Your tax bill follows your profit, and your profit follows the costs IRAS accepts. Owners ask me about this every year. The answer starts with one test and a short list of exclusions.
The test
IRAS allows a cost when all four points hold:
– The cost was wholly and exclusively incurred to produce your income.
– The cost is revenue in nature. This means a running expense, not an asset.
– The cost is real. You paid the bill or you owe the bill.
– The Income Tax Act does not prohibit the deduction.
Costs IRAS refuses
– Private and domestic costs. Family holidays and home groceries fail, even when the company bank account paid them.
– Capital expenditure. A machine or a van is an asset. You recover the cost through capital allowances, covered below.
– Interest on a loan not tied to an income-producing asset.
– Running costs of a private car with an S or RU plate. IRAS adds these back, and the car earns no capital allowances.
Medical costs for staff
The deduction has a cap. The cap is 1% of total employee remuneration. Your company reaches 2% when a qualifying scheme meets IRAS conditions, such as PMBS, TMIS, an inpatient Shield plan or ad-hoc Medisave top-ups.
Take total remuneration of S$400,000 and medical claims of S$6,500. The 1% cap is S$4,000, so S$2,500 comes back into your taxable profit. Under the 2% cap of S$8,000, all S$6,500 stays deductible.
Entertainment, home office and foreign worker levy claims depend on the facts. Send me the invoices before you claim.
Spending with a bigger deduction
– Donations to approved charities (IPCs) and the Government earn a 250% deduction, extended to 31 December 2029. A S$10,000 gift gives a S$25,000 deduction. Unused donations carry forward for 5 years.
– Computers and prescribed automation equipment earn 100% in one year. Assets costing S$5,000 or less each earn 100% in one year, up to S$30,000 per Year of Assessment in total. Other assets write off over 3 years.
– The Enterprise Innovation Scheme gives 400% on the first S$400,000 a year for each of these: R&D in Singapore, IP registration, IP acquisition or licensing, and approved training. The scheme runs from YA2024 to YA2028.
– A draft Bill for 2026 proposes 400% on up to S$50,000 of AI spend for YA2027 and YA2028. This is not law yet.
What a deduction saves
Take a company with chargeable income of S$150,000. Company tax is S$12,325. Add S$10,000 of deductible cost and tax falls to S$11,475. The saving is S$850, not S$1,700, because the partial exemption already shelters half of every dollar in this band.
The donation above saves S$2,125 on a S$25,000 deduction. The gift still costs your company S$7,875 after tax.
Spend money because the business needs the item. Never spend S$1 to save 8.5 cents. Once you decide to buy, claim every deduction the law gives you.
Keep your invoices and receipts for at least 5 years. Electronic copies are fine.
Want me to review your expense ledger? Send your latest profit figure or your question by WhatsApp to +65 9876 3553 or by email to henry@cschow.com.sg.
Henry Chow
Public Accountant, C S Chow & Co