The Inland Revenue Authority of Singapore (Iras) is looking into real estate transactions as part of an audit to find instances of stamp duty tax avoidance.
According to Iras, the investigation focuses on “a variety of property holding arrangements,” such as “situations where homebuyers buy properties under a fabricated or artificial arrangement in order to reduce or avoid the additional buyer’s stamp duty (ABSD) or any other form of stamp duties they must pay.”
Despite allegations that it had begun an examination of private property transactions including a “99-to-1” sales contract that may be used to avoid paying ABSD, the agency declined to provide specifics on the sorts of arrangements that can be seen as tax evasion in response to media questions.
No information was provided in Iras’ announcement on Thursday on the number of transactions that may be considered instances of tax evasion. One of the numerous steps to calm down the real estate market adopted in 2011 was the ABSD on second and more homes. Since then, the rate has gone hiked and is currently 17% for a second home and 25% for further acquisitions.
In so-called “99-to-1 deals,” a first-time buyer exercises a property’s sales option as the only purchaser, avoiding the payment of ABSD, but shortly afterward sells a 1% portion to a relative. Then the relative is added as a co-owner, and they both contribute to the property’s financing.
A person who already owns private property may use the arrangement to have a connected party pay for the acquisition of a second property. It is anticipated that the second owner will thereafter only be required to pay 1% of the ABSD charged on their extra property acquisition.
Anecdotal data reveals that although not widespread, such activities are not infrequent. One market observer claimed to be aware of property agency team leaders that discreetly instruct agents in these 99-to-1 transactions during their workshops on completing agreements. Such agreements assist salespeople in closing deals for potential purchasers who are interested but are put off by the ABSD due to the fact that they already own a home.
Iras is writing to some first-time owners of private property to ask why they only sold 1% of the property to a relative a week after buying it.
The agency said that there is no expiration date for stamp duties and that Iras is able to audit any old stamp-duty cases and transactions.
The Commissioner of Stamp Duties will nullify or modify any tax avoidance scheme in situations of tax evasion, reclaim the appropriate amount of stamp duty, and levy a 50% surcharge. If the stamp duty and surcharge are not paid by the deadline, further penalties that may be up to four times the unpaid balance may be applied.
As they have a strong interest in completing deals, some agents may be tempted to support 99-to-1 partnerships, according to industry veteran Nicholas Mak.
Homebuyers may not be aware of the legislation, Mak added.
According to Lee Sze Teck, senior director of research at Huttons, some purchasers who are struggling financially may have resorted to this plan because they require assistance getting a loan.
While some real estate brokers claim that the 99-to-1 bargain is very typical, Lee disputed this.
Most HDB upgrader purchasers, he said, would sell their homes and rent during that period; private property owners, on the other hand, would seek to be considered first-time buyers in order to avoid paying ABSD.
A co-owner of a property gives their part to the other owner during a decoupling in order to give up their whole ownership. Since they are listed as not having any properties at that time, they are then considered as first-time buyers and won’t be required to pay the ABSD on subsequent property acquisition.
Iras declined to say if decoupling agreements may also be seen as questionable in its answer to questions.
Real estate salespeople may not have the appropriate understanding, therefore buyers should seek the counsel of attorneys, Lee said.