Which term refers to a deduction from list price applied to a customers total purchases made during a specific period?


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Definition: Reference price is also known as competitive pricing, because here the product is sold just below the price of a competitor’s product. Reference price is the cost at which a manufacturer or a store owner sells a particular product, giving a hefty discount compared to its previously advertised price.

Description: Reference pricing, in simple terms, is known as that price which users compare with the price of a competitor’s product or the previously advertised price. Here the price of the product, which is more expensive, becomes the reference price for your product.

Marketers generally induce buying behaviour in customers by putting goods and services at a huge discount compared to its original price. Human beings tend to compare the price of the product with the reference price, and if the new price is heavily discounted compared to the original price, it could trigger buying.

Reference pricing is also part of psychological pricing, because it is the price of the product which buyers use as a reference while making a decision to buy the product. Usually reference price is also mentioned on the product so that consumers can compare the difference in rupee value terms.

Let's understand reference price with the help of some examples. Big Bazaar, India's leading supermarket store, conducts a sale around Independence Day every year. Here the price is discounted heavily which leads to an increased sales volume.

They also extend discounts to electronics like camera and mobile phones. The idea is to generate sales in that particular time frame. The consumers usually see the difference between discounted price and the original price or the reference price.

Online shopping portals such as Flipkart and Amazon also run their big billion days or festive sales on particular days, where products are sold at a hefty discount.

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Capital allowances are deductions claimable for the wear and tear of qualifying fixed assets. They are generally granted in place of depreciation, which is not deductible.

What Qualifies for Capital Allowances

Fixed assets suffer 'wear and tear' and depreciate over time. Depreciation accounted for in financial statements is not tax-deductible.

Your company can instead claim capital allowances for the wear and tear of qualifying fixed assets bought and used in its trade or business.

Claiming capital allowances over a period of time is also known as 'writing off the asset'.

Your company can claim capital allowances when the expense is incurred. An expense is incurred when the legal liability to pay arises, regardless of the date of actual payment of the money.

Capital allowances are no longer given on expenditure funded by capital grants from the Government or Statutory Boards that are approved on or after 1 Jan 2021, as announced in Budget 2020.

Example

A company bought a qualifying fixed asset for $400,000 for use in its business. This expenditure is partially funded by a government capital grant of $100,000 approved on 1 Jan 2021. Capital allowances are given on the net expenditure of $300,000.

Learn more through our e-Learning video on Capital Allowances.

Qualifying Fixed Assets

Qualifying fixed assets must be 'plant and machinery' used in your company’s trade, business or profession. For example, a company making glass bottles may claim capital allowances on the cost of a machine that packs these bottles into boxes.

Capital allowances cannot be claimed on the costs of assets bought solely for donation purposes as they are not used in the trade or business.

Capital allowances also cannot be claimed on the costs of assets specifically prohibited under the Income Tax Act 1947 (e.g. S-plated private passenger car).

'Plant and machinery' generally refers to a fixed asset that has the following characteristics:

  • Is not a trading stock of your company (not for resale purposes);
  • Functions as an apparatus used for carrying out the business or trade activities of your company; and
  • Is not part of the setting or part of the premises where your business is conducted. Expenses incurred on items that are part of the setting or part of the premises may be included as renovation or refurbishment expenses to be claimed instead.

Learn more on what is considered to be plant and machinery under Section 19/19A of the Income Tax Act 1947 (PDF, 154KB).

Examples of Assets Qualifying as Plant or Machinery

  • Carpet
  • Containers used for carriage of goods by any mode of transportation
  • Electrical and electronic equipment (e.g. air-conditioning system, security/ alarm system, sprinkler system and electrical appliances)
  • Furniture and fixtures
  • Industrial plant and machinery
  • Motorcycle and bicycle
  • Motor vehicle (e.g. goods/ commercial vehicle such as pick up, van, truck, lorry and bus)
  • Movable partitions
  • Office equipment (e.g. computer, printer, photocopier, fax machine and telecommunication equipment)
  • Showcase or display lightings
  • Signboard and other signage
  • Venetian blind and curtain

Examples of Assets which do not Qualify as Plant or Machinery

  • Awning*
  • Container office
  • Designer's fees on renovation
  • Doors, roller shutters and gates*
  • Electrical fittings* (except cabling for identifiable plant, switchboard and transformer)
  • False ceiling, ceiling boards and other ceiling work*
  • Fixed partitions, walls, wall tiles and other wall finishes*
  • Floor tiles, raised floors or other flooring work*
  • Lightings and light fittings*
  • Motor vehicle (e.g. S-plated private passenger car)
  • Water and gas pipings*

Assets Purchased for Use by Subcontractors and Other Parties

Your company may also claim capital allowances on the costs of plant and machinery used by its subcontractors in outsourcing arrangements. However, there must be commercial justifications for allowing your subcontractors to use the plant and machinery purchased by your company. Your company must also show that this was done for its business.

An example is where your company derives cost savings from outsourcing the manufacturing of its products and provides plant and machinery to the subcontractor for the exclusive use of manufacturing its products.

The following documents should be prepared and retained by your company and submitted upon IRAS’ request:

  • The business arrangement with your company’s subcontractor (e.g. a contract)
  • The connection between the expenditure incurred on the plant and machinery and your company's trade (i.e. how providing the plant and machinery to the sub-contractor benefits your company)
  • The level of control your company has over the plant and machinery
  • Compliance with the arm's length principle for subcontractors who are related parties

Capital Allowance Claim for Motor Vehicles

Capital allowances cannot be claimed on the costs of private cars (e.g. S-plated cars) and business cars (e.g. Q-plated and RU-plated cars), unless the cars are registered as 'private hire cars'/ 'cars for instructional purpose' and are hired out or used for providing driving instruction in the course of the company's business.

Capital allowances can be claimed on the costs of other motor vehicles such as vans, lorries and motor cycles acquired for business use, as well as on capital expenditure incurred on a foreign registered car used exclusively outside Singapore for business purposes, under Section 19 or 19A of the Income Tax Act 1947.

Expenditure incurred on obtaining a Certificate of Entitlement (COE) to acquire a motor vehicle is part of the cost of the motor vehicle. If the motor vehicle qualifies for capital allowances, the expenditure incurred on obtaining the COE may be included when claiming capital allowances on the cost of the motor vehicle. The amount paid by a registered owner of an existing vehicle upon renewal of the COE to enable the continued operation of the vehicle is also regarded as an additional cost of the vehicle.

However, capital allowances cannot be claimed on expenditure incurred to obtain a COE that is not subsequently used to acquire a motor vehicle.

How to Calculate Capital Allowances

There are a few methods for calculating capital allowances. Your company may write off the cost of an asset over 1 year, 3 years or the prescribed working life of the asset. For assets acquired during the basis periods for the Years of Assessment (YAs) 2021 and 2022, your company has an additional option to write-off the cost over 2 years.

Indicate clearly in your capital allowance schedule the assets being claimed and the method(s) adopted and submit the capital allowance claims in your Corporate Income Tax Returns.

Methods for Calculating Capital Allowances

  • 100% Write-Off in 1 Year
  • Write-Off Over 2 Years
  • Write-Off Over 3 Years
  • Write-Off Over the Prescribed Working Life of the Asset

100% Write-Off in 1 Year [Sections 19A(2) and 19A(10A)]

Under Section 19A of the Income Tax Act 1947, assets that qualify for 100% write-off are:

  • Computers [Section 19A(2)]
  • Prescribed automation equipment [Section 19A(2)]
  • Low-value assets [Section 19A(10A)]

Computers and Prescribed Automation Equipment

Commonly claimed prescribed automation equipment include computers, laptops, printers and computer software. View the full list of prescribed automation equipment (PDF, 25KB).

Under the 100% write-off, capital allowance is given in the form of annual allowance (AA) where:

  • For assets purchased with cash:

AA = 100% of the cost of the asset

  • For assets purchased under hire purchase:

AA = 100% of the principal payment (and deposit paid where applicable)

Example 1: Asset Purchased with Cash

Your company purchased a computer for $2,000 and a printer for $200 with cash in the financial year 2020.

AA for computer = 100% x $2,000 = $2,000

AA for printer = 100% x $200 = $200

Your company’s capital allowance schedule is as follows:

Description Computer ($) Printer ($)
Cost 2,000 200
YA 2021 AA 2,000 200
Tax written down value (TWDV) c/f 0 0

Example 2: Asset Purchased under Hire Purchase

Your company purchased a computer for $2,000 under hire purchase in the financial year 2020.

The details of the hire purchase agreement are as follows:

Purchase Price $2,000
Deposit $100
Hire purchase interest $50
Number of instalments 5
Amount payable per instalment $390
Hire purchase interest per instalment $50/ 5 = $10
Principal payment per instalment $390 - $10 = $380

A deposit of $100 and 2 instalments were paid in the financial year 2020 and the remaining 3 instalments were paid in the financial year 2021.

Deposit and principal payments in the year 2020 = $100 + (2 x $380) = $860

Principal payments in the year 2021 = 3 x $380 = $1,140

YA 2021 AA = 100% x $860 = $860

YA 2022 AA = 100% x $1,140 = $1,140

Your company’s capital allowance schedule is as follows:

Description Computer ($)
Cost 2,000
YA 2021 AA 860
TWDV c/f 1,140
YA 2022 AA 1,140
TWDV c/f 0

Low-Value Assets

Your company may choose to write off low-value assets in 1 year. The total claim for a 1-year write-off of all low-value assets must not exceed $30,000 per YA.

A low-value asset is one that does not cost more than $5,000. An asset acquired under hire purchase terms also qualifies for the 1-year write-off on the instalments paid in any YA if its original cost does not exceed $5,000.

If your company does not wish to use the 1-year write-off, you may write off the cost of the asset over 2 years (for YAs 2021 and 2022 as announced in Budget 2020 and 2021), 3 years or its prescribed working life.

In any YA, the low-value assets that can be written off in 1 year, subject to a total claim of $30,000, are:

  • Low-value assets acquired in the YA
  • Low-value assets acquired before the YA where:
    • No claim for capital allowance has been made before (i.e. claim for capital allowance was deferred previously)
    • A claim for capital allowance was previously made under Sections 19, 19A(1) or 19A(1E) and there is a tax written down value brought forward to the current YA

If the amount of all the low-value assets exceeds $30,000, you can still claim capital allowances over 2 years (for YAs 2021 and 2022), 3 years or the prescribed working life for the low-value assets exceeding the cap for the YA.

Example: 1-Year Write-Off of Low-Value Assets

Company A purchased 7 pieces of Asset X at $4,400 each in the financial year 2020.

In the financial year 2019, Company A also purchased:

  • Asset Y at $1,500, for which the capital allowance claim was deferred
  • Asset Z at $3,000, for which a capital allowance claim of $1,000 was made in YA 2020 under Section 19A(1) (i.e. 3-year write-off), and the tax written down value carried forward to YA 2021 is $2,000

All 9 pieces of assets qualify for capital allowances.

Company A can claim a 1-year write-off on the cost of the following assets in YA 2021:

Cost of 6 pieces of new Asset X ($4,400 x 6) $26,400
Add: Cost of Asset Y purchased in the year 2019 $1,500
Add: TWDV of Asset Z brought forward from YA 2020 $2,000
Total claim under 1-year write-off $29,900*

* Within the total cap of $30,000 per YA.

Company A cannot claim the 7th piece of Asset X under Section 19A(10A) in YA 2021 as the additional cost of $4,400 will exceed the $30,000 cap (i.e. $4,400 x 7 = $30,800).

Company A can claim capital allowances on the 7th piece of Asset X over 2 years, 3 years or over its working life instead. Assuming that capital allowances are claimed over 3 years, the capital allowance for YA 2021 for this asset is $1,467 ($4,400/ 3 years).

In total, the capital allowance claim for YA 2021 is $31,367 ($29,900 + $1,467).

Write-Off Over 2 Years [Section 19A(1E)]

As announced in Budget 2020 and 2021, your company may accelerate the write-off over 2 years, instead of 3 years or the prescribed working life of the asset, on the cost incurred in acquiring the asset during the basis periods for YAs 2021 and 2022. This is to support businesses that intend to invest in new assets and ease the cash flow of businesses.

The rates of accelerated capital allowances are as follows:

  1. 75% of the cost incurred to be written off in the first year (i.e. YA 2021 or YA 2022); and
  2. 25% of the cost incurred to be written off in the second year (i.e. YA 2022 or YA 2023).

No deferment of capital allowance claim is allowed under this option.

The write-off over 2 years is optional and your company can continue to claim capital allowances over 1 year, 3 years or the prescribed working life.

For new assets acquired under a hire purchase agreement during the basis periods for YAs 2021 and 2022, the accelerated rates of 75% and 25% apply to all the instalments (principal component) paid on such hire purchase assets, notwithstanding that the instalments may be paid in a basis period after the basis periods for YAs 2021 and 2022.

Example 1: Asset Purchased with Cash

Your company purchased office equipment for $3,000 with cash in the financial year 2020.

Your company’s capital allowance schedule is as follows:

Description Office Equipment ($)
Cost 3,000
YA 2021 AA (75% of cost) 2,250
TWDV c/f 750
YA 2022 AA (25% of cost) 750
TWDV c/f 0

Example 2: Asset Purchased under Hire Purchase

Your company acquired an office equipment for $2,000 under hire purchase in the financial year 2020.

The details of the hire purchase agreement are as follows:

Purchase Price $2,000
Deposit $100
Hire purchase interest $50
Number of instalments 5
Amount payable per instalment $390
Hire purchase interest per instalment $50/ 5 = $10
Principal payment per instalment $390 - $10 = $380

A deposit of $100 and 2 instalments were paid in the financial year 2020 and the remaining 3 instalments were paid in the financial year 2021.

Deposit and principal payments in the year 2020 = $100 + (2 x $380) = $860

Principal payments in the year 2021 = 3 x $380 = $1,140

AA for each YA is computed as follows:

Year of Payment Deposit and Principal Amount Paid ($) YA 2021 AA ($) YA 2022 AA ($) YA 2023 AA ($)
2020 860 645 215  
2021 1,140   855 285
Total   645 1,070 285

Your company’s capital allowance schedule is as follows:

Description Office Equipment ($)
Cost 2,000
YA 2021 AA 645
TWDV c/f 1,355
YA 2022 AA 1,070
TWDV c/f 285
YA 2023 AA 285
TWDV c/f 0

Write-Off Over 3 Years [Section 19A(1)]

Your company may choose to write-off all assets that qualify for capital allowances over 3 years.

Under the 3-year write-off, capital allowance is given in the form of annual allowance (AA) where:

  • For assets purchased with cash:

AA for each year = 1/3 of the cost of asset

  • For assets purchased under hire purchase:

AA = 1/3 of the principal payment (and deposit paid where applicable)

Example 1: Asset Purchased with Cash

Your company purchased office equipment for $3,000 with cash in the financial year 2020.

AA for each YA = 1/3 x $3,000 = $1,000

Your company’s capital allowance schedule is as follows:

Description Office Equipment ($)
Cost 3,000
YA 2021 AA 1,000
TWDV c/f 2,000
YA 2022 AA 1,000
TWDV c/f 1,000
YA 2023 AA 1,000
TWDV c/f 0

Example 2: Asset Purchased under Hire Purchase

Your company acquired office equipment for $2,000 under hire purchase in the financial year 2020.

The details of the hire purchase agreement are as follows:

Purchase Price $2,000
Deposit $100
Hire purchase interest $50
Number of instalments 5
Amount payable per instalment $390
Hire purchase interest per instalment $50/ 5 = $10
Principal payment per instalment $390 - $10 = $380

A deposit of $100 and 2 instalments were paid in the financial year 2020 and the remaining 3 instalments were paid in the financial year 2021.

Deposit and principal payments in the year 2020 = $100 + (2 x $380) = $860

Principal payments in the year 2021 = 3 x $380 = $1,140

AA for each YA is computed as follows:

Year of Payment Deposit and Principal Amount Paid ($) YA 2021 AA ($) YA 2022 AA ($) YA 2023 AA ($) YA 2024 AA ($)
2020 860 287 287 286  
2021 1,140   380 380 380
Total   287 667 666 380

Your company’s capital allowance schedule is as follows:

Description Office Equipment ($)
Cost 2,000
YA 2021 AA 287
TWDV c/f 1,713
YA 2022 AA 667
TWDV c/f 1,046
YA 2023 AA 666
TWDV c/f 380
YA 2024 AA 380
TWDV c/f 0

Write-Off Over the Prescribed Working Life of the Asset (Section 19)

Under this method, capital allowances are given over an asset's prescribed working life based on the Sixth Schedule of the Income Tax Act 1947.

To simplify capital allowance claims under Section 19, the prescribed working life of assets in the Sixth Schedule has been streamlined to 6, 12 and 16 years:

  • If the prescribed working life of the asset in the Sixth Schedule is 12 years or less, your company may make an irrevocable election to claim capital allowances over either 6 or 12 years
  • If the prescribed working life of the asset in the Sixth Schedule is 16 years, your company may make an irrevocable election to claim capital allowances over 6, 12 or 16 years

The above change applies to assets acquired in the basis periods relating to YA 2023 and subsequent YAs. It also applies to assets acquired in the basis periods relating to YA 2022 and prior YAs, if your company had deferred and is yet to start its capital allowance claims for the assets.

Your company must make the irrevocable election for the number of years of working life for the asset at the time of its tax filing for the YA relating to the basis period in which the asset is acquired. For assets acquired in basis periods prior to the basis period for YA 2023, your company must make the election at the time of the tax filing for YA 2023.

The initial allowance (IA) and annual allowance (AA) are computed as follows:

  • For assets purchased with cash:

In the first YA relating to the year in which the fixed asset is purchased:

  1. IA = 20% x the cost of asset
  2. AA = (80% x the cost of asset)/ number of years of working life*

In the second and subsequent YAs:

  1. IA is not applicable
  2. AA = (80% x the cost of asset)/ number of years of working life* (same as the first YA)
  • For assets purchased under hire purchase:

In the YA where there is a deposit paid and/or instalment payments:

  1. IA = 20% of the principal amount (and deposit paid where applicable)
  2. AA = (80% x the cost of asset)/ number of years of working life*

In the YA where there is no payment made:

  1. IA is not applicable
  2. AA = (80% x the cost of asset)/ number of years of working life*

* The number of years of working life is based on the Sixth Schedule of the Income Tax Act 1947 (e.g. the working life for motor vehicle is 6 years).

Summary of the Different Methods to Claim Capital Allowances

How to Calculate Qualifying Assets Initial Allowance (IA)/ Annual Allowance (AA)
Over working life of asset
[Section 19]
  • Applies to all qualifying assets
  • Refer to Sixth Schedule of the Income Tax Act 1947 for working life
  • From YA 2023, option to claim:
    • 6 or 12 years for prescribed working life of 12 years or less
    • 6, 12 or 16 years for prescribed working life of 16 years
IA = 20% of cost

 AA = (80% of cost)/ No. of years of working life

3-year write-off
[Section 19A(1)]
  • Applies to all qualifying assets
AA = 1/3 of cost
2-year write-off
[Section 19A(1E)]
  • Applies to all qualifying assets acquired during the basis periods relating to YAs 2021 and 2022
YA 2021 or YA 2022
AA = 75% of cost

 YA 2022 or YA 2023
AA = 25% of cost

1-year write-off (for specific assets)
[Section 19A(2)]
  • Computers
  • Prescribed automation equipment listed in Income Tax (Automation Equipment) Rules 2004; and Amendment Rules 2010 (effective from 15 Dec 2010)
AA = 100% of cost
1-year write-off (only for low-value assets)
[Section 19A(10A)]
  • Cost of each low-value asset not more than $5,000
  • Total claim for 1-year write-off of all such assets capped at $30,000 per YA
AA = 100% of cost