Iras probing property transactions for stamp duty tax avoidance
Bernadette Toh
THE Inland Revenue Authority of Singapore (Iras) is investigating property transactions under an audit to uncover cases of avoidance of stamp duty tax, the tax agency said on Thursday (Apr 6).
Iras said it is looking into “various forms of property holding arrangements”, including “scenarios where buyers purchase properties under a contrived or artificial arrangement in order to reduce or avoid the additional buyer’s stamp duty (ABSD), or any other form of stamp duties they have to pay”.
The agency did not give details on the kinds of arrangements that might be construed as tax evasion, but it was responding to media queries after reports emerged that it had launched an audit of private property purchases involving a “99-to-1” sales contract that could be used to avoid paying ABSD.
In Iras’ statement on Thursday, no details were given on the number of transactions that might be viewed as cases of tax evasion. ABSD on second and subsequent properties was introduced in 2011 as one of several property market cooling measures. The rate has since been increased and now stands at 17 per cent for a second property, and 25 per cent for subsequent purchases.
In the so-called 99-to-1 deals, a first-time buyer exercises the sales option on a property as the sole buyer, so no ABSD is payable, but soon after, sells a 1 per cent share to a relative. The relative is then named as a co-owner, who then jointly finances the property.
The arrangement thus enables a person who already owns private property to have a related party front the purchase of an additional property. The expectation is that the second owner will then be required to pay only 1 per cent of the ABSD chargeable on their purchase of their additional property.
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Anecdotal evidence suggests that such practices, while not prevalent, are not uncommon. One market watcher said he knew of property agency team leaders who, in their classes on closing deals, covertly teach agents how to carry out these 99-to-1 transactions. Such arrangements help agents close the deal for buyers who are interested, but are deterred by the ABSD payable as they already own a property.
The Council for Estate Agencies (CEA) on Apr 12 told The Business Times: “Under CEA’s code of ethics and professional client care, property agencies and their agents are required to conduct estate agency work with due diligence and care, and in compliance with all laws including statutory and regulatory requirements.”
CEA added that it would take appropriate enforcement action against any property agencies or agents who breach this requirement when conducting estate agency work for their clients.
Iras is sending letters to some first-time buyers of private property, for an explanation on why they sold only 1 per cent of the property to a relative barely a week after purchasing it.
There is no time bar for stamp duties, and Iras can conduct audits on any past stamp-duty cases and transactions, the agency said.
In cases of tax avoidance, the Commissioner of Stamp Duties will disregard or vary any tax-avoidance arrangement, recover the rightful amount of stamp duty and impose a 50 per cent surcharge. Further penalties of up to four times the outstanding amount may be imposed if the stamp duty and surcharge are not paid by the deadline.
Industry veteran Nicholas Mak said some agents may be inclined to encourage 99-to-1 arrangements as they have a vested interest in closing sales.
“Homebuyers may be ignorant about the law,” Mak said.
Lee Sze Teck, Huttons senior director of research, said some buyers who are in financial difficulty may have turned to this scheme as they need help to secure a loan.
While some property agents say the 99-to-1 deal is quite common, Lee disagreed.
He said most buyers who are HDB upgraders would sell their property and rent in the interim; private property owners, on the other hand, would decouple to be treated as first-time buyers to avoid paying ABSD, he added.
In a decoupling, a co-owner of a property transfers their share to the other owner, to surrender their ownership entirely. They are then treated as a first-time buyer and will not have to pay the ABSD on an additional property purchase, since they are on record as not owning a property at that point.
In its response to queries, Iras did not specify if decoupling arrangements might also be viewed as suspect.
“Buyers should seek the advice of lawyers, as real estate salespersons may not have the necessary knowledge,” Lee said.
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