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Thread: Making sense of the property gains tax amendment

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    Default Making sense of the property gains tax amendment

    [url]http://www.businesstimes.com.sg/sub/news/story/0,4574,341310,00.html?[/url]

    Published July 10, 2009

    [B]COMMENTARY[/B]

    [B][SIZE="5"]Making sense of the property gains tax amendment[/SIZE][/B]

    [B]More clarity needed on proposed refinement and about the tax itself[/B]

    By VIKRAM KHANNA


    THE Ministry of Finance (MOF) has sought public feedback on certain proposed amendments to the Income Tax Act. One of these, which has received much publicity over the last few days, relates to a proposed 'refinement' to the policy on taxation of gains and losses from property sales.

    Under the current tax regime, gains from property sales 'may' be taxed, either as trading gains or as 'gains or profits of an income nature'.

    The proposed amendment seeks to add some clarity to this. Under the current regime, it is not clear who will be taxable or when. But under the amendment, anyone who sells only one property within any four-year period will not be taxable. However, if the person sells another property within four years of the first sale, the gains from the second sale 'may' be taxable. If passed, the amendment will take effect from next year.

    News of the proposed amendment has set off jitters among people in the property business and the investment community.

    A common (mis)interpretation is that a form of capital gains tax on property transactions is about to be introduced, and rigorously enforced.

    Thus, after the news of the proposed amendment was publicised, one broking house put out a report which said: 'We find this news adversely affecting sentiment, especially in the upper-mid to high-end . . . We see developers with large unsold inventory in the high-end as potential losers from this news.'

    The MOF subsequently clarified that the proposed amendment 'involves no tightening of the current income tax policy for individuals who sell their properties'. It is only aimed at 'giving certainty of non-taxation to individuals who do not sell properties frequently'.

    But the heart of the matter is that even under the amendment, the provision for a property gains tax remains on the books.

    The fact that it was already there is news to some people, especially as it has apparently been very sparingly enforced: over the years, hundreds of speculators have flipped properties for a profit, and then done it again within days of the first flip, without being hit by the taxman. Investors everywhere have come to presume that Singapore has no property gains tax.

    But it is there, on the books. And now, there is a proposal for it to be 'refined'. What should one make of this?

    [B]What's the rationale?[/B]

    The first question is, what is the rationale for having such a tax? One possible rationale is to curb speculation, which is fair enough.

    But the government maintains that the proposed change is not an anti-speculation measure. Another rationale is to prevent people from passing off income gains as property gains. This could well be the reason why the provision to tax property gains exists. But if so, it needs to be clarified that the tax would only be enforced when this happens and at no other time.

    But then, why the proposed four-year interval before property transactions are deemed to be free of tax? What happens to those who dress up income as property gains every five years?

    The rationale apart, another problem with the tax is its apparent lack of fairness. It might be levied on some people, but not on others who do the same thing, and nobody except the taxman knows why.

    A third problem is unpredictability - despite the greater element of certainty that the proposed amendment seeks to introduce. You definitely won't be taxed if you sell two properties more than four years apart. But if you do so within four years, you might be taxed. Or you might not.

    At a minimum, we need a lot more clarity, not just about the proposed amendment to the property gains tax, but also about the tax itself.

    The fact that some other countries have it too is not an adequate reason for keeping it, or for assuming that it is flawless. And if it isn't, then the government should consider another option: sometimes, the best way to refine a flawed policy is to abolish it.

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    Default It is not to penalise investors: Govt

    [url]http://www.straitstimes.com/Money/Story/STIStory_401211.html[/url]

    July 10, 2009

    [B]TAX PROPOSAL ON GAINS FROM PROPERTY SALES[/B]

    [B][SIZE="5"]It is not to penalise investors: Govt[/SIZE][/B]

    [B]Aim is to ensure sellers are not taxed on gains if they don't sell frequently[/B]

    By Goh Eng Yeow, Senior Correspondent


    THE proposal to clarify the law on taxing profits from property sales is not a backdoor attempt to impose a capital gains tax or a pre-emptive strike against speculators.

    The clarification from the Ministry of Finance (MOF) yesterday came after two days of confusion and disquiet over proposals to amend the Income Tax Act.

    Concerns among property investors and analysts helped to send real estate shares plunging on Wednesday, but yesterday's statement from the ministry sparked a stock rebound.

    The MOF said the proposed change is aimed at ensuring that investors are not taxed on any gains made if they do not sell property frequently. It proposes that anyone who sells only one property in any four-year period will not be taxed on any profit. If it becomes law next January, it will provide certainty for owners. At present, they cannot be sure if they will be taxed on any gains, even if they have held the property for four years or more.

    The proposal was made in response to public feedback over the years demanding more certainty over the tax treatment property-owning individuals might face, said the MOF.

    It is believed to have arrived at the four-year timeframe, after studying the legal precedents on taxing property sale gains over the years.

    The proposed tax change does not mean tougher rules in income tax policy for individuals who sell their properties.

    Instead, the only proposed change involves assuring individuals who do not sell properties frequently that they will not be taxed on a real estate gain.

    The ministry said the proposed change is also not an anti-speculation measure. It does not mean that individuals who have sold more than one property within a four-year period will automatically be taxed.

    'There is no change to the current and longstanding income tax treatment in this regard. Whether an individual who sells properties more frequently is subject to income tax depends on the facts and circumstances of each case,' the ministry said.

    It is believed that there are fewer than 100 instances each year where a property seller is deemed to be a trader and needs to pay tax on gains.

    And unlike many countries, Singapore does not have a capital gains tax, but profits from selling a property can be taxed at the appropriate income tax rates if the Inland Revenue Authority of Singapore (Iras) deems the seller to be a trader.

    Iras uses various yardsticks to determine if a seller is a trader. These include the circumstances leading to the sale, how long the individual has held the property and how frequently he has sold properties in the past.

    The Finance Ministry also clarified that individuals will still not be required to report to Iras every time they sell a property.

    'Iras has always conducted its own audits of property transactions for possible cases of assessable income,' it said.

    Market experts welcomed the Government's move to clear the air on the proposed tax change.

    'Individuals can take comfort that if they sell more than one property within a four-year period, this would not automatically subject them to income tax,' said Mr Owi Kek Hean, KPMG's head of tax services.

    'The statement removed any lingering misgivings investors might have over the proposed tax changes. They can go back to business as usual,' said Mr Tan Tiong Cheng, chairman of property consultant Knight Frank.

    The stock market also heaved a sigh of relief, as the statement quelled earlier fears raised by analysts that the proposed tax change might be a disguised move to impose a capital gains tax.

    Property giant City Developments rose 5.5 per cent, while CapitaLand gained 3.5 per cent, following Wednesday's sell-off when investors had reacted badly as news on the proposal broke.

    [email][email protected][/email]


    # NO CHANGE to current and longstanding income tax treatment for individuals who sell properties frequently

    # NO NEED for individuals to report to Iras every time they sell a property

    # NO MOVE to impose a capital gains tax. Only those sellers deemed by Iras to be traders will be taxed

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    [url]http://www.todayonline.com/Business/EDC090710-0000084/Draft-Income-Tax-(Admendment)-Bill-2009[/url]

    [B][SIZE="5"]Draft Income Tax (Amendment) Bill 2009[/SIZE][/B]

    by Tan Hui Leng

    Updated 11:55 AM Jul 10, 2009


    Proposed change under spotlight:

    Individuals who sell a property on or after Jan 1, 2010 will automatically not be subject to income tax, if he has not sold other properties in the previous four years. Even if he has, Iras will determine if a tax on income should be levied, just like existing practice.


    What the situation is now:

    When an individual sells a property for a profit, Iras decides if the gain is income in nature based on the facts of the sale. Factors include circumstances leading to sale, how long the individual held the property, how frequently he was selling properties in the past.


    Intent of proposed change:

    To provide certainty of non-income-taxation to individuals who sell a property.


    Unintended effect:

    Perceived to be an anti-speculation measure by some dampened market sentiment.

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    For instance , I sold a 1302 sq ft in the east which I stayed for 2 years and 9 months later bought a studio unit in D9.
    If I sell off this D9 units within 2 years, will it consider taxable?

  5. #5
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    Quote Originally Posted by Acer
    For instance , I sold a 1302 sq ft in the east which I stayed for 2 years and 9 months later bought a studio unit in D9.
    If I sell off this D9 units within 2 years, will it consider taxable?

    actually, this is unlikely to be taxed..

    ... It is believed that there are fewer than 100 instances each year where a property seller is deemed to be a trader and needs to pay tax on gains.
    ..
    Last edited by Douk; 11th July 2009 at 03:42 PM.

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