Cost of purchase and depreciation on fixed asset is not a tax allowable expense. In the computation of the adjusted profit, it has to be added back. However, you can claim capital allowances (i.e. tax depreciation) on the wear and tear of fixed assets purchased and used in the business. In the year the fixed asset is disposed off, you can also claim balance allowances on the remaining tax carrying value over the sale proceeds. Without a proper tax computation, a Sole-proprietor or Partnership business could miss out of claiming tax deductions on substantial allowances, especially in capital-intensive industries. 

 

If you incur business losses after deducting allowable expenses and capital allowances claimed, such losses can be used to offset against other sources of income besides your business income (such as passive sourced interest, dividend and rental income). For unutilised balances, they can be carried forward to setoff against future income subject to certain tax rules. This is also applicable for capital allowances balances that are not fully utilised in a year.

 

In this regard, you should be keeping track of your unutilised balances of business losses and capital allowances so that in the year when your business turns profitable, a claim to offset the current taxable profits can be made. One point to note – once the business source ceases, the unutilised capital allowances will be forfeited, but not the unutilised business losses.

 

It is common that business owners are concerned with paying taxes on the current year taxable profits and forget that there are unutilised balances from the previous year to be brought forward. Such balances could reduce the tax bill significantly.

 

With effect from year of assessment 2005, a married couple would be allowed to transfer the excess of unutilised capital allowances, business losses between each other if there are remaining amounts that cannot be completely offset against the income of the respective spouse for a particular year. In the case where both spouses are deriving rental income, a transfer of rental deficit is given by concession. However, the transfer is strictly limited to the amount of rental income the transferee is earning and cannot be setoff against other sources of income (like employment). Interestingly, the election is not made at the time of submission of tax returns but has to be made before the end of 30 days from the date of notice of assessment of the individual or his/her spouse, whichever is the later. The election once made is irrevocable. There is no prescribed form for the election of transfer. However, both spouses must furnish in writing their names, identification numbers and signatures if they wish to elect for transfer of their excess qualifying deductions and rental deficit.

 

Considering that business losses and capital allowances can be carried forward infinitely subject to conditions, this may not necessarily be a tax saving option. However, such transfers would reduce the amount of net cash payable to the Inland Revenue Authority of Singaore, and improve the Sole-proprietor's or Partnership's cash-flow.