e-Tax Guide: Concession for Enterprise Development – Deduction of certain expenses incurred before business revenue is earned

This e-Tax Guide explains the concession for enterprise development, which was first implemented in 2003 which took effect from YA 2004, and enhanced in Budget 2011. The concession allows tax deduction on certain expenses incurred before a business begins to generate revenue.

Under the concession, a person who conducts business activities is treated as having commenced his or her business on the deemed date of commencement. The concession seeks to promote entrepreneurship by providing businesses with greater certainty regarding tax matters. It also helps to partially relieve businesses of the costs incurred when starting out.

To facilitate business start-ups further, the Minister for Finance has announced in Budget 2011 that businesses may claim tax deduction on revenue expenses incurred in the accounting year immediately before the deemed date of commencement. This enhancement takes effect from YA 2012.

In Budget 2011, the 2003 concession is enhanced to allow tax deduction for revenue expenses incurred in the accounting year immediately preceding the deemed date of commencement. Such revenue expenses are treated as incurred on the deemed date of commencement. They are deductible against the business income derived during the basis period in which the business derives its first dollar of business receipt. Similarly, any excess of the revenue expenses over the business income for a YA is treated as a trade loss. The usual rules for utilisation of the trade loss apply.

The 2011 enhancement, which will be given legal effect in the Income Tax Act, takes effect from YA 2012. This means businesses can claim revenue expenses incurred in an accounting year ending in 2010 (YA 2011) if the first dollar of business receipt is earned during accounting year ending in 2011 (YA 2012) and so on.

As with the 2003 concession, the implementation of the 2011 enhancement does not preclude businesses from providing relevant details to the Comptroller of Income Tax (CIT) to substantiate that their business operations have commenced earlier than the deemed date of commencement.

The 2011 enhancement is also not applicable to the income of entities to which the provisions of section 10E of the ITA applies. Amongst other things, the provisions disallow tax deduction of revenue expenses incurred by such an entity in relation to non-income producing investments.

This e-Tax Guide supersedes IRAS’s e-Tax Guide issued on 14 March 2003 on “Concession for Enterprise Development – Tax Deduction Allowable for Certain Expenses incurred prior to Commencement of Business”

For more details please refer to: http://www.iras.gov.sg/irasHome/page.aspx?id=902 (Ref 2011/IT/3)

Source: IRAS