Govt Clears Air Over Tax On Property Gains

Source : The Business Times, July 10, 2009

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

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.