15 July 2011
IRAS has issued a revised e-Tax Guide covering the Productivity and Innovation Credit scheme (“PIC”), effective from the Year of Assessment (“YA”) 2011 to YA 2015.
Introduced in Budget 2010 to enhance existing tax measures that encourage productivity and innovation activities and to consolidate these measures into a single scheme, Budget 2011 saw the Minister for Finance announce enhancements to the PIC. Productivity and innovation activities covered under the PIC are:
- acquisition or leasing of prescribed automation equipment (“qualifying equipment”)
- acquisition of intellectual property rights (“IPRs”)
- registration of certain IPRs
- research and development (“R&D”)
- training, and
Key points from the Guide are summarised as follows:
- PIC grants businesses enhanced deductions on expenditure incurred on any of the six productivity and innovation enhancing activities during the qualifying YAs, subject to an annual expenditure cap of $400,000 for each activity.
- For businesses greater flexibility to fully benefit from PIC, a combined expenditure cap applies for each activity as follows:
Combined Expenditure Cap
For Each Activity
YA 2011 and YA 2012
(i.e. $400,000 x 2)
YA 2013, YA 2014 and YA 2015
(i.e. $400,000 x 3)
The combined expenditure cap of $800,000 and $1,200,000 for the relevant qualifying YAs applies only if a taxpayer carries on a trade or business in the basis period relating to each qualifying YA.
Where the qualifying expenditure on a qualifying activity is funded or subsidised, fully or partially, by the Government, only the amount of expenditure net of the grant or subsidy is eligible for the enhanced deduction under PIC.
For a business whose income is taxable at the prevailing rate (“normal income”) as well as at one or more concessionary rate(s) (“concessionary income”), enhanced deductions are first granted on qualifying expenditure incurred in relation to the normal income. If the applicable annual expenditure cap is not exhausted, enhanced deductions are then granted on qualifying common expenditure allocated to the concessionary income that is subject to tax at the highest concessionary rate first followed by the next highest rate and so on.
- Enhanced deductions that cannot be fully offset against the income of a business is treated as unutilised trade loss or allowance.
Cash conversion option
- An eligible business may opt to convert qualifying expenditure of up to $100,000 for each YA into cash at the rate of 30% (i.e. a cash payout of up to $30,000), subject to a minimum expenditure of $400. It is available from YA 2011 to YA 2013.
- There is flexibility of converting up to $200,000 of its qualifying expenditure into cash (i.e. up to $60,000) for YA 2011 and YA 2012. However, if a taxpayer does not carry on any trade or business in the basis period relating to one of the two qualifying YAs, the annual conversion expenditure cap of $100,000 remains.
- The qualifying expenditure utilised for cash conversion may relate to any, or a combination of any, of the six qualifying activities. Once an amount of qualifying expenditure is converted into cash, the same amount is no
longer available for tax deduction.
Tax deferral option
- Under the tax deferral option, a business can elect to defer payment of up to $100,000 of tax payable for a current YA if it incurs expenditure qualifying for PIC during the current financial year. The tax deferral option applies to qualifying expenditure incurred during the basis periods relating to YA 2012 to YA 2015.
- The amount of tax that can be deferred for a current YA is the lower of (i) the amount of tax payable for the current YA and (ii) the amount of expenditure incurred during the current financial period that is eligible for enhanced deduction under PIC, subject to a cap of $100,000 of tax payable.
- A business which opts for tax deferral is not precluded from benefiting from the enhanced deductions and cash conversion available under PIC on the same qualifying expenditure incurred.
- The option to defer tax may be elected anytime after the qualifying expenditure is incurred or the first assessment where the YA is raised, whichever is later, but no later than the end of the current financial year.