When one company moves plant, machinery or equipment to a related company, the transfer is normally treated as a sale: the seller may face a balancing charge and the buyer claims capital allowances on the price paid. Section 24 of the Income Tax Act 1947 lets both parties jointly elect instead to transfer the asset at its tax written down value. The seller then has no balancing allowance or charge, and the buyer continues claiming the remaining allowances. IRAS accepts the election where the companies have 50% or more common shareholders, and when a sole proprietorship or partnership converts to a company.
Raffles Corporate Services works with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice. This article is general information only and is not legal advice.
Why does moving equipment within a group create a tax issue?
Capital allowances replace accounting depreciation for tax. When a company disposes of an asset on which it has claimed allowances, it compares the sale proceeds with the asset’s tax written down value (TWDV), which is cost less allowances already claimed. If the proceeds are higher, the difference is a balancing charge, taxable as income but capped at the allowances previously given. If they are lower, the difference is a balancing allowance, which is deductible. IRAS explains the calculation on its capital allowances page.
Many SMEs use the accelerated write-offs under section 19A, so equipment often has a TWDV well below its real value. Moving that equipment to a new subsidiary at market value can trigger a large balancing charge in the seller, even though nothing has left the group. Section 24 is designed for exactly that situation. If you need a refresher on the allowance rules themselves, start with our overview of capital allowances under sections 19 and 19A.
What does a section 24 election actually do?
IRAS describes the effect of the election as disregarding the sale, except that a different person becomes entitled to the allowances. In practice:
| Point | With a section 24 election | Without an election |
|---|---|---|
| Deemed transfer value | TWDV immediately before the transfer | Sale proceeds (the price should reflect market value between related parties) |
| Seller | No balancing allowance or charge | Balancing charge or allowance on the difference between proceeds and TWDV |
| Buyer’s initial allowance | None | Claims allowances on its own cost |
| Buyer’s ongoing allowances | Claims the TWDV over the asset’s remaining working life, continuing the seller’s write-off | Starts a new write-off period on the price paid |
| Later sale by the buyer | Buyer is subject to balancing rules, including on allowances the seller claimed | Buyer is subject to balancing rules on its own claims |
The election affects capital allowances only. The legal and accounting transfer still happens at whatever price the companies agree, and the accounting gain or loss in each company’s books is separate from the tax result.
Who can make the election?
Section 24 applies to sales between parties where one controls the other or both are under common control. IRAS’s guidance applies it to companies with 50% or more common shareholders, such as a parent and its subsidiary or two sister companies owned by the same family. IRAS also confirms that the election can be used when a sole proprietorship or partnership converts into a company: the sole proprietor or partners and the new company prepare and sign the notice together.
From our reading of section 24, the election is subject to further conditions, including:
- the seller must have used the asset to produce chargeable income before the sale, and the buyer must use it to produce chargeable income after the sale;
- for plant and machinery, the seller must not have leased the asset to the buyer before the sale; and
- the election is not available for industrial buildings or structures where the option to purchase or the sale agreement is dated after 22 February 2010.
The wording of the statute is technical, so check the current text on Singapore Statutes Online for your facts. Companies that merge through a qualifying amalgamation are dealt with separately: IRAS’s amalgamation framework treats a section 24 election as deemed made for the transferred assets.
When is the election worth making, and when is it not?
Over the life of the asset, the total allowances claimed across both companies usually end up similar either way. What changes is timing and which company bears the tax. The election tends to help where:
- the seller is profitable and would pay tax on a balancing charge now;
- the asset has been written down quickly and is worth much more than its TWDV; or
- the restructuring is internal and the group simply wants a neutral transfer.
Not electing may suit the group better where:
- the seller has unabsorbed losses or allowances that would absorb a balancing charge, while the buyer will be profitable and can use a fresh write-off on a higher cost;
- the asset is worth less than its TWDV, so the seller would otherwise lose a deductible balancing allowance; or
- the buyer will not use the asset to produce chargeable income, in which case the election is not available anyway.
Group relief under section 37C is a separate tool for using one company’s current-year losses or allowances in another. Our article on group relief explains how it works and whether it can sit alongside a section 24 transfer.
Example: moving equipment to a new subsidiary
Example: A hypothetical engineering company, HoldCo, owns all the shares in a new subsidiary, OpsCo, set up to run its fabrication work. HoldCo bought a CNC machine for S$120,000 and has claimed allowances under the three-year write-off for two years. Its TWDV is S$40,000. The machine’s market value is S$90,000, and HoldCo transfers it to OpsCo at that price.
| Item | No election | Section 24 election |
|---|---|---|
| HoldCo balancing charge | S$50,000 (S$90,000 less S$40,000), taxable | Nil |
| OpsCo allowances | S$90,000, claimed over a new write-off period | S$40,000 in the next year of assessment, the remaining year of the write-off |
| Net allowances across the group | S$40,000 (S$90,000 claimed less S$50,000 taxed) | S$40,000 |
The group receives the same net allowances in both cases. Without the election, HoldCo pays tax on S$50,000 now, while OpsCo spreads its S$90,000 claim over several years. If HoldCo is profitable, the election avoids that early tax. If HoldCo instead had large unabsorbed losses that could absorb the charge, the group might prefer to give OpsCo the higher cost base. The figures are illustrative and ignore other income and exemptions.
Sole proprietor converting to a company
Business owners who convert a sole proprietorship to a Pte Ltd often move vans, equipment and computers into the new company. Without an election, the transfer is a disposal in the sole proprietor’s personal tax computation, and any balancing charge is taxed as the owner’s income. With a section 24 election signed by the owner and the new company, the assets move at TWDV and the company carries on claiming allowances. Agree a sensible transfer price and settle how the company will pay it, for example through a director’s loan account or shares.
How to make the election: step by step
- Confirm eligibility. Check the shareholding or control relationship on the transfer date and that both parties use the assets to produce chargeable income.
- Prepare an asset schedule. List each asset with its description, original cost, TWDV carried forward and remaining working life, grouped by category.
- Document the transfer. Prepare a sale agreement or board resolutions in both companies and invoices at the agreed price.
- Prepare the Notice of Election. It must state the names of the buyer and seller and confirm that section 24 is elected for the fixed assets transferred. Both parties must sign it.
- File or keep it. IRAS says Form C filers submit the notice and asset details with the Form C for the year of assessment relating to the year of the sale. Form C-S and Form C-S (Lite) filers keep them and provide them only on request.
- Update both tax computations. The seller removes the asset without a balancing adjustment. The buyer claims the transferred TWDV over the remaining life.
Our guide to Form C-S vs Form C explains which return your company files.
Documents checklist
- Shareholder registers or a group chart showing common ownership on the transfer date
- Sale agreement or board resolutions approving the transfer
- Transfer invoices and evidence of settlement
- Fixed asset register and capital allowance schedules of the seller
- Asset schedule with cost, TWDV and remaining working life
- Signed section 24 Notice of Election
- GST analysis of the transfer, including whether it is a transfer of a going concern
GST follows different rules. Our article on GST on company restructuring covers that side.
Frequently asked questions
Does the transfer price have to equal the TWDV?
No. The companies can agree a commercial price. The election only fixes the value used for capital allowances.
Is there a deadline for the election?
IRAS links the filing to the Form C for the year of assessment relating to the year of the sale. Make the election before the buyer and seller file their returns for that year, so both computations are consistent.
What happens if the buyer later sells the asset outside the group?
The buyer is subject to the normal balancing rules. A balancing charge can include allowances the seller claimed before the transfer.
Does section 24 apply to renovation costs?
Renovation deductions under section 14Q have their own rules. Check them separately rather than assuming a section 24 election covers them.
Need help moving assets between your companies?
If you are restructuring a group, setting up a new operating company or converting a sole proprietorship, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133. We can prepare the asset schedules and Notice of Election, work out the capital allowance position for both parties, prepare the tax computations and board resolutions, and coordinate the corporate secretarial paperwork for the transfer.
Kevin Yeo, Raffles Corporate Services