They question timing of change and ask if they must alert Iras when selling second property
By
Goh Eng Yeow, Senior Correspondent
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.
UNNECESSARY UNCERTAINTY
'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.'
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?
Thus when the proposal finally made it into the news Wednesday, 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 on Wednesday 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. 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.
Read the full story in Thursday's edition of The Straits Times
