Allowable business expenses under the Income Tax Act — Step-by-step walkthrough

Understanding allowable business expenses under the Income Tax Act is the single biggest lever an SME has to manage its Singapore tax bill legitimately. The core test is whether an expense is wholly and exclusively incurred in the production of income. This walkthrough sets out the deductibility rules, common allowable and disallowable items, the statutory framework and the practical steps to get your deductions right in 2026.

The general deduction rule

Section 14(1) of the Income Tax Act 1947 allows a deduction for expenses wholly and exclusively incurred in the production of income for the relevant period. Two ideas drive most decisions: the expense must have a clear nexus to earning income, and it must be revenue rather than capital in nature. If an outgoing fails either limb, it is not deductible under the general rule.

Expenses specifically disallowed

Section 15 of the Income Tax Act 1947 prohibits certain deductions even if they would otherwise qualify, including private or domestic expenses, capital withdrawn or sums employed as capital, and expenses not incurred in producing income. Motor-car expenses for private passenger cars, private portions of mixed expenses and fines are common disallowed items that catch SMEs out.

Common allowable business expenses under the Income Tax Act

Typical deductible items include staff salaries, employer CPF contributions, rent of business premises, utilities, accounting and corporate secretarial fees, marketing, business insurance, and interest on loans taken to produce income. Output costs directly tied to revenue, such as cost of goods sold and direct subcontractor costs, are deductible in the ordinary way.

Capital expenditure and capital allowances

Capital items such as machinery, computers and office equipment are not deductible as expenses, but qualifying plant and machinery attracts capital allowances under sections 19 and 19A of the Income Tax Act 1947, including the option to write off qualifying assets over one or three years. Renovation and refurbishment may qualify for a separate deduction under section 14N subject to an expenditure cap.

Pre-commencement and mixed expenses

Expenses incurred before a business begins to trade are generally not deductible, although a concession deems certain revenue expenses incurred in the year before the first dollar of income to be deductible. Where an expense has both business and private elements, only the business portion is allowable, so a reasonable and documented apportionment is essential.

Practical steps to get deductions right

Keep contemporaneous records and tax invoices, separate private from business spending through dedicated accounts, maintain a fixed-asset register for capital-allowance claims, and document the business purpose of borderline items such as travel and entertainment. When in doubt, treat the burden of proof as resting on the taxpayer and retain evidence for at least five years.

Official sources

Always confirm current rules and fees against the primary sources: www.iras.gov.sg, www.asc.gov.sg, www.acra.gov.sg.

Related guides

FAQs

What is the basic test for deductibility?
Under section 14(1) of the Income Tax Act 1947, an expense must be wholly and exclusively incurred in the production of income and be revenue, not capital, in nature.

Are private car expenses deductible?
No. Expenses on private passenger cars are specifically disallowed under section 15, as are private and domestic expenses generally.

Can I deduct equipment purchases?
Not as an expense, but qualifying plant and machinery attracts capital allowances under sections 19 and 19A, including one-year or three-year write-off options.

How long should I keep records?
At least five years, with tax invoices and documentation supporting the business purpose of each deduction.

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.