http://www.businesstimes.com.sg/arch...absd-confusion

Published April 26, 2012

Clearing the ABSD confusion

Just keep in mind the policy objectives behind the implementation of the additional buyer's stamp duty

By leung yew kwong


THE policy reason for the imposition of the additional buyer's stamp duty (ABSD) from Dec 8, 2011 is clear. It is to curb the escalation of the prices of residential property through the imposition of additional acquisition costs on a would-be purchaser.

While ABSD kicks in on any purchase of a residential property by a company or an individual who is a non-Singapore citizen or a non-Singapore permanent resident, for Singapore citizens and permanent residents it only kicks in on the purchase of the third and second residential property respectively.

What is less clear are other details in the implementation of the ABSD. It need not be so, as long as the policy objectives are kept in mind.

Where a non-residential unit is constructed in a mixed-use development which comprises both residential and non-residential units, the stand of the authorities is that ABSD also applies to the purchase of the non-residential unit.

This seems a strange result given that the non-residential unit is not the target of the ABSD. For example, if one were to purchase a shop unit or an office unit in International Plaza which is a completed mixed-use development comprising shop, office and residential units, one would not imagine that the ABSD would apply to the purchase. It may not seem necessary to even ask the Stamp Office about the tax treatment.

Why would the purchase of a non-residential unit which is to be constructed in a mixed-use development, be different?

It would seem that some confusion stems from the reading of the definition of the words "residential property" in Article 3 of the First Schedule to the Stamp Duties Act.

Residential property is defined as "immoveable property (or part thereof) which under the Master Plan, may be used for solely residential purposes or for mixed purposes, one of which is residential". Where the unit is under construction, the authorities apparently look at the zoning of the underlying land, and consider that ABSD applies.

However, the developer would not be selling the entire piece of land to the would-be purchaser in the above example. As the ABSD applies to the "conveyance on sale of residential property" under Article 3(bc) of the First Schedule, it would seem that whether the ABSD applies revolves around the nature of the unit that is the subject matter of the sale, and not that of the underlying land.

Temporary uses

In determining whether a building is "residential property", the authorities seem also to be concerned as to whether the approved use of the building is a temporary or permanent one.

However, how temporary is "temporary"? Some temporary uses are quite long term, and temporary permission may attract the temporary development levy payable under the Planning Act. Other temporary uses may have existed for decades with the temporary permission being renewed several times.

Properties with such temporary uses are minuscule in relation to the vast majority of residential property. Temporary permission is granted by the Urban Redevelopment Authority (URA), and also hence less likely to be used as a mechanism to avoid the ABSD.

A straightforward solution may be to recognise the approved temporary use of the building at the time of purchase, for the purpose of determining whether or not ABSD is payable. If it is considered that there may be some intention to avoid the ABSD, a condition may be imposed on the purchaser to continue with the approved temporary use for a minimum period after the purchase.

Good policy reasons

The IRAS, in their circular "Stamp Duty: Additional Buyer's Stamp Duty (ABSD) on Purchase of Residential Properties", has stated that ABSD applies to differential premium (DP) for lease extensions for residential land. This may occur for example where a lease with less than 99 years is topped up to 99 years.

There seems to be good policy reasons for such a treatment as in a sense the lease extension may be considered as a form of purchase of residential land for a certain duration of time. This form of DP for lease extensions may perhaps be better referred to as a "topping-up" premium.

However, the "topping-up" premium should not be confused with the DP payable for the change of the conditions of lease. Say, for allowing a car park development being changed to the development of an office building where DP is payable to the Singapore Land Authority (SLA).

There are also cases where the use of the land is not governed by conditions specified in the title of the land, but is instead governed only by the provisions of the Master Plan. Any variation of the provisions of the Master Plan to accommodate a new development will then instead attract a development charge (DC) under the Planning Act.

The computations of the DC and DP have since 2000 been aligned, and DP in essence rides on the DC table which is revised half-yearly.

With that alignment, a developer who has to pay DP to make changes in the specifications of the title of his land to accommodate his development is not disadvantaged vis-a-vis another developer who is in a parallel situation, but has instead to pay DC under the Planning Act.

In this case, DC and DP (which here should not be confused with the "topping-up" premium) is treated on par.

Aligning DC and DP

Recently, in a further step to align the administration of DC and DP, the URA and SLA issued a circular on Sept 1, 2011. This circular states that where a state lease has a residual tenure of 99 years or less, and does not specify the use and/or the maximum allowable intensity of the land, the lessee may still apply to SLA to pay DP, instead of paying DC to URA. The benefit of paying DP is that the DP amount can be adjusted according to the remaining tenure of the land, a factor which is not taken into consideration in the computation of DC.

Given that DC is a tax levied under the Planning Act, and ABSD is apparently not levied on DC, it would then seem incongruent that ABSD is charged on DP for a change in the lease conditions.

Perhaps, the use of the nomenclature of "topping-up" premium for the payment for lease extensions for which the ABSD applies will help to differentiate the tax treatment for DP payable for changes in conditions specified in the title of the land.

The writer is principal consultant, KPMG in Singapore. The views expressed are his own