Allowable business expenses under the Income Tax Act — Costs and fees breakdown

Allowable business expenses under the Income Tax Act are those incurred wholly and exclusively in producing income — and getting the classification right directly lowers a Singapore company’s tax bill. This 2026 guide breaks the rules, the disallowed items and the compliance costs down.

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

What allowable business expenses under the Income Tax Act are

An expense is deductible if it is revenue in nature and incurred wholly and exclusively in the production of income. Capital expenditure, private expenses and specifically prohibited items are not deductible. This deceptively simple test is the backbone of every Singapore corporate tax computation.

Section 14(1) of the Income Tax Act 1947 allows deductions for outgoings and expenses wholly and exclusively incurred in the production of income, while Section 15 lists deductions that are specifically disallowed.

Common allowable expenses

Typical deductible items include staff salaries and CPF, rent, utilities, office supplies, professional fees, marketing, and interest on borrowings used to produce income. Directors’ remuneration is deductible if commercially justified. For the reliefs that sit alongside these deductions, the BEPS Pillar Two and 15% Multinational Top-up Tax — Costs and fees breakdown covers the exemption schemes.

What is disallowed

Non-deductible items include private and domestic expenses, fixed-asset purchases (which instead attract capital allowances), most motor-car running costs for S-plated cars, fines and penalties, and personal income tax. Medical expenses are capped, generally at 1% of total employee remuneration (2% where certain portable medical benefit schemes are in place).

Costs and fees breakdown for getting classification right

Indicative 2026 figures:

• Bookkeeping with proper expense coding (monthly): S$150–S$600
• Year-end tax computation with add-backs and capital allowances: S$600–S$1,500
• IRAS query support: S$500–S$2,000

Clean monthly coding is the cheapest insurance against a painful year-end reclassification exercise.

Capital allowances: the flip side

Because fixed assets are not deductible as expenses, the Income Tax Act 1947 provides capital allowances instead — a structured deduction for qualifying plant and machinery. Classifying an outlay as revenue expense versus capital asset changes the timing and amount of relief, so the distinction matters. See the Accounting Standards Council frameworks for how these items are recognised — www.acra.gov.sg.

Step-by-step: a defensible expense position

1) Maintain a chart of accounts that separates revenue expenses, capital items and disallowables. 2) Code transactions monthly. 3) At year-end, prepare add-backs for disallowed items. 4) Claim capital allowances on qualifying assets. 5) File Form C-S/C. For the broader compliance calendar and how these figures flow into your return, our Allowable business expenses under the Income Tax Act — Step-by-step walkthrough is a helpful companion, and confirm current positions against www.iras.gov.sg.

Common mistakes and gotchas

Frequent errors: deducting the full cost of equipment instead of claiming capital allowances; claiming private motor-car expenses; forgetting to add back fines and personal expenses; and over-claiming medical costs beyond the cap. Foreign employees on your payroll carry their own pass obligations — see EntrePass Singapore 2026: A Founder’s Walkthrough.

A worked example: expense classification in practice

A design agency spends S$8,000 on a new workstation cluster, S$3,000 on client entertainment, S$2,000 on a traffic fine incurred by a delivery, and S$40,000 on staff salaries. The salaries are fully deductible. The workstations are capital — no expense deduction, but capital allowances apply. Business entertainment to win or keep clients is generally deductible; the fine is not and must be added back. Getting these four items right on a single invoice run is the everyday reality of the deductibility rules.

Capital allowances: rates and timing

Qualifying plant and machinery can be written down over its prescribed working life, or over three years, and certain low-value assets can be written off in the year of purchase subject to an aggregate cap. Choosing the right basis affects how quickly the relief is realised. Because the choice is made in the tax computation, it is worth modelling before filing rather than defaulting to one method.

Documentation that survives an IRAS review

The safest position pairs each material expense with a business purpose and supporting document. Where an expense has a mixed private and business character — a phone bill, a home-office cost — apportion it on a reasonable basis and keep the working. Clean apportionment records are what turn a potential dispute into a routine acceptance.

Related guides

Read next: BEPS Pillar Two and 15% Multinational Top-up Tax — Costs and fees breakdown; EntrePass Singapore 2026: A Founder’s Walkthrough; Allowable business expenses under the Income Tax Act — Step-by-step walkthrough.

Authority resources

Confirm the current rules and fees directly with the relevant Singapore authorities: www.iras.gov.sg, www.acra.gov.sg.

FAQs

What is the core test for deductibility?
The expense must be revenue in nature and incurred wholly and exclusively in the production of income, and not fall within the specifically disallowed list.

Are entertainment expenses deductible?
Business entertainment incurred to produce income is generally deductible, but private entertainment and lavish personal spending are not.

Why can’t I deduct equipment purchases?
Equipment is capital expenditure; instead of an expense deduction you claim capital allowances over the asset’s life.

Is the medical expense deduction capped?
Yes, generally at 1% of total employee remuneration, rising to 2% where qualifying portable medical benefit arrangements are in place.

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.