Definition: Reference price is also known as competitive pricing, because here the product is sold just below the price of a competitor’s product. Reference price is the cost at which a manufacturer or a store owner sells a particular product, giving a hefty discount compared to its previously advertised price. Show
Description: Reference pricing, in simple terms, is known as that price which users compare with the price of a competitor’s product or the previously advertised price. Here the price of the product, which is more expensive, becomes the reference price for your product. Marketers generally induce buying behaviour in customers by putting goods and services at a huge discount compared to its original price. Human beings tend to compare the price of the product with the reference price, and if the new price is heavily discounted compared to the original price, it could trigger buying. Reference pricing is also part of psychological pricing, because it is the price of the product which buyers use as a reference while making a decision to buy the product. Usually reference price is also mentioned on the product so that consumers can compare the difference in rupee value terms. Let's understand reference price with the help of some examples. Big Bazaar, India's leading supermarket store, conducts a sale around Independence Day every year. Here the price is discounted heavily which leads to an increased sales volume. They also extend discounts to electronics like camera and mobile phones. The idea is to generate sales in that particular time frame. The consumers usually see the difference between discounted price and the original price or the reference price. Online shopping portals such as Flipkart and Amazon also run their big billion days or festive sales on particular days, where products are sold at a hefty discount.
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Capital allowances are deductions claimable for the wear and tear of qualifying fixed assets. They are generally granted in place of depreciation, which is not deductible. Fixed assets suffer 'wear and tear' and depreciate over time. Depreciation accounted for in financial statements is not
tax-deductible. Your company can instead claim capital allowances for the wear and tear of qualifying fixed assets bought and used in its trade or business. Claiming capital allowances over a period of time is also known as 'writing off the asset'. Your company can claim capital allowances when the expense is incurred. An expense is incurred when the legal liability to pay arises, regardless of the date of actual payment of the money. Capital allowances are no longer given on expenditure funded by capital grants from the Government or Statutory Boards that are approved on or after 1 Jan 2021, as announced in Budget 2020. ExampleA company bought a qualifying fixed asset for $400,000 for use in its business. This expenditure is partially funded by a government capital grant of $100,000 approved on 1 Jan 2021. Capital allowances are given on the net expenditure of $300,000. Learn more through our e-Learning video on Capital Allowances.
Qualifying Fixed AssetsQualifying fixed assets must be 'plant and machinery' used in your company’s trade, business or profession. For example, a company making glass bottles may claim capital allowances on the cost of a machine that packs these bottles into boxes. Capital allowances cannot be claimed on the costs of assets bought solely for donation purposes as they are not used in the trade or business. Capital allowances also cannot be claimed on the costs of assets specifically prohibited under the Income Tax Act 1947 (e.g. S-plated private passenger car). 'Plant and machinery' generally refers to a fixed asset that has the following characteristics:
Learn more on what is considered to be plant and machinery under Section 19/19A of the Income Tax Act 1947 (PDF, 154KB). Examples of Assets Qualifying as Plant or Machinery
Examples of Assets which do not Qualify as Plant or Machinery
Assets Purchased for Use by Subcontractors and Other PartiesYour company may also claim capital allowances on the costs of plant and machinery used by its subcontractors in outsourcing arrangements. However, there must be commercial justifications for allowing your subcontractors to use the plant and machinery purchased by your company. Your company must also show that this was done for its business. An example is where your company derives cost savings from outsourcing the manufacturing of its products and provides plant and machinery to the subcontractor for the exclusive use of manufacturing its products. The following documents should be prepared and retained by your company and submitted upon IRAS’ request:
Capital Allowance Claim for Motor VehiclesCapital allowances cannot be claimed on the costs of private cars (e.g. S-plated cars) and business cars (e.g. Q-plated and RU-plated cars), unless the cars are registered as 'private hire cars'/ 'cars for instructional purpose' and are hired out or used for providing driving instruction in the course of the company's business. Capital allowances can be claimed on the costs of other motor vehicles such as vans, lorries and motor cycles acquired for business use, as well as on capital expenditure incurred on a foreign registered car used exclusively outside Singapore for business purposes, under Section 19 or 19A of the Income Tax Act 1947. Expenditure incurred on obtaining a Certificate of Entitlement (COE) to acquire a motor vehicle is part of the cost of the motor vehicle. If the motor vehicle qualifies for capital allowances, the expenditure incurred on obtaining the COE may be included when claiming capital allowances on the cost of the motor vehicle. The amount paid by a registered owner of an existing vehicle upon renewal of the COE to enable the continued operation of the vehicle is also regarded as an additional cost of the vehicle. However, capital allowances cannot be claimed on expenditure incurred to obtain a COE that is not subsequently used to acquire a motor vehicle. How to Calculate Capital AllowancesThere are a few methods for calculating capital allowances. Your company may write off the cost of an asset over 1 year, 3 years or the prescribed working life of the asset. For assets acquired during the basis periods for the Years of Assessment (YAs) 2021 and 2022, your company has an additional option to write-off the cost over 2 years. Indicate clearly in your capital allowance schedule the assets being claimed and the method(s) adopted and submit the capital allowance claims in your Corporate Income Tax Returns.
Methods for Calculating Capital Allowances
100% Write-Off in 1 Year [Sections 19A(2) and 19A(10A)]Under Section 19A of the Income Tax Act 1947, assets that qualify for 100% write-off are:
Computers and Prescribed Automation EquipmentCommonly claimed prescribed automation equipment include computers, laptops, printers and computer software. View the full list of prescribed automation equipment (PDF, 25KB). Under the 100% write-off, capital allowance is given in the form of annual allowance (AA) where:
AA = 100% of the cost of the asset
AA = 100% of the principal payment (and deposit paid where applicable) Example 1: Asset Purchased with CashYour company purchased a computer for $2,000 and a printer for $200 with cash in the financial year 2020. AA for computer = 100% x $2,000 = $2,000 AA for printer = 100% x $200 = $200 Your company’s capital allowance schedule is as follows:
Example 2: Asset Purchased under Hire PurchaseYour company purchased a computer for $2,000 under hire purchase in the financial year 2020. The details of the hire purchase agreement are as follows:
A deposit of $100 and 2 instalments were paid in the financial year 2020 and the remaining 3 instalments were paid in the financial year 2021. Deposit and principal payments in the year 2020 = $100 + (2 x $380) = $860 Principal payments in the year 2021 = 3 x $380 = $1,140 YA 2021 AA = 100% x $860 = $860 YA 2022 AA = 100% x $1,140 = $1,140 Your company’s capital allowance schedule is as follows:
Low-Value AssetsYour company may choose to write off low-value assets in 1 year. The total claim for a 1-year write-off of all low-value assets must not exceed $30,000 per YA. A low-value asset is one that does not cost more than $5,000. An asset acquired under hire purchase terms also qualifies for the 1-year write-off on the instalments paid in any YA if its original cost does not exceed $5,000. If your company does not wish to use the 1-year write-off, you may write off the cost of the asset over 2 years (for YAs 2021 and 2022 as announced in Budget 2020 and 2021), 3 years or its prescribed working life. In any YA, the low-value assets that can be written off in 1 year, subject to a total claim of
$30,000, are:
If the amount of all the low-value assets exceeds $30,000, you can still claim capital allowances over 2 years (for YAs 2021 and 2022), 3 years or the prescribed working life for the low-value assets exceeding the cap for the YA. Example: 1-Year Write-Off of Low-Value AssetsCompany A purchased 7 pieces of Asset X at $4,400 each in the financial year 2020. In the financial year 2019, Company A also purchased:
All 9 pieces of assets qualify for capital allowances. Company A can claim a 1-year write-off on the cost of the following assets in YA 2021:
* Within the total cap of $30,000 per YA. Company A cannot claim the 7th piece of Asset X under Section 19A(10A) in YA 2021 as the additional cost of $4,400 will exceed the $30,000 cap (i.e. $4,400 x 7 = $30,800). Company A can claim capital allowances on the 7th piece of Asset X over 2 years, 3 years or over its working life instead. Assuming that capital allowances are claimed over 3 years, the capital allowance for YA 2021 for this asset is $1,467 ($4,400/ 3 years). In total, the capital allowance claim for YA 2021 is $31,367 ($29,900 + $1,467). Write-Off Over 2 Years [Section 19A(1E)]As announced in Budget 2020 and 2021, your company may accelerate the write-off over 2 years, instead of 3 years or the prescribed working life of the asset, on the cost incurred in acquiring the asset during the basis periods for YAs 2021 and 2022. This is to support businesses that intend to invest in new assets and ease the cash flow of businesses. The rates of accelerated capital allowances are as follows:
No deferment of capital allowance claim is allowed under this option. The write-off over 2 years is optional and your company can continue to claim capital allowances over 1 year, 3 years or the prescribed working life. For new assets acquired under a hire purchase agreement during the basis periods for YAs 2021 and 2022, the accelerated rates of 75% and 25% apply to all the instalments (principal component) paid on such hire purchase assets, notwithstanding that the instalments may be paid in a basis period after the basis periods for YAs 2021 and 2022. Example 1: Asset Purchased with CashYour company purchased office equipment for $3,000 with cash in the financial year 2020. Your company’s capital allowance schedule is as follows:
Example 2: Asset Purchased under Hire PurchaseYour company acquired an office equipment for $2,000 under hire purchase in the financial year 2020. The details of the hire purchase agreement are as follows:
A deposit of $100 and 2 instalments were paid in the financial year 2020 and the remaining 3 instalments were paid in the financial year 2021. Deposit and principal payments in the year 2020 = $100 + (2 x $380) = $860 Principal payments in the year 2021 = 3 x $380 = $1,140 AA for each YA is computed as follows:
Your company’s capital allowance schedule is as follows:
Write-Off Over 3 Years [Section 19A(1)]Your company may choose to write-off all assets that qualify for capital allowances over 3 years. Under the 3-year write-off, capital allowance is given in the form of annual allowance (AA) where:
AA for each year = 1/3 of the cost of asset
AA = 1/3 of the principal payment (and deposit paid where applicable) Example 1: Asset Purchased with CashYour company purchased office equipment for $3,000 with cash in the financial year 2020. AA for each YA = 1/3 x $3,000 = $1,000 Your company’s capital allowance schedule is as follows:
Example 2: Asset Purchased under Hire PurchaseYour company acquired office equipment for $2,000 under hire purchase in the financial year 2020. The details of the hire purchase agreement are as follows:
A deposit of $100 and 2 instalments were paid in the financial year 2020 and the remaining 3 instalments were paid in the financial year 2021. Deposit and principal payments in the year 2020 = $100 + (2 x $380) = $860 Principal payments in the year 2021 = 3 x $380 = $1,140 AA for each YA is computed as follows:
Your company’s capital allowance schedule is as follows:
Write-Off Over the Prescribed Working Life of the Asset (Section 19)Under this method, capital allowances are given over an asset's prescribed working life based on the Sixth Schedule of the Income Tax Act 1947. To simplify capital allowance claims under Section 19, the prescribed working life of assets in the Sixth Schedule has been streamlined to 6, 12 and 16 years:
The above change applies to assets acquired in the basis periods relating to YA 2023 and subsequent YAs. It also applies to assets acquired in the basis periods relating to YA 2022 and prior YAs, if your company had deferred and is yet to start its capital allowance claims for the assets. Your company must make the irrevocable election for the number of years of working life for the asset at the time of its tax filing for the YA relating to the basis period in which the asset is acquired. For assets acquired in basis periods prior to the basis period for YA 2023, your company must make the election at the time of the tax filing for YA 2023. The initial allowance (IA) and annual allowance (AA) are computed as follows:
In the first YA relating to the year in which the fixed asset is purchased:
In the second and subsequent YAs:
In the YA where there is a deposit paid and/or instalment payments:
In the YA where there is no payment made:
* The number of years of working life is based on the Sixth Schedule of the Income Tax Act 1947 (e.g. the working life for motor vehicle is 6 years). Summary of the Different Methods to Claim Capital Allowances
Deferring Capital Allowance ClaimsGenerally, companies defer capital allowances when:
Companies in a loss position may still claim capital allowances instead of deferring the claim. Any unutilised capital allowance can be carried forward for set-off against the income for subsequent YAs, subject to the shareholding test and business continuity test.
Example 1: Asset Purchased with CashYour company purchased a machine for $120,000 with cash in the basis period relating to YA 2017. It defers its claim for capital allowances in YAs 2017 and 2019, and only makes a claim in YAs 2018, 2020 and 2021. Your company’s capital allowance schedule is as follows:
Example 2: Asset Purchased under Hire PurchaseYour company purchased office equipment for $12,000 under hire purchase in YA 2019. The details of the hire purchase agreement are as follows:
The deposit of $600 and 3 instalments were paid in the basis period relating to YA 2019 and the remaining 3 instalments were paid in the basis period relating to YA 2020. Deposit and principal payments in YA 2019 = $600 + (3 x $1,900) = $6,300 Scenario A: Your company makes a claim for capital allowances in YAs 2019, 2021, 2022 and 2023 but defers its claim in YA 2020. AA for each YA is computed as follows:
Your company’s capital allowance schedule is as follows:
Scenario B: Your company makes a claim for capital allowances as follows:
AA for each YA is computed as follows:
Your company’s capital allowance schedule is as follows:
Deferment of Capital Allowances under the Productivity & Innovation Credit (PIC) SchemeThe PIC scheme has expired after YA 2018 and your company is not allowed to claim PIC benefits on expenditure incurred after the basis period of YA 2018. If your company incurred qualifying PIC expenditure on equipment while the scheme was available, and the equipment has a tax written down value brought forward to the current YA, your company may choose to defer its capital allowance claims. However, your company needs to defer both the base capital allowances (100%) and enhanced capital allowances (300%) at the same time. It cannot choose to defer only the base allowances or only the enhanced allowances. ExampleYour company purchased a computer for $5,000 with cash in YA 2018. It wishes to defer its claim for capital allowance in YA 2018 as the company is in a loss position. The capital allowance to be deferred is as follows:
FAQs
How to Claim Capital AllowancesYour company must make the capital allowance claims in its Corporate Income Tax Return for the relevant Year of Assessment (YA) and prepare the following supporting schedules in its tax computation. The tax computation must be filed with Form C. If you are filing Form C-S/ Form C-S (Lite), retain the tax computation and submit it only upon IRAS’ request.
If you need help in preparing the capital allowance schedule, you may use our Basic Corporate Income Tax Calculator. Sale/ Disposal/ Conversion/ Transfer of Fixed Assets
Selling, Converting or Scrapping Fixed AssetsWhen a fixed asset is sold, converted to trading stock or written off, you need to calculate balancing allowance (BA) or balancing charge (BC) if capital allowances have been claimed on the cost of the asset previously. BA is tax-deductible and BC is taxable as income. Calculating BA/ BCBA or BC is derived by calculating the difference between the sale proceeds and the tax written down value (TWDV) of the asset disposed. TWDV is the cost of the asset less the amount of capital allowances allowed previously. Sale Proceeds - TWDV = BA or BC Where the sale proceeds are lower than the TWDV, the difference is known as BA. BA is tax-deductible. Where the sale proceeds are higher than the TWDV, the difference is known as BC. BC is taxable as income. The amount of BC taxable is restricted to the total amount of capital allowances allowed previously in respect of the asset disposed. When a fixed asset is converted to trading stock, BA or BC is computed based on the difference between the TWDV of the asset and its open market value (OMV) as at the date of conversion. The BC, if applicable, is capped at the amount of capital allowance previously granted in respect of that fixed asset. OMV - TWDV = BA or BC Example
* Amount of BC taxable is restricted to $6,667 ($20,000 - $13,333), which is the total amount of capital allowances allowed previously, instead of $7,667 ($21,000 - $13,333). Donation of Computers Before 21 Feb 2017Donors are granted tax deduction for the donation of computers to prescribed educational, research or other institutions and all IPCs before 21 Feb 2017. The Infocomm Media Development Authority (IMDA) is required to perform a valuation of the computers to be donated. A company may have incurred capital expenditure on a computer bought for its own trade and claimed capital allowance on the computer in full over 1 year. If the computer was subsequently donated to an IPC, a BC equal to the value of the donated items (as assessed by IMDA) will be taxed. Which term refers to a deduction from list price applied to a customer's total purchases made during a specific period?Discount - A deduction from the list price in the form of cash or something else of value. Cash discount - A discount offered to buyers who pay for the product within a stated period.
What term is used to describe when a customer purchase a product with no planning or forethought?Purchasing a product with no planning or forethought is called impulse buyingPurchases that occurs with no planning or forethought.. Impulse buying brings up a concept called level of involvement—that is, how personally important or interested you are in consuming a product.
Which term refers to a company's product sales as a percentage of total sales for that industry?Market share refers to the portion or percentage of a market earned by a company or an organization. In other words, a company's market share is its total sales in relation to the overall industry sales of the industry in which it operates.
Which term is the price the business charges a customer for a product?Demand pricing: Profit = Price - [Cost + Expense].
Demand-based pricing takes into account the demand for a particular product, adjusting prices to fit how a customer perceives value.
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