What are Deductible and Non-Deductible Items in Accounting?

In Singapore, companies need to file all their corporate tax documents (Form C/C-S) online by November 30th. To calculate your net tax payable, you must first determine your chargeable income (before exempt amount) before applying Singapore’s flat 17% tax rate. Your chargeable income is determined after adjustment of non-deductible expenses, taxable income and capital allowance from your Accounting Profit.

What are Deductible Items?

Deductible business expenses are those 'wholly and exclusively incurred in the production of income'. To be considered a deductible expense, all conditions below must be met:  

1. Expenses are solely incurred in the production of income

2. Expenses are not a contingent liability

3. Expenses are revenue, and not capital, in nature

4. Expenses are not prohibited from deduction under the Income Tax Act

Examples of deductible expenses include:

  • Office up-keeping
  • Administrative expenses
  • Employee wages
  • Cost of goods sold

What are Non-Deductible Items?

Non-deductible items are activities you or your employees pay for that do not fulfil the conditions above. This involves personal expenses not related to the running of the business, and capital expenses such as expenses incurred to incorporate a company and purchase of fixed assets.

Examples of non-deductible expenses include:

  • Private leisure travel  
  • Private hire car  
  • Fines

What’s the Difference?

Now that you understand the examples of these different types of expenses, let’s find out how each impacts your company’s taxable income. Business expenses are costs required to run a business; however, deductible business expenses reduce your company’s taxable income and the amount of tax you need to pay.  

When in Doubt, Reach Out!

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