste. Antiques are also specifically excluded, although it is difficult to imagine what type of antique is envisioned. Lastly, for premises that are not used solely for business purposes, no apportionment will be allowed for expenditure that is not specifically identifiable to the area used for business purposes, which seems rather unfair.
The introduction of the special deduction does not affect the existing capital allowance framework, and expenditure that qualifies for industrial building allowance, capital allowance or deductions on a replacement basis under section 14(1)(c) of the Act will continue to do so. An important fact to bear in mind when making claims for the special deduction as that there is a cap on the amount of section 14Q deduction available (see below for details) and this needs to be weighed against the relative ease of obtaining the special deduction.
In order to qualify for the special deduction, the qualifying expenditure must be incurred between 16 February 2008 to 15 February 2013. As mentioned , the deductible expenditure is subject to a cap of $150,000 over a period of three years. For partnerships, the $150,000 cap is applied at the partnership level. The deduction is allowed on a straight-line basis over three consecutive years, and the taxpayer must continue to carry on the same trade, business or profession for which the expenditure was incurred for the three years the deduction is claimed. Any unclaimed amount is forfeited when that trade, business or profession is permanently ceased. The deduction must be claimed in the year it is incurred, and no deferral of the claim is allowed although any excess may be carried forward or back, subject to the usual conditions. Group relief is not available on any unutilised deduction. It remains to be seen whether this will be a compulsory deduction for companies enjoying tax exemption (e.g. pioneer companies).
A taxpayer wishing to avail itself of this special deduction must make a claim for it in its tax return, which must be accompanied by an itemised list of the renovation and refurbishment work done and the related costs and confirmation that the renovation or refurbishment work does not require the approval of the Commissioner of Building Control. The taxpayer must also maintain supporting documents, but need not submit them until requested to do so by IRAS.
For further details, please call your usual PricewaterhouseCoopers contact.
