A Singapore company that buys qualifying equipment or a commercial vehicle on hire purchase claims capital allowances on what it actually pays towards the asset’s cost, not on the full price at the start. IRAS bases the allowance on the deposit and the principal portion of the instalments paid in each basis period, and the hire purchase interest is excluded from the allowance and claimed as a deductible finance cost instead. Private cars, including S-plated cars, do not qualify for capital allowances at all, whether bought outright or on hire purchase.
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Which hire purchase assets qualify for capital allowances?
IRAS gives capital allowances on fixed assets that are plant and machinery used in the company’s trade, business or profession. In IRAS’s description, plant and machinery is not trading stock, functions as an apparatus used to carry on the business, and is not part of the setting or premises where the business is conducted. Hire purchase is simply a way of paying for such an asset: it does not change whether the asset qualifies.
| Asset bought on hire purchase | Capital allowances? |
|---|---|
| Machinery, production and workshop equipment | Yes |
| Computers, laptops and servers | Yes, with a one-year write-off available for computers |
| Vans, lorries and motorcycles used for the business | Yes; IRAS states that the COE cost forms part of the vehicle’s cost |
| Private cars, such as S-plated cars | No |
| Business cars such as Q-plated and RU-plated cars | No, unless registered as a private hire or instructional car and used in the business for hire or driving instruction |
| Office fit-out that forms part of the premises | Not as plant; renovation may instead fall under section 14Q, subject to its own conditions |
The car exclusion is the one that most often causes a disallowance. If your director drives an S-plated car the company bought on hire purchase, there are no capital allowances, and the related running costs are restricted as well. Our guide to company car tax and the S-plated car rules explains the wider treatment, including GST and the director’s benefit-in-kind.
How are capital allowances calculated on a hire purchase asset?
Under each method, IRAS computes the allowance on the principal payment, together with the deposit where one was paid, in the basis period. The interest portion of each instalment is left out.
| Method | Allowance for a hire purchase asset, per IRAS | When it suits |
|---|---|---|
| Section 19A(1): three-year write-off | Annual allowance of one-third of the principal payment and deposit made in the year, claimed over three years | Most plant and machinery and commercial vehicles |
| Section 19A(2): one-year write-off for computers and prescribed automation equipment | 100% of the principal payment and deposit made in the year | Computers and approved automation equipment |
| Section 19A(10A): low-value assets | 100% of the instalments paid in the year, if the asset’s original cost is S$5,000 or less, within a total cap of S$30,000 a year of assessment for all low-value assets | Small items such as tools and phones |
| Section 19: working life | Initial allowance of 20% of the principal amount and deposit paid, then annual allowances over the prescribed working life | Rarely chosen today; working lives were streamlined to 6, 12 or 16 years from YA 2023 |
Two points follow from this. First, the claim builds up as you pay, so a five-year hire purchase usually produces allowances over roughly seven or eight years under the three-year method. Second, the low-value test looks at the original cost of the asset, not the size of each instalment. A S$9,000 machine paid in S$500 instalments is not a low-value asset.
IRAS also states that the annual allowance under section 19A(1) may be deferred and need not be claimed in consecutive years, which can help a company in a loss position. Our explainer on section 19A capital allowances for plant and machinery covers the write-off options for assets bought outright, and our broader guide to capital allowances under sections 19 and 19A explains the background rules.
What happens to the hire purchase interest?
The interest, sometimes called term charges, is a finance cost, not part of the asset’s cost. IRAS’s Total Asset Method e-Tax Guide states that where a specific income-producing asset is financed by hire purchase, the interest on that financing is deductible against the income it produces, while interest on financing a non-income-producing asset is not deductible. In practice, hire purchase interest on a delivery van or machine used in the trade is deducted in the year it is incurred. Interest on an S-plated car is not.
The accounting entries need to match. The asset should be recorded at its full cost, the hire purchase creditor split between principal and unearned interest, and each instalment allocated between the two. If the bookkeeping expenses whole instalments, the tax computation will be wrong in both directions.
Example: a delivery van on hire purchase
Example: A hypothetical logistics company with a 31 December year end buys a new delivery van for S$72,000, including COE, on 1 July 2026. It pays a S$12,000 deposit and finances S$60,000 over five years. Each monthly instalment is S$1,200: S$1,000 principal and S$200 interest. Six instalments are paid in 2026, twelve in each of 2027 to 2030, and the last six in 2031. The company chooses the three-year write-off under section 19A(1).
| Financial year (YA) | Deposit and principal paid (S$) | Capital allowance claimed (S$) | HP interest deducted (S$) |
|---|---|---|---|
| 2026 (YA 2027) | 18,000 | 6,000 | 1,200 |
| 2027 (YA 2028) | 12,000 | 10,000 | 2,400 |
| 2028 (YA 2029) | 12,000 | 14,000 | 2,400 |
| 2029 (YA 2030) | 12,000 | 12,000 | 2,400 |
| 2030 (YA 2031) | 12,000 | 12,000 | 2,400 |
| 2031 (YA 2032) | 6,000 | 10,000 | 1,200 |
| 2032 (YA 2033) | 0 | 6,000 | 0 |
| 2033 (YA 2034) | 0 | 2,000 | 0 |
| Total | 72,000 | 72,000 | 12,000 |
Each year’s payments earn one-third in that year and one-third in each of the next two years. For YA 2028, for instance, the claim is S$6,000 (the second third of 2026’s S$18,000) plus S$4,000 (the first third of 2027’s S$12,000). The accounts will show depreciation on the van instead, which is added back in the tax computation. If the same company had bought an S-plated car for its director on identical terms, the capital allowance column would be nil and the interest would not be deductible.
What if the asset is sold or repossessed before the hire purchase ends?
When a fixed asset on which allowances have been claimed is sold or ceases to be used, the company must compute a balancing allowance or balancing charge. IRAS compares the sale proceeds with the asset’s tax written down value, which is its cost less allowances already claimed. A balancing allowance is deductible; a balancing charge is taxable, but limited to the total allowances previously claimed on that asset.
For a hire purchase asset, allowances will only have been given on the deposit and principal actually paid, so the figures need care. Before selling the asset or settling the outstanding balance with the financier, reconcile the payments made, the allowances claimed and any amount the financier recovers or credits. If a financier takes the asset back, our article on your company’s rights when a financier repossesses a vehicle or equipment covers the legal position. The tax computation for that year should then be reviewed for the balancing adjustment.
How is it reported in Form C-S?
Based on the explanatory notes to the YA 2026 Form C-S:
- Item 4, non-deductible expenses. Add back depreciation on the asset charged in the accounts.
- Item 12, current year capital allowances. IRAS states that this item includes capital allowances on equipment acquired through hire purchase, together with allowances deferred previously and now claimed, and any balancing allowance.
- Item 10, balancing charge. Enter any balancing charge on disposal.
- Hire purchase interest. If it is already charged in the profit and loss account and deductible, no adjustment is needed. Interest on a private car is added back.
Keep a capital allowance schedule for each hire purchase asset, showing the payments made each year and the allowance claimed on each, as IRAS may ask for it. Our article on Form C-S, C-S (Lite) and Form C explains which return your company files.
Documents checklist
- Hire purchase agreement showing the cash price, deposit, term charges and instalment schedule
- Supplier invoice and, for vehicles, the registration documents showing the vehicle type and COE cost
- Financier statements showing each instalment and the principal and interest split
- Fixed asset register entry and capital allowance schedule for the asset
- Evidence the asset is used in the business, such as delivery logs or job records
- Sale agreement, trade-in valuation, settlement letter or repossession notice if the asset leaves the business early
Frequently asked questions
Can we claim capital allowances on the full price as soon as we sign the hire purchase?
No. IRAS computes the allowance on the deposit and the principal portion of the instalments paid in each basis period. Unpaid instalments attract allowances only when they are paid.
Is the hire purchase interest part of the asset’s cost?
No. It is a finance cost. For an income-producing asset used in the business it is generally deductible as an expense, but it never forms part of the capital allowance claim.
Can a laptop bought on instalments be written off in one year?
Yes, on the amounts paid. Computers qualify for a one-year write-off under section 19A(2), and a hire purchase asset with an original cost of S$5,000 or less can also be written off in one year on the instalments paid, within the S$30,000 annual cap for low-value assets.
Does a commercial van qualify while a company car does not?
Yes. IRAS allows capital allowances on vans, lorries and motorcycles acquired for business use, but not on private cars or most business cars. The method of payment does not change this.
Can we defer the allowances if the company is making a loss?
Under the three-year method, IRAS states that annual allowances can be deferred and need not be claimed in consecutive years. Unutilised allowances carried forward remain subject to the shareholding test and, for allowances, the same trade test.
Official sources: IRAS: capital allowances, IRAS: Form C-S explanatory notes.
Need help with capital allowances on hire purchase assets?
Raffles Corporate Services can record your hire purchase agreements correctly in the books, maintain the fixed asset register and capital allowance schedules, prepare the tax computation with the right allowances, interest deductions and balancing adjustments, and file the ECI and Form C-S or Form C. Contact us at [email protected] or on WhatsApp at +65 8501 7133.
Kevin Yeo, Raffles Corporate Services