Friday, September 7, 2007

Fengshui Defence Helps Couple Avoid Property Deal Tax

Source : The Business Times, Sep 7, 2007

A COUPLE who were taxed on the profits they made on a property deal appealed - and have won their case against the taxman.

Their argument in this unusual case: they sold the apartment because of its bad fengshui.

Although Singapore does not have capital gains tax, which is charged on profits from the sale of assets, many people may not know that the Inland Revenue Authority of Singapore (Iras) can tax individuals it deems to have traded in property.

The couple found themselves in that situation.

But they appealed to the High Court, and Justice Judith Prakash accepted their contention that the 1993 sale of the Waterside condo was not a trade - they had been compelled to sell it.

It is believed to be the first time Singapore courts have accepted bad fengshui as a legitimate reason for a property sale in a tax case.

But Justice Prakash did not accept the couple's reason for the sale of another property - a bungalow in Watten Close - which they said they sold after five months to avoid a lawsuit.

Under the Income Tax Act, profits made from property trades are taxable. The Act does not, however, define 'trade', but the courts consider a list of factors when assessing whether a transaction was a trade.

The criteria include the motive of the taxpayer, the length of ownership, reasons for the sale and whether the taxpayer has had many such transactions to his name.

In this current case, the couple bought eight properties and sold seven between June 1988 and March 1996.

In 1999 and 2000, Iras charged the couple tax on the Waterside apartment, the Watten Close house and two houses in Jalan Sejarah and Chatsworth Avenue.

They had made profits of over $1 million; the tax on that was about $250,000.

The couple asked Iras to review the case but this was rejected in July 2004. They next appealed to the Income Tax Board of Review on all except the Chatsworth Avenue purchase.

In December 2006, the board allowed their appeal on the Jalan Sejarah house but dismissed those on the Waterside unit and Watten Close house.

The couple then took the case to the High Court, which heard the case in May.

Their lawyer, Mr Nicholas Lazarus argued the couple had bought the properties as homes and sold them for non-commercial reasons.

A fengshui master had told them that the Waterside unit was bad for their careers and for the health of their unborn child.

As for the Watten Close house, the couple said they had a dispute with their renovation contractor, who threatened to sue them for breach of contract, so they hurriedly sold the house.

In her written judgment published yesterday, Justice Prakash said it was clear the couple were believers in fengshui, and noted that their case was supported by the fact that the money from the Waterside flat had gone into buying the Watten Close house.

But she rejected their explanation for the sale of that house as improbable.

Mr Lazarus, who has not decided whether his clients will appeal, said that this case was a timely reminder in the heat of the current property market:

'The law has always been there, but newcomers in the market may be happily buying and selling without being aware of it.'

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