http://www.businesstimes.com.sg/arch...ppeal-20140128
Published January 28, 2014
MBFC owners win property tax refund appeal
Court of Appeal rules that vacancy refunds extend to fitting-out periods
By Grace Leong [email protected]
THE owners of Marina Bay Financial Centre (MBFC) Towers 1 and 2 have won an appeal to recover $6.9 million in property tax refunds, with the Court of Appeal having ruled that vacancy refunds extend to fitting-out periods as well.
In a landmark decision made public yesterday, the appellate court ruled that BFC Development - even after it had secured tenants for a number of units in MBFC - was entitled to vacancy refunds, including for the period while renovation works were being done, because the units were deemed unoccupied, and because neither the owners nor the tenants had obtained any beneficial use of the property.
Even with the removal of the property tax refund provision for vacant properties starting Jan 1, 2014, the ruling means that the property owners can still claim vacancy refunds for the period between Nov 1, 2012 and Dec 31, 2013, including for the fitting-out periods, said Tan Kay Kheng, a partner with WongPartnership, who represents BFC.
But he added that the owners have to do so by March 31. "IRAS should no longer be objecting to the inclusion of fitting-out periods in these claims," he said, referring to the Inland Revenue Authority of Singapore.
When contacted, Keppel Reit, which owns a one-third stake in MBFC Towers 1 and 2 through its interest in BFC, declined comment on the impact the ruling would have on its distribution income.
Hongkong Land and Suntec Reit own the remaining two-thirds stake.
This ruling overturns a High Court decision that found the vacancy refund was meant strictly for owners who had failed to secure tenants for their properties - rather than those who had secured tenants, but whose rent-paying period would start only later.
In this case, the Chief Assessor, or Comptroller of Property Tax, had initially allowed BFC to claim refunds from the date of issuance of its temporary occupation permit until the start of the lease, including the fitting-out period.
But it later changed its mind and withdrew the refunds for the fitting-out period because it took the view that BFC had by then secured tenants who had taken possession of the units and were carrying out fitting-out works.
The Chief Assessor thus concluded that the units were not "unoccupied" for the purpose of Section 8 of the Property Tax Act.
In allowing BFC Development's appeal, Judge of Appeal Justice Chao Hick Tin said that "it is fair and sensible to regard the underlying purpose of the vacancy refund scheme as the provision of financial relief to an owner who is not able to reap the return for which his property was intended, through no neglect or unreasonableness on his part".
The Court of Appeal also dismissed the lower court's finding that allowing relief in respect of the fitting-out period may encourage the owner to "provide tenants with longer rent- free fitting-out periods in order to claim tax refunds while recouping the rent lost . . . by backloading the rent after the lease formally commences".
It found that abuse of the vacancy refund scheme was unlikely because the Chief Assessor need not grant a refund for the entire period claimed, and that backloading of rent could have the effect of raising the annual value of the property, resulting in higher taxes being paid by the owner.
IRAS said: "We are studying the grounds of decision issued on Jan 24, 2014 by the Court of Appeal."
The court ruled that BFC was entitled to vacancy refunds because the units were deemed unoccupied, and neither the owners nor the tenants had benefited from the property then.
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