Allowable business expenses under the Income Tax Act — Eligibility and requirements checklist

Allowable business expenses under the Income Tax Act are costs a Singapore business can deduct against its taxable income where they are revenue in nature and wholly and exclusively incurred in producing that income — the test set out in Section 14(1) of the Income Tax Act 1947, subject to the specific prohibitions in Section 15.

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

What counts as allowable business expenses under the Income Tax Act

Under Singapore tax law, an expense is deductible when it satisfies the general deduction rule: it must be revenue (not capital) in nature, and it must be wholly and exclusively incurred in the production of income for the accounting period in question. Section 14(1) of the Income Tax Act 1947 sets out this core test, and Section 15 of the Income Tax Act 1947 lists categories of expenditure that are specifically disallowed regardless of the general rule.

The distinction between revenue and capital expenditure is the single most important dividing line. Day-to-day running costs are generally deductible; costs that create or enhance an enduring asset are capital and are dealt with through capital allowances instead.

Who needs to get this right

Every Singapore company, sole proprietor and partnership preparing a tax computation needs to apply these rules. It matters most for SMEs, where owner-directors often mix personal and business spending and where an over-claim can invite adjustment by IRAS.

Getting deductions right also feeds the wider compliance chain — statutory accounts, the annual return and, for many companies, family-office and investment-holding structures. Our related tax guidance library covers adjacent topics: IP Development Incentive (IDI) in Singapore (2026): Concessionary Tax on IP Income.

Commonly allowable expenses checklist

Subject to the wholly-and-exclusively test, the following are typically deductible:

  • Employee salaries, bonuses, CPF contributions and staff training.
  • Rent, utilities and maintenance of business premises.
  • Interest on borrowings used to produce income.
  • Marketing, advertising and professional fees.
  • Repairs to existing assets (as distinct from improvements).
  • Statutory audit and accounting fees.

Commonly disallowed expenses

Section 15 of the Income Tax Act 1947 and general principles disallow, among others:

  • Private or domestic expenses of the proprietor or directors.
  • Capital expenditure and depreciation (handled via capital allowances).
  • Fines and penalties, and certain motor-car expenses.
  • Expenses not incurred in producing the income in question.

Where an expense is partly business and partly private, only the business portion may be claimed, and the basis of apportionment should be documented.

Timing, records and thresholds

Deductions are matched to the accounting period in which the income is produced. Businesses must keep supporting records — invoices, contracts and payment evidence — for at least five years, in line with Singapore’s record-keeping requirements, so that any claim can be substantiated on review.

Small businesses may also use IRAS’s simplified record-keeping concessions where they qualify, but the underlying deductibility test does not change. If in doubt on a borderline item, treat it conservatively and document the reasoning.

Revenue versus capital: the line that decides deductibility

The single most litigated distinction in business-expense claims is revenue versus capital. Revenue expenditure keeps the income-earning machine running — rent, wages, utilities, routine repairs — and is deductible under the general rule. Capital expenditure creates, acquires or materially improves an enduring asset, and is relieved, if at all, through capital allowances rather than as a deduction.

Borderline cases turn on substance. Replacing a worn-out component with an equivalent is usually a deductible repair; replacing it with a materially superior asset, or building something new, is capital. Document the nature and purpose of the spend at the time, because reconstructing the reasoning years later is far harder.

Apportionment, private use and directors' expenses

SMEs frequently blur the line between the business and its owners. Where an expense serves both business and private purposes — a phone, a vehicle, a home office — only the business portion is deductible, and you should keep a reasonable, documented basis for the split. Purely private expenses of a director or proprietor are not deductible, and motor-car expenses are subject to specific restrictions.

The safest approach is to route business spending through the business, keep personal spending separate, and apply a consistent, evidenced apportionment where genuine dual use exists.

Common mistakes and gotchas

The recurring errors are claiming capital items as revenue expenses, deducting private motoring or entertainment, and claiming pre-commencement costs that fall outside the deduction rules. Each is a frequent target of IRAS adjustment.

A subtler trap is the improvement-versus-repair line: replacing a like-for-like part is usually a deductible repair, but upgrading to a materially better asset is capital. Categorise carefully and keep the invoices that prove the nature of the work.

Official sources: acra.gov.sg.

Related guides

FAQs

What is the basic test for deductibility?
Section 14(1) of the Income Tax Act 1947: the expense must be revenue in nature and wholly and exclusively incurred in the production of income for the relevant period.

Can I deduct depreciation?
No. Accounting depreciation is added back; instead, qualifying capital expenditure is relieved through capital allowances under the Act.

Are entertainment and private car costs deductible?
Business entertainment can be deductible if it meets the wholly-and-exclusively test, but private expenses and many motor-car costs are specifically disallowed under Section 15 of the Income Tax Act 1947.

How long must I keep records?
At least five years, with invoices and payment evidence sufficient to substantiate every claim if IRAS reviews the computation.

Can I deduct expenses incurred before the business started trading?
Certain qualifying pre-commencement expenses may be deductible under specific concessions, but the general rule is that expenses must relate to the production of income. Check the position for your start date.

Are staff medical and insurance costs deductible?
Bona fide staff welfare costs incurred for the business are generally deductible, subject to any specific caps or conditions. Keep the arrangements documented as employment-related.

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.