Aim is to ensure sellers are not taxed on gains if they don't sell frequently
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.
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
Source: Straits Times, 10 July 2009