Renovation or Refurbishment Expenditure

a22162
Apr 19
5 min read

Renovation vs. Refurbishment in Singapore

Renovation or Refurbishment Expenditure

In Singapore, both renovation and refurbishment involve expenditures to improve a property, but they differ in scope and nature. Here's a breakdown of each:

Renovation Expenditure

Nature: Renovation typically involves significant structural changes or extensive upgrades to a property. This can include:
- Hacking and demolition of walls, flooring, or built-in structures.
- Masonry work such as erecting new walls, tiling, and flooring.
- Extensive carpentry for custom-built wardrobes, kitchen cabinets, and other fixtures.
- Plumbing and electrical works, including rewiring or relocating pipes.
- Changes to the layout of rooms.
- Adding new features or rooms.
Scope: Usually more comprehensive and can lead to a significant transformation of the space's functionality and appearance.
Cost: Generally higher due to the extent of work, materials, and labor involved. Resale properties often incur higher renovation costs compared to new properties due to potential structural issues or outdated fittings.
Timeline: Typically longer due to the complexity of the work.

Examples of Renovation Expenditure:

Removing walls to create an open-plan living area.
Building an extension to increase the size of a room.
Completely overhauling a kitchen or bathroom with new layouts, fixtures, and finishes.
Replacing all flooring throughout a property.
Rewiring the entire electrical system.

Refurbishment Expenditure

Nature: Refurbishment focuses on refreshing and improving the existing structure and appearance of a property without making significant structural alterations. This can include:
- Painting walls and ceilings.
- Replacing outdated flooring (without changing the subfloor significantly).
- Updating fixtures like lighting, taps, and door handles.
- Installing new wallpaper or other wall coverings.
- Replacing doors or windows without altering the openings.
- Minor carpentry work, such as refacing cabinets.
Scope: Less invasive and primarily cosmetic, aiming to rejuvenate and modernize the space.
Cost: Generally lower than renovation costs as it involves less extensive work and fewer structural changes.
Timeline: Usually quicker to complete compared to a full renovation.

Examples of Refurbishment Expenditure:

Repainting the interior of a house.
Replacing old carpets with new ones.
Updating light fixtures in a room.
Installing a new kitchen countertop while keeping the existing cabinets.
Replacing bathroom accessories like towel rails and mirrors.

Tax Deductions for Businesses in Singapore

For businesses, certain refurbishment and renovation costs may be eligible for tax deductions under Section 14N of the Income Tax Act. This deduction is typically claimed over three continuous Years of Assessment (YA), starting from the YA related to when the costs were incurred. There is usually an expenditure cap for these deductions over a three-year period (e.g., S$300,000 for every three relevant year period). Qualifying costs can include items like:

Doors, gates, and roller shutters.
Fixed partitions.
Wall coverings (paint, wallpaper).
Floorings (tiles, wood, marble).
False ceilings.
Designer fees (as of YA 2025).

It's important to note that the tax rules and allowances can change, so businesses should always refer to the latest guidelines from the Inland Revenue Authority of Singapore (IRAS).

Section 14N of the Income Tax Act

Section 14N of the Income Tax Act in Singapore is the specific section that addresses the deduction for renovation or refurbishment expenditure incurred by businesses on their business premises.

Here's a breakdown of Section 14N and its key aspects:

Purpose of Section 14N:

To help businesses, especially small and medium enterprises (SMEs), manage costs related to refreshing or upgrading their business premises. This is intended to improve their service offerings and customer experience.

Key Features of the Section 14N Deduction:

Deductibility of Capital Expenses: Generally, renovation and refurbishment costs are considered capital in nature and are not tax-deductible. Section 14N provides an exception, allowing deductions for qualifying expenditure that doesn't involve structural alterations requiring approval from the Commissioner of Building Control.
Three-Year Deduction Period (Generally): Qualifying renovation and refurbishment expenditure is typically deducted over three consecutive Years of Assessment (YA) on a straight-line basis, starting from the YA in which the expenditure was incurred.
Expenditure Cap: There's a cap of S$300,000 on the total amount of renovation or refurbishment expenditure that can be claimed as a deduction for every three-year period.
- Important Change from YA 2025: The three-year period for computing this cap is now standardized for all businesses. The first fixed three-year period is from YA 2025 to YA 2027.
Option for One-Year Deduction:
- For qualifying R&R expenditure incurred in the basis period for YA 2024, businesses had an irrevocable option to claim the full deduction in one YA instead of over three years.
- From YA 2025 onwards, this option to claim the qualifying R&R expenditure in one year will be permanently available to businesses. Once elected in a YA, this option is irrevocable for that particular expenditure.
Qualifying Expenditure: This generally includes non-structural improvements such as:
- General electrical installations and wiring.
- General lighting.
- Hot and cold water systems.
- Gas systems.
- Kitchen and sanitary fittings.
- Doors, gates, and roller shutters.
- Fixed partitions.
- Wall coverings (paint, wallpaper).
- Floorings (tiles, wood, marble).
- False ceilings and cornices.
- Ornamental features (not fine art).
- Canopies and awnings.
- Windows (including grilles).
- Fitting rooms.
- Hacking work (non-structural).
- Hoarding works.
- Insurance for qualifying R&R works.
- From YA 2025 onwards: Designer fees or professional fees that do not relate to structural works requiring approval.
Non-Qualifying Expenditure: Deductions are not allowed for:
- Expenditure that affects the structure of the business premises and requires approval from the Commissioner of Building Control (these might qualify for Land Intensification Allowance instead).
- Antiques and fine art.
- Works carried out to a place of residence provided to employees.
- Designer fees or professional fees incurred prior to YA 2025.

Claiming the Section 14N Deduction:

Businesses need to include the deductible amount under "Allowable Business Expenses" in their tax returns (Form B for sole proprietors, Form P for partnerships, Form C-S/Form C for companies).
While supporting documents (itemized list of works, invoices, payment details, confirmation that no building control approval was needed) are not required to be submitted with the tax return, businesses must retain them for at least five years for audit purposes.

In summary, Section 14N is a significant provision in Singapore's Income Tax Act that allows businesses to claim deductions for qualifying renovation and refurbishment expenses, helping to offset the costs of maintaining and upgrading their business premises. The rules have been updated over time, with the permanent option for a one-year deduction and the inclusion of designer fees from YA 2025 being notable recent changes.

It's always advisable for businesses to refer to the latest e-Tax Guide on this topic published by the Inland Revenue Authority of Singapore (IRAS) for the most up-to-date and detailed information.

How Bestar can Help

In the context of our discussion about renovation, refurbishment, and tax deductions like Section 14N, Bestar can offer invaluable assistance. Here's how we can help:

Understanding Section 14N: We can provide expert advice on the eligibility of your renovation or refurbishment expenditure for deductions under Section 14N of the Income Tax Act.
Proper Documentation: We can guide you on the necessary documentation to support your tax claims.
Claim Optimization: We can help you structure your expenditure and claims to maximize tax benefits.
Compliance with IRAS Regulations: We ensure your claims adhere to the latest tax rules and guidelines, minimizing the risk of penalties.