8 June 2012
IRAS has issued an e-Tax Guide which explains the tax deduction granted under section 14Q of the Income Tax Act (“ITA”) for the capital expenses incurred for renovation or refurbishment works on business premises.
This guide replaces the earlier e-tax guide entitled “Deduction for expenditure incurred on renovation or refurbishment (R&R) works” which was first published on 18 June 2008. This updated version incorporates the following tax changes announced in Budget 2012:
- removal of the end-date of 15 February 2013
- increase in the expenditure cap from $150,000 to $300,000 from YA 2013
- unabsorbed S14Q deduction to qualify for group relief from YA 2013
Section 14Q was introduced into the ITA to allow a tax deduction for qualifying R&R costs incurred by businesses. The deduction, “S14Q deduction”, is applicable to R&R costs incurred on or after 16 Feb 2008. The S14Q deduction is given over a period of three consecutive years on a straight-line basis, starting from the year of assessment (YA) for which those expenses are incurred.
S14Q deductions are not allowed to be claimed where:
- tax deductions are already enjoyed under section 14(1)(c) of ITA where the renovation or refurbishment works qualify as repairs or replacements with no improvement element,
- the R&R costs qualify as expenses incurred on purchase of plant or machinery under section 19 or 19A.
If there is no income from the trade, business or profession derived in any YA and the trade, business or profession ceases permanently during the basis period for that YA, the S14Q deduction also ceases in that YA.
S14Q deduction is allowed against income from the trade, business or profession for which the R&R costs are incurred and would form part of trade losses if there is insufficient income to absorb the deduction. Hence, the normal tax treatment for trade losses applies to any unabsorbed S14Q deduction.
From YA 2013 onwards, S14Q deduction allowed for a YA that remains unabsorbed for the YA can qualify for group relief. Where qualifying R&R costs were incurred during the basis period for YAs 2011 and 2012 and S14Q deduction in respect of those costs is allowed in YA 2013 or YA 2014, any unabsorbed S14Q deduction arising in those YAs can also qualify for group relief.
Prior to YA 2013, S14Q deduction is allowed against trade income only after all other deductions under Part V (Deductions against income) of ITA have been allowed. Any unabsorbed S14Q deduction due to insufficient trade income is not available for offset under the group relief system (under section 37C of ITA). Such unabsorbed S14Q deduction, however can be carried forward for offset against income in subsequent YAs, subject to the provisions of section 37. It can also qualify for the loss carry-back relief under sections 37E or 37F, subject to the provisions of those sections.
S14Q deduction on expenses incurred for the following cannot be claimed:
- any designer services or professional services
- any antique, or
- any type of fine art including painting, drawing, print, calligraphy, mosaic, sculpture, pottery or art installation.
Administrative procedures and Frequently Asked Questions (FAQs) are also covered in the e-Tax Guide.
Source: This article was extracted from the Inland Revenue Authority of Singapore (IRAS) website. Visit www.iras.gov.sg for more information.