Less than 1% of private home transactions in Singapore use 99-to-1 arrangement: Finance Ministry
Tax authorities have detected a small but rising number of such property transactions in recent years.
SINGAPORE: From 2018 to 2021, about 0.5 per cent of private residential properties transacted involved “99-to-1” or similar arrangements, and action will be taken against both buyers and property agents, said Senior Minister of State for Finance Chee Hong Tat in Parliament on Friday (Apr 21).
In one variation of the "99-to-1" scheme, owners sell a partial interest in their property to another buyer within a short period of time, possibly for tax avoidance.
These “99-to-1” arrangements make up a very small proportion of the overall residential property market transactions, and their impact on the residential and mortgage markets in Singapore is not significant, said Mr Chee.
Mr Chee, who was answering questions from several Members of Parliament, said that the “99-to-1” property purchase arrangements typically involve an initial buyer who does not own any property, and then within a very short period of time, selling a 1 per cent interest to another individual.
By structuring the transaction in this manner, the parties involved have effectively reduced the Additional Buyer's Stamp Duty (ABSD) on the property purchase.
He added that the buyers were typically spouses or other immediate family members, with a higher ABSD profile, but with the ability to secure financing for the property.
What is ABSD and how does the 99-to-1 scheme work?
The government introduced ABSD as a tax in 2011 to manage demand for property. Singaporeans must pay 17 per cent in ABSD when purchasing a second property, and 25 per cent on subsequent purchases.
Those figures are higher for permanent residents and foreigners.
ABSD is computed "on the purchase price as stated in the dutiable document or the market value of the property", whichever is the higher amount, according to the Inland Revenue Authority of Singapore (IRAS) website.
There are two ways to buy property in Singapore when there are two owners: One would be joint tenancy, which is commonly used by couples, where both parties will have an equal share of the property.
The second way would be tenancy-in-common, which is commonly used for investment properties. Under this structure, the co-owners own a specific number of shares in the property and this could be split in any ratio, such as 80 to 20.
IRAS is looking into the second way – private property buyers who have entered into split agreements with the possible intention of avoiding ABSD.
If the 99-to-1 intention is declared at the outset, the ABSD is payable as long as one party is an existing property owner.
What IRAS is looking out for are cases of possible tax avoidance by buyers who have entered into a 99-to-1 scheme in which the 1 per cent stake is sold immediately after the purchase option is exercised.
Using such an arrangement, where the 1 per cent stake is sold in the second stage, as an example:
A person who owns a residential property buys a second. This means he is liable to pay ABSD of 17 per cent.
If the property costs S$1 million (US$752,000) and he buys 1 per cent of this, his share of the property is S$10,000. Therefore, he has to pay 17 per cent of S$10,000 – that is, S$1,700 – as ABSD.
When a residential property is jointly purchased by two or more buyers, the ABSD rate arising from the buyer with the highest ABSD profile will apply on the entire value of the purchase.
Hence, when a single purchase is split up into two or more steps to reduce the tax payable, the Commissioner of Stamp Duties is empowered under Section 33A of the Stamp Duties Act to disregard the individual steps and assess stamp duty as a single joint purchase, and to recover the rightful amount of ABSD due.
Six MPs had raised questions about this issue, including Mr Yip Hon Weng (PAP - Yio Chu Kang), who had asked how IRAS differentiates between wilful avoidance and honest mistakes in such arrangements.
Other MPs also asked for the number of such cases in each year over the last five years, the impact of such transactions on the residential and mortgage markets in Singapore, and what steps the government is considering to hold agents and other marketers of such potential tax avoidance schemes accountable.
Mr Chee said that as part of its surveillance efforts, IRAS detected a small but rising number of “99-to-1” arrangements in recent years. It has therefore initiated audits of such transactions.
"Whether a '99-to-1' arrangement involves tax avoidance depends on the facts and circumstances surrounding the specific case," said Mr Chee.
"Should IRAS determine that tax avoidance has occurred, it will recover the rightful amount of stamp duty from the buyers, and may impose a 50 per cent surcharge on the additional stamp duty payable."
He added that there is no statutory time limit for stamp duty audits.
IRAS will also refer individuals who promote or facilitate such tax avoidance arrangements to the relevant regulatory agencies, he said.
In the case of property agents, IRAS will refer them to the Council for Estate Agencies for investigation and disciplinary action.
"Depending on the severity of the breach, agents may face financial penalties and/or suspension of their registrations," Mr Chee said.
MPs also asked for the number of transactions considered "bona fide" and those seen as tax-avoiding in nature. Mr Chee replied that IRAS was further investigating these cases and that he was unable to provide more details at this point.
"In general, I would say that if you come forward in such cases to voluntarily disclose, IRAS will look at the case more favourably," he concluded.
