Allowable business expenses under the Income Tax Act — Complete 2026 guide

Allowable business expenses under the Income Tax Act are costs that a Singapore company may deduct against its income because they were wholly and exclusively incurred in producing that income and are not specifically prohibited. Getting the distinction right reduces your tax bill legitimately and survives an IRAS review. This 2026 guide explains the statutory test, what is deductible and what is not, the key numerical caps, and the documentation you must keep.

Raffles Corporate Services works with a panel of corporate and employment law firms; this article is general information, not tax or legal advice.

The statutory test for allowable business expenses under the Income Tax Act

Section 14(1) of the Income Tax Act 1947 allows a deduction for outgoings and expenses wholly and exclusively incurred in the production of income. Section 15 of the same Act then lists outgoings that are specifically disallowed — including expenses not incurred in producing income, private or domestic expenses, and capital withdrawn or sums employed as capital. An expense must pass both gates: it must satisfy the section 14 deductibility test and must not fall foul of a section 15 prohibition.

Revenue versus capital — the line that matters most

Only revenue expenses are deductible under section 14. Capital expenditure — buying plant, fitting out premises, acquiring a business — is not deductible as an expense, although it may attract capital allowances under sections 19 and 19A of the Income Tax Act 1947 instead. Repairs to restore an asset are usually revenue; improvements that enhance or create an asset are usually capital. This revenue/capital boundary is the single most common area of dispute.

What is typically deductible

  • Employee salaries, bonuses and the employer’s CPF contributions.
  • Rent, utilities and service charges for business premises.
  • Marketing, advertising and recurring professional fees (for example, bookkeeping and audit).
  • Interest and borrowing costs on loans taken to finance the business.
  • Statutory and regulatory filing costs incurred in the ordinary course.

For a broader walkthrough of how these feed into the company’s return, see our corporate income tax and GST FAQ.

What is not deductible

Common disallowed items include private and domestic expenses, fines and penalties, depreciation (replaced by capital allowances), and motor-car expenses for private passenger cars (S-plate cars), which are specifically prohibited. Medical expenses are deductible but capped at 1% of total employee remuneration, rising to 2% where the employer has implemented a portable medical benefits scheme or transferable medical insurance scheme.

Specific reliefs worth knowing (numerical specifics)

Section 14Q of the Income Tax Act 1947 allows a deduction for qualifying renovation and refurbishment costs that would otherwise be capital, capped at S$300,000 over every three-year relevant period and claimed across three years of assessment. Donations of cash to an approved Institution of a Public Character attract a 250% deduction. For asset-heavy fit-outs, the interaction between section 14Q and capital allowances should be planned — our cross-site note on the Section 14Q renovation deduction sets out the mechanics.

Step-by-step: substantiating a deduction

  1. Confirm the expense was incurred (a liability exists), not merely budgeted.
  2. Test that it was wholly and exclusively for producing income.
  3. Check it is not capital and not caught by a section 15 prohibition.
  4. Apply any cap (for example, medical or renovation).
  5. Retain the invoice, payment evidence and business rationale.

Documentation and record-keeping

IRAS requires business records to be kept for five years. Keep tax invoices, contracts, payment records and a clear note of the business purpose for anything that could look private — entertainment, travel, vehicles and home-office costs draw the most scrutiny. Where staff cost is significant, remember that work-pass salaries form part of remuneration; the work pass salary thresholds affect both your payroll deduction and your headcount planning.

Common mistakes and gotchas

Frequent errors include deducting capital fit-out as repairs, claiming private motor-car running costs, missing the 1%/2% medical cap, deducting pre-commencement expenditure that does not qualify, and treating provisions or accruals that are not yet incurred as deductible. When in doubt, deduct conservatively and document the basis.

FAQs

What is the basic test for an allowable business expense? It must be wholly and exclusively incurred in the production of income under section 14(1) of the Income Tax Act 1947 and not prohibited by section 15.

Are entertainment expenses deductible? Business entertainment is deductible if wholly and exclusively for producing income; private entertainment is not.

Is depreciation deductible? No. Accounting depreciation is added back; capital allowances under sections 19 and 19A are claimed instead.

What is the cap on medical expenses? 1% of total employee remuneration, or 2% if a portable or transferable medical scheme is in place.

How long must records be kept? Business records supporting deductions must be retained for five years.

Related guides and authorities

Primary guidance is published by the Inland Revenue Authority of Singapore (IRAS), with filing and statutory-records requirements administered by the Accounting and Corporate Regulatory Authority (ACRA).

Need help with this? Call, SMS or WhatsApp +65 8501 7133, or email [email protected]. Raffles Corporate Services works with a panel of corporate and employment law firms; this article is general information, not legal advice.