Under the Income Tax Act 1947 (“ITA”), where a person carrying on a trade, profession, or business incurs capital expenditure on the provision of machinery or plant for the purposes of that trade, profession, or business, capital allowances may be claimed under Sections 19 or 19A, subject to the relevant conditions being satisfied.
The ITA does not define the terms “machinery” or “plant”, and accordingly, these terms take their ordinary meaning as developed through case law. While the meaning of “machinery” is generally straightforward—typically referring to assets with moving parts (e.g. motor vehicles, computers)—the interpretation of “plant” is less clear and has been the subject of considerable judicial discussion.
Numerous decided cases have provided guidance on the meaning of “plant”. In broad terms, “plant” denotes the apparatus used by a person in carrying on a trade, business, or profession, as distinct from the premises in or from which such activities are conducted. Importantly, an asset cannot be classified as both “plant” and “building” for tax purposes.
Whether an asset constitutes “plant” is ultimately a question of fact and degree, which depends primarily on:
- the nature of the taxpayer’s business; and
- the function or role performed by the asset within that business
It is well established from case law that three key tests—each requiring an examination of the function performed by the asset—must be considered in determining whether an item qualifies as “plant”. These tests are as follows:
1. Stock‑in‑Trade Test
- The asset must not be held for resale
- It must be used in the business, rather than being sold as part of trading activities
2. Functional (Business Use) Test
- The asset must serve as apparatus used in carrying on the business
- It must perform an active operational role
- Mere commercial desirability or passive contribution to the business is insufficient
3. Premises Test
- The asset must not constitute the premises or place where the business is carried on
In applying this test, relevant considerations include:
- whether the asset retains a separate and identifiable function;
- the degree of permanence of its attachment to the structure; and
- whether it is intended to be permanent or temporary in nature
Classification of Cement Silo — “Plant” or “Building”
In the Singapore Court of Appeal case of ZF v Comptroller of Income Tax [2010] SGCA 48, the central issue was whether a cement silo constructed and used in a cement terminal business could be classified as “plant” for the purposes of claiming capital allowances under the ITA.
Under the ITA, an asset cannot be classified as both “plant” and “building”, and this distinction is critical in determining eligibility for capital allowances. While the ITA does not expressly define “plant”, it is generally understood to refer to apparatus used in the carrying on of a trade or business, whereas a “building” refers to a permanent structure within which the business is conducted.
The Court of Appeal in ZF affirmed this fundamental distinction:
- “Plant” comprises apparatus used in carrying on the trade or business; and
- “Building” refers to a permanent structure, or part thereof, that houses such activities
The Income Tax Board of Review (“ITBR”), identified the following key factors in concluding that the silo does not constitute “plant”:
a. Permanent Structure
The silo was constructed as a large concrete structure, clearly reflecting its permanent and enduring nature.
b. Integration with Premises
The silo formed an inextricable part of the group of buildings within which the business was conducted.
c. Functional Role
The silo’s primary function was the storage of cement and the housing of equipment, indicating that it served as part of the premises rather than as apparatus used in carrying on the business.
These characteristics indicated that the silo formed part of the premises from which the business was conducted, rather than apparatus used in carrying on the business. Accordingly, the silo was classified as a “building” rather than “plant”.
Conclusion
The case establishes that a cement silo, by virtue of its permanence, structural integration, and storage function, is properly characterised as a “building” rather than “plant” for capital allowance purposes.
Notably, however, while the Silo as an integrated whole was not accepted as “plant”, the Board did not examine whether the individual components embedded within the Silo (e.g. bucket elevators, bag filter systems, fluid and pneumatic valves, aerated bins, vibrating filters, batching chutes, weighbridge, computer systems, and blowers) could qualify as “plant” when considered separately. Such components may, depending on their function, be regarded as apparatus used in carrying on the business and therefore qualify for capital allowances.