When a Singapore company purchases machinery, equipment, computers, or other business assets, the cost cannot usually be deducted as an expense in full in the year of purchase. Instead, the Income Tax Act 1947 provides a specific mechanism — capital allowances — that lets companies claim tax deductions on qualifying capital expenditure over time. Understanding how capital allowances work under Sections 19 and 19A of the Income Tax Act 1947 is one of the most valuable tax planning tools available to Singapore SMEs.

This guide explains what capital allowances are, which assets qualify, how the two main write-off methods compare, what mistakes directors and business owners commonly make, and how to ensure your company is claiming correctly for the Year of Assessment (YA) 2026 and beyond.

What Are Capital Allowances?

Capital allowances are tax deductions that Singapore companies can claim on the cost of fixed assets used in their trade or business. Unlike allowable business expenses (which are revenue expenditure deductible under Section 14), capital allowances apply specifically to capital expenditure — money spent on acquiring long-term assets that will be used across multiple accounting periods.

The rationale is straightforward: a machine purchased for S$100,000 will generate income over several years, so the tax deduction should be spread over those years rather than taken all at once in the year of purchase. Capital allowances are the statutory mechanism for achieving this outcome.

There is no automatic accounting depreciation deduction for tax purposes in Singapore. Accounting depreciation — the amount shown in your financial statements — is explicitly disallowed under Section 15(1)(f) of the Income Tax Act. Instead, you must substitute it with the capital allowance regime under Sections 19 and 19A.

Which Assets Qualify for Capital Allowances?

Capital allowances are available for plant and machinery — fixed assets used in carrying on a trade or business. This covers a wide range of assets, including:

  • Machinery and production equipment
  • Computers and servers
  • Office furniture and fittings
  • Tools and instruments
  • Air-conditioning units and electrical installations (in certain circumstances)
  • Software (where treated as capital expenditure)

Assets that do not qualify include:

  • Motor cars: Private passenger cars are specifically excluded under Section 19(5), unless the car is used wholly for transportation as a business (e.g., hiring cars out, driving schools). Vans, lorries, and commercial vehicles do qualify.
  • Land and buildings: Capital expenditure on construction or acquisition of buildings is not covered by Sections 19/19A (though there are separate Industrial Building Allowances for qualifying structures).
  • Assets not in use: Capital allowances are only claimable if the asset is used in the production of income.

Section 19: Writing Down Over the Useful Life

Section 19 of the Income Tax Act provides the default capital allowance method. The asset’s cost is written down over its prescribed working life — typically 1, 3, 5, 10, or 16 years depending on the asset type, as specified in the Income Tax (Machinery and Plant — Rates of Depreciation) Rules.

Common prescribed working lives include:

  • Computers and peripherals: 1 year (accelerated under Section 19A)
  • Office furniture: 5 years
  • General plant and machinery: typically 5–10 years

Under Section 19, the capital allowance is calculated on a straight-line basis. If your company buys an item of plant for S$60,000 with a prescribed working life of 5 years, the annual allowance is S$12,000 per year for five years.

Section 19 Initial and Annual Allowances

For assets that do not qualify for accelerated Section 19A treatment, the write-down under Section 19 consists of:

  • Initial Allowance (IA): 20% of the asset cost, claimable in the year the asset is first used in the business.
  • Annual Allowance (AA): The balance (80%) is written down equally over the remaining working life.

For example, an asset costing S$50,000 with a working life of 10 years would attract an IA of S$10,000 in Year 1 and an AA of S$4,000 per year over 10 years (calculated on the 80% balance of S$40,000).

Section 19A: Accelerated Write-Off Options

Section 19A provides more favourable, accelerated capital allowance options that most SMEs prefer because they reduce taxable income sooner. There are two main options under Section 19A:

One-Year Write-Off (Section 19A(1))

Under Section 19A(1), the entire cost of qualifying plant and machinery can be deducted in full in the year of purchase. This is the fastest possible write-off and is available for most plant and machinery used in the trade or business.

The one-year write-off is particularly useful for SMEs that need to invest heavily in equipment — the full deduction in year one reduces taxable income immediately, improving cash flow. It is especially popular for:

  • Computers and IT equipment
  • Office equipment
  • Machinery and production tools

Three-Year Write-Off (Section 19A(1A))

Under Section 19A(1A), the cost can be written off equally over three years (one-third per year). This option provides a gentler and more predictable deduction schedule than the one-year write-off, which suits companies that prefer to smooth their taxable income over several years rather than creating a large deduction in one year.

Practically, the three-year write-off is often preferred when:

  • The company’s income in the current year is relatively low, meaning the deduction would generate losses rather than reduce tax payable
  • The company anticipates higher income in future years
  • The company wishes to avoid creating a tax loss that may be restricted or not fully utilised

Choosing Between Section 19 and Section 19A

For most Singapore companies, Section 19A is the preferred route because it accelerates the tax deduction. The choice between the one-year and three-year options under Section 19A depends on:

  • The company’s current and expected future profitability
  • Whether accelerating the deduction will create a tax loss that cannot be fully offset
  • Whether unutilised capital allowances can be carried forward (they can — indefinitely, subject to the shareholding continuity test)

For companies in the Singapore corporate tax system’s Start-up Tax Exemption (SUTE) period, it is sometimes better to defer capital allowances rather than create a large loss in a year when the company is already exempt from tax on a significant portion of income.

Balancing Allowances and Disposal

When a company sells or disposes of an asset, a balancing adjustment is made. If the sale proceeds exceed the remaining tax written-down value, the difference is a balancing charge (taxable income). If the proceeds are below the written-down value, the shortfall is a balancing allowance (additional deduction).

This is important for tax planning purposes. Companies should be aware that disposing of assets before they are fully written down can either create additional tax deductions or trigger a tax liability. Sound financial planning and tax-aware asset management go hand in hand for Singapore SMEs.

Unutilised Capital Allowances

If capital allowances exceed your company’s income in a given year, the surplus is treated as unutilised capital allowances. These can be:

  • Carried forward to future years indefinitely, subject to the shareholding continuity test under Section 23 of the Income Tax Act
  • Carried back to the immediately preceding year (up to S$100,000 of losses and unutilised capital allowances) under the loss carry-back relief scheme

The shareholding continuity test requires that there is no substantial change in the shareholders of the company between the year the losses or allowances arose and the year they are to be used. If a major change in shareholding occurs, IRAS may disallow the set-off.

Common Mistakes Singapore Companies Make with Capital Allowances

IRAS commonly identifies the following errors in capital allowance claims during tax reviews:

  • Claiming on non-qualifying assets: Expenses on renovation and refurbishment of premises, for example, are generally not qualifying plant and machinery — they may qualify under the separate Renovation and Refurbishment (R&R) deduction scheme, but the rules are different.
  • Claiming on motor cars: Directors sometimes claim capital allowances on private passenger cars used partly for business. This is disallowed — only commercial vehicles qualify.
  • Double deduction: Claiming both accounting depreciation (as an expense) and capital allowances on the same asset is incorrect. Accounting depreciation must be added back in the tax computation.
  • Not claiming at all: Some SMEs omit capital allowances entirely from their tax returns, particularly when preparing accounts in-house. This leads to overpayment of tax.
  • Incorrect base cost: The capital allowance is computed on the cost of the asset, not its market value or insured value. If an asset is purchased second-hand, only the actual purchase price qualifies.

Proper XBRL filing and financial reporting aligned with your tax computation is important to ensure capital allowances are correctly recorded and disclosed.

Capital Allowances and YA 2026

For Year of Assessment 2026 (financial years ended in 2025), all capital allowance claims are filed as part of the corporate income tax return — Form C-S, Form C-S Lite, or Form C — due by 30 November 2026. See the Singapore company compliance calendar for a full list of tax and ACRA deadlines.

The IRAS capital allowances guide provides detailed guidance on qualifying assets, prescribed working lives, and the capital allowance computation.

If you need legal advice on any aspect of your company’s tax position or any disputes with IRAS, we can connect you with qualified legal professionals for guidance.

For the latest Singapore business news and regulatory updates, there are useful resources for directors and business owners.

How Raffles Corporate Services Can Help

Capital allowances are one of the most commonly under-claimed tax deductions by Singapore SMEs. Working with an experienced accounting firm ensures that your tax computation correctly identifies all qualifying assets, selects the most advantageous write-off method, and maximises your after-tax cash position.

Raffles Corporate Services provides corporate tax filing, tax planning, and accounting services to Singapore companies of all sizes. Whether you need help with your first corporate tax return or want a second opinion on your capital allowance strategy, our team can assist.

To speak with the team at Raffles Corporate Services, you can email [email protected] or call, SMS, or WhatsApp +65 8501 7133. We are happy to assist with any queries.

— The Editorial Team, Raffles Corporate Services