Every transaction should be taxed

THE tweak to property tax announced last week – from Jan 1 next year, individuals who have sold a property in the prior four years will be subject to income tax on any subsequent home sales – is more than equitable.

In fact, taxes should be imposed on every property transacted irrespective of the number of times a sale is carried out.

I was recently invited to a property launch only to be informed that all units had already been sold.
True to form, the in-demand units were advertised openly the following day for $100,000 more than the price at which the developer had sold them – when the project had not even been built.

What is capital gains tax compared to this sort of profit? It’s a pittance!

Many other countries have a capital gains tax policy. Singapore should also have such a policy or property prices will continue to skyrocket when the economy rebounds.

The four-year period where taxes are to be paid if more than one property is transacted should be reviewed periodically to ensure that house prices stay under control.

A check on the Internet shows that a 1,000 sq ft condominium unit in Australia or Canada goes for between $200,000 and $300,000, while in Singapore we might pay close to $1 million for an average home.

Could such prohibitive property prices be part of the reason why our brightest talents choose to move abroad or why expatriates fail to sink roots here?

It is time the authorities rethink Singapore’s housing policy so that a roof over our heads becomes more competitive and affordable.

Gilbert Tan Hee Khian

Source: Today, 20 July 2009

Property plays fall on tax concerns

Uncertainty over how tax proposal will hit top-end of residential market

A PROPOSED tax change designed to make the rules clearer on profits made from the sale of property was still creating a stir yesterday about a week after news of it first broke.

Even though the Government has clarified that the proposal is not intended to stifle speculation, traders are still concerned that it might have a detrimental impact on the property sector.

Under the proposed change, an individual will escape tax on gains made from selling a property if he has not sold any other property over the preceding four years.

But there remain lingering fears among analysts that home buyers might interpret it negatively, despite government assurances that there are no plans to change the tax treatment of individuals selling more than one property within a four-year period.

Market watchers spent the weekend carefully gauging the mood at showflats. And, going by the carnival atmosphere witnessed by many, some analysts have concluded that sentiment remains positive – especially for condos targeted at mid-range buyers and HDB upgraders.

This positivity, however, has not allayed concern that the planned tax change – set to become law in January – may well dent the top-end of the residential market, where condos are invariably bought for investment purposes.

So it was not surprising to find property counters caught in a fierce tug-of-war between the bulls and bears as the tax-change debate continued to rage.

Among the property sector’s big losers of the day were City Developments which fell 20 cents to $8, CapitaLand which lost eight cents to $3.31, United Overseas Land which slipped nine cents to $3.21, and Wing Tai Holdings which was down four cents at $1.23.

Elsewhere, local banks were hit by selling activity as investors looked forward with some apprehension to United States lenders, such as Citigroup and JPMorgan Chase, reporting their quarterly earnings later this week.

DBS Group Holdings fell 22 cents to $11.42, United Overseas Bank lost 16 cents to $14.42, and OCBC Bank was down 20 cents at $6.86.

Given somewhat reduced investor appetites, even the telcos – which were being snapped up last week because of their high dividend yields – came under selling pressure. SingTel lost four cents to $3.12 and StarHub fell six cents to $2.13.

The general sell-off caused the benchmark Straits Times Index to plummet 41.34 points, or 1.8 per cent, to 2,266.64. Because of the lacklustre investor interest, only 1.05 billion shares worth $863.2 million changed hands.

Across the region, a general state of uncertainty saw both Hong Kong’s Hang Seng and Japan’s Nikkei-225 dropping about 2.6 per cent each.

Citigroup Investment Research noted in a report yesterday that funds investing in Asian markets suffered a net outflow of US$365 million (S$534 million) last week. Although trifling when compared to the second-quarter net inflow of US$13.2 billion, the outflow raised fears that it might signal the shape of things to come.

Source: Straits Times, 14 July 2009

No fear of property gains tax on show

Investors, home seekers throng property launches over weekend

FEAR and uncertainty over how gains from property sales would be taxed vanished as quickly as they came last week.

Home seekers still thronged showflats over the weekend and smaller apartments remained popular picks.

Turnout at property launches was healthy, observed DMG & Partners Securities analyst Brandon Lee, who visited a handful of showflats in the last few days.

News that the government could change income tax laws on profits from property sales did not seem to have an adverse impact, he said.

Word got round last Wednesday of a proposal to make current laws clearer – by guaranteeing that anyone who sells only one property in any four-year period will not be taxed on the gains.

This left many industry players wondering if sellers who failed to meet the criterion would automatically be taxed. Their fears were eased when the government said that this was not the case.

Given how much property prices have fallen, there is still a chance to profit – with or without taxes – said Mr Lee in a note last Thursday. ‘Even if a maximum 20 per cent personal income tax rate is levied on profits, the seller should still reap healthy income.’

Investors seemed to recognise this and joined genuine homeseekers at showflats for new projects, such as Parc Imperial at Pasir Panjang, Ascentia Sky along Alexandra Road and Sophia Residence at Mount Sophia.

According to agents, buyers had taken up around 80 per cent of Parc Imperial’s 138 units by yesterday afternoon.

Studio and two-bedroom apartments at the freehold project were the most popular, with prices starting from $1,200 psf.

At Luxus Hills, a recently-launched 999-year leasehold landed development at Ang Mio Kio, 63 of 78 units have been sold. Prices ranged from about $1.75 million for intermediate terrace homes to $2.05 million for corner terraces.

Existing properties also found buyers. In four days, The Straits Trading Company sold 10 units at Gallop Green, a freehold estate near Farrer Road which received Temporary Occupation Permit in 2002.

Prices averaged $1,400-$1,435 psf and buyers comprised owner-occupiers and investors, said the company’s executive vice-president Eric Teng.

Source: Business Times, 13 July 2009

Property investors still jittery about tax policy

Iras does not have cut-and-dried definition of ‘trader’

In the recent property boom that ended last year, MrLee (not his real name), a vice-president in a company here, sold three properties within a year.

One was a home he had lived in for many years, while the other two were investment properties whose prices were too good to pass up.

Just before he sold the third property, Mr Lee’s lawyer warned him that all this buying and selling might get him into trouble with the Inland Revenue Authority of Singapore (Iras).

Specifically, Iras could deem him a property ‘trader’, which means that he relies on property transactions for income. If this happened, the profits he had earned on the three properties would have been added to his income that year, significantly increasing his tax burden.

With the property market in hyperdrive, however, Mr Lee, who is in his 30s, decided to take the risk and sell the third property. ‘If you’re going to get whacked, you’re going to get whacked,’ he said.

Fortunately for him, Iras left him alone. But the period of indecision he suffered over whether he would be taxed on the sale is not uncommon for property investors and genuine owners, even if they space out their property sales over a number of years.

To this end, the Ministry of Finance (MOF) is proposing to clarify the law on taxing profits from property sales. If it succeeds, property sellers will not have to worry about being taxed on their profits – as long as they let at least four years pass between each sale.

Even if they sell more than one property within a four-year period, it does not mean they will automatically be taxed.

Iras has no cut-and-dried definition for what makes someone a ‘trader’, but looks at factors including the reasons for the sale, how long the individual has held the property, and how frequently he has sold properties in the past.

In effect, Iras has not changed its rules on this matter – the danger of a property seller being categorised as a trader has always been there. Iras has also not tightened its standards, nor will it enforce them more strictly.

But last week’s clarification of the four-year period – which the MOF says is meant to provide reassurance to property owners – has sent a wave of jitters through the property market just as it is starting to pick up.

Property stocks dived after news broke of the clarification, which is among the changes listed in a draft amendment to the Income Tax Bill put up for public feedback last month.

If the change goes through, the relevant new section will apply to properties sold from Jan 1 next year. A property owner selling his property on Jan 1 will definitely be safe if he has not sold any other property since Jan 1, 2006.

Stocks rallied a bit after the MOF stressed that the clarification is not meant as an anti-speculation measure, is not a disguised capital gains tax, and is not aimed at penalising property investors.

But some property agents told The Sunday Times that a few of their clients who had bought new properties recently backed out of their options last week after reading about the clarification.

Given that most property owners who leave a gap of four years between selling their properties are unlikely to worry about being taken as traders, some have questioned the need for this clarification.

‘It provides clarity for people who sell only one property in four years. But it has made things even more uncertain for those who sell one property and then want to sell another two years later,’ said a 34-year-old property investor who wanted to be known only as Ms Lim.
For some seasoned investors such as Mr Chen, who is in his 30s, the ‘clarification’ makes no difference.

‘I’m a bit more obvious to Iras. I’ve bought and sold more than 10 properties in the last several years,’ he said. ‘I argued to Iras that some of the properties were bought under my company. But it’s up to their discretion to decide what makes a property trader, and this clarification doesn’t make it any clearer.’

The four property investors who were interviewed for this article declined to give their real names in case Iras decides to keep a closer watch on them.

One of their main gripes is that the four-year period seems arbitrary.

‘For new HDB flats, you can’t sell until five years later. For resale, it’s one year. So how did they come up with four years for this rule?’ said Mr Lee.

It is believed that Iras decided on the timeframe based on legal precedents.

One court case that made headlines in 2007 was that of a couple who bought eight properties and sold seven between June 1988 and March 1996.

In 1999 and 2000 – the taxman can retroactively ‘catch’ you for up to eight years after you sell your property – Iras charged the couple $250,000 in tax on the $1 million profit they had made from four of those properties.

The couple appealed on three properties, but only one was allowed. They then took their case to the High Court and managed to get another property off the hook – after pleading that they had sold the apartment because of its bad fengshui.

The case was hailed not only as a landmark decision based on fengshui, but also as a timely reminder of the existence of Iras’ laws on taxing property gains.

This time, however, the reminder may not be so timely. Property agents are concerned about the timing of MOF’s clarification, saying it would derail the fledgling rally in the property market, which in turn could contribute to a delay in any economic recovery.

‘There aren’t any new measures introduced, everything remains status quo, so why create unnecessary excitement or concern in a market that’s just finding its footing now?’ said Mr Mohamed Ismail, chief executive officer of real estate agency PropNex.

Still, some would-be investors are not deterred.

Mr Tan, who runs his own company and is in his 50s, is on the verge of buying a new investment property. He already owns ‘a few’, which he rents out.

‘I don’t see myself as a trader,’ he said. ‘I don’t intend to buy and speculate. I buy to hold, but even if I sell it in two years, I will put forward the case to Iras that I’m not a trader.’

If the worst happens and he gets taxed, he will just ‘factor the extra tax into the cost of my investment’.

‘This policy will not derail me from trying to make money from property,’ he said.
Not every investor is so sanguine, however.

Mr Lee, for one, is casting his eye on overseas properties. ‘I would head to London or Australia or the United States. Some of these places have capital gains tax, but at least property prices there are much lower now, so they may be more worth it.’

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Tax on property gains: Up to Iras to decide

Whether or not a property seller is taxed on his profits is ultimately up to Iras.

The tax agency does not require individuals to alert it when they sell their properties. Iras has always conducted its own audits of property transactions for possible cases of assessable income.
It will use yardsticks such as the circumstances leading to the sale, how long the investor has held the disposed property and how frequently he has been selling properties in the past.

Let’s assume that a certain investor is among those audited for income, and that after taking all these factors into consideration, Iras decides that he should be taxed.

If he earns an annual income of $100,000, and he has made a gain of $300,000 on selling his properties, his total assessable income for the year will now jump to $400,000.

A back-of-the-envelope calculation shows that his income tax will also soar by $51,600 – from $7,100 to $58,700.

This is largely because the surge in his income has pushed him into a higher tax bracket: his top tax bracket has gone from 14 per cent to 20 per cent.

In Singapore, individuals do not pay tax on their first $20,000 of annual income.

They will pay 3.5 per cent tax on the next $10,000 they earn and 5.5 per cent on the following $10,000.

Income above $40,000 will be taxed at 8.5 per cent, and for amounts more than $80,000, the rate goes up to 14 per cent.

The maximum rate is 20 per cent, which is applied to whatever income an individual earns over his first $320,000.

Source: Sunday Times, 12 July 2009

Analysts say more feedback should be gathered before amending tax policy

It may be best to gather more public feedback before changing the tax policy on profits earned from property sales, say analysts.

Analysts Channel NewsAsia spoke with said that it is because some are concerned the proposed amendment may hurt the property sector and Singapore banks.

The Singapore residential property market is showing signs of picking up, but analysts say the proposed tax amendment may hurt sentiment and derail the rebound.

That is because potential buyers may hold back on fears that if they sell more than one property during a four-year period, they may then be taxed on the profits.

The Finance Ministry has stressed that the proposed change is not an anti-speculation measure.
However, it is still something to think about for those with more than one property, or planning to own more than one.

Chong Lee Siang, partner at International & Corporate Tax Services at Ernst & Young, said: “It probably comes as a surprise to a lot of people. But the government has said that it’s not an anti-speculation measure so that may be a little assuring, but still (at the) back of people’s minds would be ‘when will I be taxed?’

“As you can see, the public is reacting and giving its feedback and expressing its concerns. So hopefully, the government will take a while to think through it more carefully and see what would work better or make people more comfortable.”

If the proposed change for the tax policy goes through, observers say local banks would get hit badly as housing loans make up a large chunk of their business.

Looking at the housing rental agreements, some say the government may want to consider introducing a two-year period of non-taxation if a person sells only one property, instead of the suggested four years.

As many HDB flats are financed through banks today, some believe the suggested tax amendment will hurt the banks’ portfolio.

Jeremy Goh, associate professor at the Lee Kong Chian School of Business in the Singapore Management University, said: “The banking business is basically taking deposit and making loans. If this proposal puts a damper in the market, then it will definitely have an impact on the bank.

“There will be less people needing loans, or people staying out of the housing market. So the demand for loans will be somewhat affected.”

The public consultation for the draft Income Tax (Amendment) Bill ends next Tuesday. So far, It has attracted about 50 responses.

Source: Channel News Asia, 10 July 2009

It is not to penalise investors: Govt

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

Making sense of the property gains tax amendment

More clarity needed on proposed refinement and about the tax itself

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?

What’s the rationale?
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.

Source: Business Times, 10 July 2009

Govt clears air over tax on property gains

Ministry says proposed change aimed at giving certainty and is not a move against property speculation

(SINGAPORE) Has the market worked up a storm in a teacup over a suggested change to income tax laws on gains from property sales? Keen to quell rumours about an anti-speculation drive, the Ministry of Finance (MOF) clarified yesterday that the proposal is unlikely to lead to more individuals being taxed.

Still, some industry watchers believe that the potential change is enough to worry property investors – many of whom have returned to the market only recently.

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. The 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.

These factors are derived from case law and are not clear-cut. According to MOF’s statement, just ‘a small number of individuals’ have been taxed on gains from property sales in the past.

There are individuals who want greater clarity on whether their gains will be taxed, MOF said. Responding to feedback, it proposed last month 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.

This is actually ‘a relaxation of income tax treatment aimed at giving certainty of non-taxation to individuals who do not sell properties frequently’, MOF explained.

The proposal does not mean that those who sold more than one property within a four-year period will definitely be taxed on the gains. In line with existing arrangements, IRAS will still assess these cases individually. ‘There is no change to the current and long-standing income tax treatment in this regard,’ MOF pointed out.

MOF did not reveal the exact number of individuals who have been taxed on gains from property sales. But it said in an email to BT: ‘If the proposed change is implemented, MOF does not expect the number of cases to increase. This is because the change does not involve a tightening of the rules.’

In fact, ‘the number of cases may fall if all things remain constant’ after the change, it says.

Rumours that the government was trying to curb speculation in the property market gained ground after news of the potential change got round. Property sales have been buoyant since February this year, and selling prices in some projects are said to have risen by a few per cent. Some market watchers attributed the improvement in part to the return of speculators.

In its statement, MOF emphasised that the proposed change is not an anti-speculation measure. It also reiterated that Singapore does not have a capital gains tax.

MOF’s clarification has soothed the market somewhat. On Wednesday, fear that investors could exit the property market and perhaps confusion over the proposal had pushed prices of several property counters down. The selling pressure eased notably yesterday. City Developments, for instance, gained 43 cents to close at $8.31, while CapitaLand rose 12 cents to $3.50.

Despite the official reassurance, there are still nagging worries that the potential change to income tax laws could hurt investor sentiment, particularly in the prime property sectors.

‘Demand for mass-market homes should hold, backed by HDB upgraders, while mid to high-end segments may experience slower take-ups from reduced speculative interest,’ said AmFraser Securities analyst Lau Wei Chong in a note yesterday.

There are also industry watchers who stand by the anti-speculation theory. ‘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.

To curb speculation in the property market in 1996, the government had imposed income tax on gains which individuals made from selling properties within three years of purchase. It lifted the rule in 2001.

Source: Business Times, 10 July 2009

Tax proposal puzzles property players

They question timing of change and ask if they must alert Iras when selling second property

A GOVERNMENT proposal to make the rules clearer on taxing gains on property sales has left developers and investors scratching their heads.

Since the public consultation paper on the subject was put up by the Finance Ministry last month, there have been quiet discussions in some circles on the impact the step might have on the property market.

So quiet that most people were apparently unaware of it.

Thus when the proposal finally made it into the news yesterday, investors took it badly. Shares of property giant City Developments fell 6.6 per cent while those of CapitaLand dropped 4.8 per cent.
A Citi report yesterday said the change is likely to curb any excessive speculation in the market. ‘We think there will be downward pressure on the prices and volumes, especially new launches,’ it said.

At first sight, the proposed change seems innocuous. It makes clear that a home owner who sells his property for a profit will not be taxed on his gains as long as he had not sold any other real estate in the past four years.

But if an owner had sold other properties within that period, the taxman will decide if he should be taxed on the gains from this sale. Its decision will be based on the circumstances that precipitated the sale.

Most home owners will not be affected by the proposed tax change as their home is the only house they own, said real estate agency PropNex chief executive Mohamed Ismail.

In fact, they may be better off as the change provides certainty that they will not be taxed should they sell their house for another home every four years or so.

But an estimated 10 per cent to 15 per cent of home owners own more than one property and these are the people who are worried about how the change might affect them.

An investor does not pay tax on gains unless – and this is where the uncertainty lies – the taxman decides that the owner is a trader, namely someone who buys and sells a number of properties over a short period.

But tax and property experts are concerned over the timing of the proposal.

Real estate is only just beginning to recover from the doldrums it fell into last year, so some feel the Government should have left things as they were.

‘In the current economic environment, we do not understand the need for such a provision, as it only provides a certainty of tax treatment for individuals who do not sell more than one property,’ said Mr Owi Kek Hean, KPMG’s head of tax services.

Others have welcomed the proposal as a strong signal sent by the Government to dampen any speculative froth in the recovering property market.

Only last December, there was considerable concern over the number of home buyers who might default under the deferred payment scheme. But this was quickly forgotten once the market picked up and developers replaced deferred payment with an interest absorption programme to lure buyers back.

With the proposed change, an investor cannot be sure that he can avoid a hefty tax bill on his gains if he sells several properties within a four-year period.

This will surely dampen speculation and help to prevent the market from suffering another heart attack if the global economic outlook nosedives again.

Still, others note that the need to own a house for at least four years to make sure that one does not get taxed on any gains from its sale is far too long for property-loving Singaporeans.

We like to move house a lot, whether to downgrade to a smaller flat in bad times or to be nearer to a desired school. Surely, a shorter timeframe of two years would be adequate.

One reader also noted that the proposed tax change is unfair to investors who hold on to multiple properties for a long period and then decide to sell them all within the same four-year period.

‘If I come across a peak in the property market, does this mean I will be taxed if I sold more than one property, no matter how long I have held them?’ he asked.

But the biggest question bugging home owners is that they do not know if they should contact the Inland Revenue Authority of Singapore (Iras) to discuss any assessment that may be made on a property sale profit.

Should they alert Iras as soon as they sell a second property within a four-year period and declare any gains while making a case to get a waiver on paying any levy?

Or should they stick to the current practice and assume they are not liable for tax on any gains until they get a call from the taxman?

Whatever their misgivings, home owners should trust Iras to exercise its judgment judiciously on whether to tax the gains.

Source: Straits Times, 9 July 2009

Move could dampen market sentiment: Experts

PROPERTY experts fear the proposed change to tax laws affecting real estate gains could crimp speculation and hurt sentiment in the fragile market.

The issue was a talking point among investors worried about being taxed, while real estate stocks went south yesterday.

‘I have received about 50 calls on this topic today. They are all worried about being taxed,’ said HSR Property Group executive director Eric Cheng.

If the proposal becomes law in January, it will mean that anyone who sells a property in any four-year period will not be taxed on his profit. But a second sale within four years of the first sale may be taxable.

There will surely be some knee-jerk reaction, though the change may have the eventual effect of dampening flipping interest, industry sources said.

One who declined to be named said if enacted right, the clearer rules will be a benefit, but if they are applied in a heavy-handed way, there will be ‘horrible consequences’ for the market.

‘Speculators may start to think twice about going into the market,’ said Credo Real Estate executive director Tan Hong Boon. ‘But genuine investors holding for long-term rental income should not worry at all.’

But one investor said: ‘Without the element of speculation, the market would not be buoyant.’

Some speculators are already aware that they will be taxed on their profits if the Inland Revenue Authority of Singapore (Iras) deems them traders. But this has been a subjective exercise.

The amendment also does not make clear what constitutes a trader.

‘Some people think it’s a big deal but the proposed change is not even new. Only the four-year period is new. Previously, you may even be taxed if you trade only one property in your life,’ said another investor. ‘If you resign yourself to the fact that you will be taxed, you might as well continue selling, if not more aggressively, to cover the tax component.’

To curb speculation, the Government modified tax rules in 1996 so that income tax was payable on profits made from the sale of a residential property within three years of purchase. This was lifted in late 2001.

Property expert Nicholas Mak thinks the change could dampen foreign demand. Some investors hoping to time the market may be taxed on their profits given that the two bull runs in the past 10 years have lasted less than four years, he said.

Source: Straits Times, 09 July 2009