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A curious case about ABSD
ADDITIONAL buyer's stamp duty (ABSD) – introduced as part of a series of measures aimed at moderating properties prices in Singapore – caught many by surprise as it took effect the day after it was introduced on Dec 7, 2011. In essence, ABSD is an additional tax payable on top of the usual stamp duty on the acquisition of a property. The rate to be applied to the purchase of the residential property broadly depends on three factors:
i) whether the purchaser is a Singapore citizen, permanent resident or a foreigner;
ii) whether the purchaser is an individual or an entity; and
iii) the number of properties owned by the purchaser at the material time.
In anticipation that residential property may be purchased under a trust arrangement, the law provides that the purchaser shall be the benefcial owner of the residential property. With respect to trust arrangements, there are broadly three categories of trust:
i) bare trust: the benefciaries and their entitlements are fxed;
ii) discretionary trust: the benefciaries and/or their entitlement to the trust assets are not fxed; and
iii) charitable purpose trust: for furtherance of charitable objects, without named benefciaries.
While the application of the ABSD regime to bare trusts is relatively clear, for example parents acquiring residential property for their child, the same cannot be said of discretionary trusts and charitable purpose trusts. In fact, there appears to be a lacuna in the law, which was seen in a recent landmark Singapore High Court case of Zhao Hui Fang and another v Commissioner of Stamp Duties (2017) SGHC 105.
Briefly, a late Settlor of a charity, which was established under a trust, (the Charity) had provided in his last will that his family home shall be made available to his surviving members for use as their personal residence during their lifetimes and, once the family home was no longer required, the family home may be disposed or leased, and any proceeds thereof shall be paid over to the Charity.
The Settlor's surviving spouse subsequently decided that she no longer wished to use the family home as her personal residence and, together with the rest of the family, agreed to turn the family home to the Charity on the condition that the Charity would acquire a residential property for the late Settlor's surviving spouse.
The Charity, although registered with the Commissioner of Charities, was unincorporated, and was administered and legally represented by four individual Trustees. Upon acceding to the family's request, the Trustees proceeded to obtain the relevant court application and approval from the Commissioner of Charities.
Subsequently, the Trustees executed a sale and purchase agreement for a residential property where the Commissioner of Stamp Duties decided to levy the ABSD rate of 15 per cent of the purchase price (S$984,000) payable on the agreement. Under the ABSD regime, the rate of 15 per cent applies to foreigners and entities acquiring residential properties. Dissatisfed with the decision by the Commissioner of Stamp Duties, the Trustees appealed to the High Court.
Charitable purpose trust
The High Court held that ABSD was not chargeable on the sale and purchase agreement as the residential property was a property of a charitable purpose trust, under which the benefcial interest of trust assets is suspended. In arriving at this decision, the High Court took the view that the concept of "benefcial owner" was a concept not statutorily derived, instead left to be determined in accordance with the general laws and principles.
As the charitable trust is a trust for purposes not persons, neither the persons who factually beneft from the charitable objects under the trust deed, nor the individuals who were Trustees, nor the public, as contended by the Commissioner of Stamp Duties, were the benefcial owners of the property held under a charitable purpose trust. Therefore, there is no active or extant benefcial ownership of the residential property and accordingly, nothing for ABSD to attach to. As such, the High Court ordered the Commissioner of Stamp Duties to refund the ABSD which was paid under protest by the Trustees.
Although the High Court case dealt with a charitable purpose trust, it is highly arguable that the reasoning by the High Court could also be applied to the purchase of residential property by the Trustees of a discretionary trust. Under a discretionary trust, the benefciaries and/ or their entitlement to the trust assets are generally not fxed until such time the trustees exercise their powers of appointment according to the criteria set out in the trust deed. Hence, there is no benefcial owner under the discretionary trust for the ABSD to attach to.
While there appears to be a window of opportunity for charitable purpose and discretionary trusts to acquire residential property without having to pay ABSD, the window is likely to be limited to exceptional circumstance such as those in the case of Zhao Hui Fang and another v Commissioner of Stamp Duties. After all, the Singapore tax authority could rely on the anti-avoidance provision to defeat schemes and arrangement whose primary purpose is for tax avoidance. W
Joanna Yap is Partner, Withers KhattarWong