Welcome to our Singapore Budget 2011 – Important Tax Changes reminder.
Enhancement of Productivity and Innovation Credit (PIC) Scheme
In the 2010 Budget, the Government introduced a five-year broad-based PIC scheme to provide significant enhanced tax deductions or allowances to all businesses (including Singapore branches or subsidiaries of foreign corporations) for investments in 6 types of qualifying activities along the innovation value chain from YA 2011 to YA 2015, namely:-
(a) registration of intellectual property rights (IPRs);
(b) research and development (R&D) done in Singapore;
(c) costs of training employees to upgrade skills and capabilities (In-house training (i.e. Singapore Workforce Development Agency (“WDA”) certified, Institute of Technical Education (“ITE”) certified); or All external training);
(d) investments in approved designs done in Singapore;
(e) investment in automation equipment (acquisition or leasing of prescribed automation equipment)(e.g. Laser printer, scanner, desktop, laptop, mobile phone, modem, server, Information technology software and etc.); and
(f) acquisition of IPRs.
To further encourage pervasive innovation and raise productivity efforts, the Minister has announced the following enhancements to the PIC scheme with immediate effect:
(a) the total amount of qualifying deduction or allowance is increased from 250% to 400% of the first $400,000 (up from $300,000) of the qualifying expenditure incurred for each of the 6 types of qualifying activities for each YA;
(b) businesses can combine the qualifying expenditure cap to a total of $800,000 for the YA 2011 and YA 2012, and can also combine the qualifying expenditure cap to a total of $1,200,000 for YA 2013 to YA 2015, for each of the 6 types of qualifying activities;
(c) businesses may, in lieu of tax deduction or allowance, opt for a cash payout of up to $30,000 (up from $21,000) for the first $100,000 of qualifying expenditure for each YA for the YA 2011 to YA 2013, and up to $60,000 for the first $200,000 of qualifying expenditure for YA 2011 and YA 2012 combined; and
(d) PIC deduction benefit will be extended to qualifying expenditure incurred on R&D done abroad and the R&D must be related to the existing trade or business of the taxpayer.
Further details please refer to Productivity and Innovation Credit .
Capital Expenditure Incurred on Renovation or Refurbishment Works
Currently, capital expenditure incurred on renovation or refurbishment works (R&R costs) carried out on the business premises is not allowable as a tax deduction, unless the R&R costs constitute expenditure on repairs or replacements with no element of improvement.
Such R&R costs also do not qualify as capital allowances unless they form part of an industrial building which qualifies for industrial building allowances. This is because they are incurred in relation to the business setting within which the business is carried on and not on the provision of “plant or machinery”.
Section 14Q Deduction for Expenditure Incurred on Renovation or Refurbishment works (R&R Costs)
To help businesses, particularly small and medium enterprises, reduce their business costs, tax deduction will be granted on all qualifying R&R costs incurred between the period 16 Feb 2008 to 15 Feb 2013 under Section 14Q of the Income Tax Act.
Under Section 14Q, the amount of R&R costs that will qualify for tax deduction is subject to an expenditure cap of $150,000 for each taxpayer over every relevant three-year period. The three-year period starts from the year in which the R&R costs were incurred and a deduction is claimed by the taxpayer. The amount of qualifying R&R costs incurred will be allowed as a deduction equally in 3 consecutive YAs.
For partnerships, the expenditure cap of $150,000 will be applied at the partnership level. Tax deduction will be allowed up to a cap of $150,000 over the three-year period.
The following items will generally qualify for Section 14Q deduction if they do not affect the structure of the business premises:
(a) General electrical installation and wiring to supply electricity;
(b) General lighting;
(c) Hot/cold water system (pipes, water tanks etc);
(d) Gas system;
(e) Kitchen fittings (sinks, pipes etc);
(f) Sanitary fittings (toilet bowls, urinals, plumbing, toilet cubicles, vanity tops, wash basins etc.);
(g) Doors, gates and roller shutters (manual or automated);
(h) Fixed partitions (glass or otherwise);
(i) Wall coverings (such as paint, wall-paper etc.);
(j) Floorings (marble, tiles, laminated wood, parquet etc.);
(k) False ceilings and cornices;
(l) Ornamental features or decorations that are not fine art (mirrors, drawings, pictures, decorative columns etc.);
(m)Canopies or awnings (retractable or non-retractable);
(n) Windows (including the grilles etc.);
(o) Fitting rooms in retail outlets.
No deduction will be allowed on expenditure relating to:
(a) Any designer fees or professional fees;
(b) Any antique; or
(c) Any type of fine art including painting, drawing, print, calligraphy, mosaic, sculpture, pottery or art installation.
Filing Estimated Chargeable Income (ECI)
Please note that where there is a significant difference between the ECI provided and the chargeable income reported in the Form C, IRAS may require the company to provide an explanation. For information, the normal threshold to be considered is significant is $200,000.
Personal income tax rates
The Minister has not proposed any reduction in the personal tax rates for YA 2011.
However, the Minister has proposed a more progressive personal income tax rate structure for tax resident individuals, with the reduction of the marginal tax rates for the first $120,000 of chargeable income with effect from YA 2012.
Please refer to Income tax rates for the personal tax rates tables for tax resident individuals for YA 2007 to YA 2011 and for YA 2012 onwards.
Raising the employer’s CPF contributions and CPF salary ceiling
To help Singaporeans save more for their medical and retirement needs, the employers‟ CPF contribution rate will be increased by 0.5% from 15% to 15.5% from March 2011.
As the Singapore economy has recovered strongly and with the outlook for continued growth in 2011, the Minister has proposed to increase the employer CPF contribution rate by a further 0.5%, from 15.5% to 16% which will take effect in September 2011. This will restore the total contribution rate to the level in year 2003 of 36%. The additional 0.5% will go into the Special Account.
In addition, the Minister has also proposed to increase the CPF Salary Ceiling from $4,500 to $5,000 per month which will also take effect in September 2011 to keep pace with income growth in recent years.