Every Singapore company wants to pay less tax, and the honest way to do it is to claim every deduction you are legally entitled to – no more, no less. But one of the most common and expensive mistakes SMEs make is assuming that any expense the business pays for is automatically deductible. It is not. Singapore’s Income Tax Act draws a sharp line between expenses that reduce your taxable profit and expenses that do not, and IRAS is quick to disallow claims that fall on the wrong side of that line.
This guide explains what makes a business expense deductible in Singapore in 2026, the specific categories that are never deductible, and the practical grey areas – motor cars, entertainment, medical costs, fines – that trip up business owners every year. It is written for directors and finance staff who prepare or review the company’s tax computation.
The general deduction rule: section 14 ITA
The starting point is section 14(1) of the Income Tax Act 1947 (ITA). It allows a deduction for expenses wholly and exclusively incurred in the production of income. Break that phrase down, because each word matters:
- Wholly and exclusively – the expense must be incurred entirely for business purposes. A cost with a mixed personal and business purpose can be disallowed, or only the business portion allowed.
- Incurred – the liability must have arisen; you cannot deduct a mere provision for a cost you might incur in future unless specific rules allow it.
- In the production of income – the expense must be connected to earning the income that is being taxed, not to some unrelated or capital purpose.
Alongside section 14, the ITA and IRAS practice allow certain deductions that would otherwise fail the test – for example, statutory and regulatory expenses, and specific reliefs such as the section 14Q renovation and refurbishment deduction. Capital expenditure is generally not deductible under section 14, but may instead qualify for capital allowances under sections 19 and 19A – a crucial distinction we return to below.
Expenses that are specifically disallowed: section 15 ITA
Even if an expense passes the section 14 test, it can still be blocked by section 15, which lists expenses that are expressly not deductible. The most important for a typical company include:
- Domestic or private expenses – anything not incurred for the business.
- Capital withdrawn or sums used as capital – capital expenditure and capital losses.
- Any expense not wholly and exclusively incurred in producing income – the mirror of the section 14 test.
- Income tax itself – Singapore income tax, and tax paid in other countries where relief is instead given as a foreign tax credit.
- Private motor car expenses – expenses on S-plate private passenger cars are specifically disallowed (see below).
- Certain provisions and impairments that are not deductible until the underlying cost crystallises.
Section 15 is where good intentions meet hard rules. You can genuinely have spent the money on the business and still be unable to deduct it.
Capital vs revenue: the line that decides everything
The single biggest reason a business expense is disallowed under section 14 is that it is capital in nature rather than revenue. Revenue expenses are the recurring costs of running the business – rent, salaries, utilities, marketing. Capital expenses create or improve an enduring asset – buying machinery, acquiring premises, or making structural improvements.
Capital expenditure is not deductible as an ordinary expense, but that does not mean you get no relief. Plant and machinery typically qualify for capital allowances; qualifying renovation costs may fall under section 14Q. The lesson is not “capital costs are lost” but “capital costs are relieved through a different mechanism” – so classify correctly and claim under the right head.
The grey areas that catch businesses out
Motor vehicles
Expenses on private passenger cars (S-plate cars), including running costs, depreciation and hire, are generally not deductible – even if the car is used for business. This is a specific statutory disallowance, not a judgement call. Commercial vehicles (such as vans and lorries) and cars used in a business of hiring out or driving instruction are treated differently. Do not assume your company car is deductible just because it carries your logo.
Entertainment and gifts
Business entertainment can be deductible if it is genuinely incurred to produce income and is properly supported – but personal or lavish entertainment, and anything with a private flavour, will be challenged. Keep records showing who was entertained and the business purpose.
Medical expenses
Employee medical expenses are deductible, but only up to a capped percentage of total employee remuneration (a higher cap applies if the employer provides certain portable medical benefit arrangements). Amounts above the cap are disallowed. This is a common source of small but repeated adjustments in tax computations.
Fines, penalties and statutory breaches
Fines and penalties for breaking the law are not deductible. A parking fine, a regulatory penalty, or a late-payment penalty on taxes is a cost of non-compliance, not a cost of producing income.
Pre-commencement and incorporation costs
Expenses incurred before the business begins to trade are generally not deductible under the ordinary rule, although a specific concession allows certain revenue expenses incurred in the year before the first dollar of trade income to be claimed. New companies should not assume every start-up cost is deductible.
Practical steps to protect your claims
- Keep contemporaneous records. IRAS can disallow an otherwise valid expense if you cannot substantiate it. Retain invoices and records for at least five years.
- Separate business and personal spending. Mixed-purpose costs invite disallowance; a dedicated business account and card make the “wholly and exclusively” test far easier to satisfy.
- Classify capital vs revenue at the point of spending, not at year-end, so you claim capital allowances where due.
- Add back non-deductibles in the tax computation. Your accounting profit is not your taxable profit – disallowed items must be added back. This is exactly where a good tax agent earns their fee.
Getting deductions right is not about aggression; it is about accuracy. Claim everything you are entitled to, add back everything you are not, and keep the records to prove it. For the wider picture of how these deductions feed into your return, see our complete guide to Singapore corporate tax, and always check the current position on the IRAS website or the Income Tax Act 1947.
Raffles Corporate Services prepares tax computations for Singapore SMEs, correctly separating deductible from non-deductible expenses, claiming capital allowances where due, and keeping your filing defensible if IRAS ever asks. Accurate today, defensible tomorrow.
— The Editorial Team, Raffles Corporate Services