Saturday, August 22, 2009

No change to property sales tax framework

MOF drops proposed change aimed at giving certainty after public consultation exercise

THE government has decided not to change the current income tax framework with regard to individuals who sell their properties, a move that was welcomed by industry players including the Real Estate Developers' Association of Singapore (Redas).

Under a proposal put up for public consultation, the Ministry of Finance (MOF) had suggested that individuals who sold their properties would be certain that the gains they made would not be subject to income tax if they had not sold any other properties in the preceding four years.

But this was seen by the market as an anti-speculation measure, as it means that those who sell more than one property within four years will not be exempt.

'We remain believers of the idea that the government may be sending out a signal through this proposal to cool property transactions, especially in the high-end,' said CIMB analyst Donald Chua in a note last month.

Keen to quell rumours about an anti-speculation drive, MOF then clarified that the proposal is unlikely to lead to more individuals being taxed. Rather, it offers greater clarity on whether gains will be taxed as it proposes a condition that would guarantee no tax: an individual who sells a property on or after Jan 1, 2010 will not be taxed on the gains if he has not sold any other property in the previous four years.

Currently, property sellers do not pay tax on gains unless the Inland Revenue Authority of Singapore (IRAS) sees them as traders and treats the gains as income. IRAS makes its decision on a case-by-case basis, considering factors such as why the properties were sold, how long the sellers owned them and how frequently the sellers transacted properties in the past.

MOF decided not to implement the change following the recent public consultation exercise.

The proposal was put up for feedback under the Income Tax Act public consultation exercise from June 22 to July 14. A total of 64 comments were received on the proposed relaxation of income tax treatment for individuals who sell their properties, and of these, 60 comments were not in support of the proposed change.

Among other things, feedback said that the proposed change could bias property purchase decisions towards investing in one bigger property, rather than numerous smaller properties. This is because certainty of non-taxation would be provided for disposal of one property within any four years, regardless of the property's value.

Concern was also raised that the proposed change could create inadvertent uncertainty for individuals who sell more than one property within any four years - even though there was no change to the current income tax treatment for such cases.

'The Ministry of Finance sees merits in these points raised in the public feedback to the proposed change,' MOF said in a statement. It has therefore decided that it is, on balance, best to retain the current framework of income tax treatment for individuals who sell their properties.

Industry players welcomed MOF's decision.

'We welcome the Ministry of Finance's decision not to change the current income tax framework for individuals who sell their properties,' said a Redas spokeswoman. 'Redas appreciates the government's consultative approach and understanding of the industry's concern on the matter.'

'We welcome the positive news that the Ministry of Finance has listened to public feedback,' said Owi Kek Hean, head of tax services at KPMG in Singapore. 'The decision not to change the current income tax framework for individuals who sell their properties clearly demonstrates how the government takes differing views on-board in its formulation and changes proposed to Singapore tax policy.'

MOF also said that it has accepted for implementation 85 out of the 113 suggestions received on the draft Income Tax (Amendment) Bill 2009. The draft contains proposed legislation to put into effect the income tax changes announced in Budget 2009, as well as other changes arising from the periodic review of the income tax system.

Source: Business Times, 22 Aug 2009

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