Iras to reward whistleblowers on private property deals exploiting ‘99-to-1’ loophole to evade ABSD
THE Inland Revenue Authority of Singapore (Iras) is offering a reward of up to $100,000 to whistleblowers who call out private property buyers who use the so-called “99-to-1” or similar arrangements to evade or reduce additional buyer’s stamp duty (ABSD) on their purchase.
A reward based on 15 per cent of the tax recovered – capped at $100,000 – for each case will be given to informants if the information and/or documents provided lead to tax recovery, the tax regulator told The Straits Times on Tuesday (Apr 25).
This is not the first time Iras has offered a reward for information on tax avoidance or evasion.
About 0.5 per cent of private residential properties transacted in the period from 2018 to 2021 involved 99-to-1, or similar, purchase arrangements, where the owners sold a partial interest in the home to another buyer within a short period of time, Senior Minister of State for Finance Chee Hong Tat told Parliament last Friday in response to questions by MPs on such arrangements.
The loophole enables those who already own property to reduce or avoid paying ABSD while still becoming the additional property’s co-owner and a co-applicant for a loan to finance the purchase.
Earlier in April, ST reported that Iras sent letters to some first-time buyers asking them to explain why they sold just 1 per cent of the property to a relative within a short period of time after exercising the purchase option.
Iras probes home buyers who used ‘99-to-1’ loophole to avoid paying ABSD
SINGAPORE - The taxman has launched an audit of property investors who have used a loophole “99-to-1” sales contract to dodge paying the additional buyer’s stamp duty (ABSD).
The Straits Times has learnt that letters are being sent to some first-time buyers of private real estate to demand that they explain why they signed fresh agreements to sell just 1 per cent of the same properties to their relatives barely a week after exercising the purchase options.
Such backdoor deals allow those relatives who own other properties to become co-owners and co-applicants for bank loans without being involved in the main purchases, which would have attracted the ABSD.
The audit by the Inland Revenue Authority of Singapore (Iras) will ruffle the property investment community because such cases are apparently quite common.
A veteran financial planner told ST that he came across about five cases recently.
A property agent added that he was not surprised by the audit because he knew that quite a number of buyers at property launches were advised to exploit “this loophole” to bring in co-owners later, as they were not required to have bank loans ready when confirming their purchases with the developers.
Iras letters seen by ST showed that the audit was for transactions that took place in 2021, but the investigation is likely to target all cases involving such agreements, as there is no time bar for such probes.
An Iras spokesman declined to provide details of the audit, but said: “Iras takes a stern view of any arrangements for the purpose of reducing or avoiding tax. This includes the scenario where buyers purchase properties under a contrived or artificial arrangement in order to reduce or avoid the ABSD they have to pay.”
Cases that are being audited have common factors: The first buyers did not own any real estate, so when they bought properties, seemingly for themselves, they did not have to pay ABSD. Shortly after, they signed 99-to-1 agreements to sell just 1 per cent of the same properties to relatives who have other residential units.
Such two-stage deals are done because the first buyers do not have sufficient incomes for bank loans, and so they need co-owners to be co-applicants. If they buy the unit together from the start, ABSD is payable so long as one of the parties is a home owner.
By getting a second co-owner to buy the 1 per cent share later, they think they need to pay ABSD only for that minute portion, thus saving 99 per cent of the duty.
The audit letter asks the first buyers to provide copies of both the first and second sales agreements.
They are also asked why they sold a partial share “in such a short period of time” and why the sale to the second buyer comprised only 1 per cent of the property.
The Iras spokesman said: “In cases of tax avoidance, the Commissioner of Stamp Duties will disregard or vary any tax avoidance arrangement, claw back the rightful amount of stamp duty and impose a 50 per cent surcharge.”
Singaporeans who have second properties pay 17 per cent ABSD; those with more properties pay 25 per cent.
So if the property bought under the 99-to-1 loophole cost $1 million, the total tax plus penalty would be $252,450 if the second Singapore buyer already has a property. If they own more than one, they have to cough up $371,250 in total.
Those payments would be $504,900 or $742,500 if the property was worth $2 million. Permanent residents and foreigners pay higher ABSDs, so their penalties would be even heftier if they are caught.
And there could be even more pain in store, as Iras notes: “Further penalties of up to four times the outstanding amount may be imposed if the stamp duty and surcharge are not paid by the deadline.”
Singapore’s leading tax expert, Associate Professor Stephen Phua of National University of Singapore Law Faculty, said the audit may potentially implicate lawyers who have helped clients to enter into such arrangements. “They were under a duty to highlight the risks of doing so to clients,” he said.
But the law here does not impose separate penalties on promoters of tax avoidance schemes, unlike in New Zealand and Australia, which deter professionals from helping clients escape paying taxes. There are also rules for compulsory disclosure in Britain.
“Perhaps Iras could consider putting in place such measures to combat aggressive or abusive schemes, for the protection of revenue and sound public policies from being undermined,” Prof Phua added.
99-to-1 property scheme: IRAS conducting regular audits to uncover 'contrived or artificial' arrangements
SINGAPORE: Audits of a property purchase arrangement – commonly known as a 99-to-1 scheme – are part of regular checks by Singapore's tax authority to uncover "contrived or artificial" setups that home buyers use to avoid paying tax or stamp duties.
The ongoing probe, which looks into arrangements where the ownership of a property is split in a 99:1 ratio, also covers those where the second owner has a share greater than 1 per cent, said the Inland Revenue Authority of Singapore (IRAS) on Thursday (Apr 6) in response to CNA's queries.
The Straits Times reported last weekend that IRAS had begun investigating cases of property purchases structured in a 99-to-1 manner for the purpose of avoiding the Additional Buyer’s Stamp Duty (ABSD).
TAX AVOIDANCE OR EVASION?
In its statement on Thursday, IRAS said it would "review the facts and circumstances surrounding the arrangement".
If it determines that tax avoidance has taken place, it will recover the rightful amount of stamp duty and impose a 50 per cent surcharge on the additional duty payable.
If the stamp duty and surcharge are not paid by the deadline, it can also impose penalties of up to four times the outstanding amount.
IRAS added that the time frame does not matter and that audits can be conducted on any past cases or transactions.
On the distinction between tax avoidance and tax evasion, it said that the former "normally involves an arrangement that is artificial, contrived or has little or no commercial substance and is designed to obtain a tax advantage that is not intended by the government".
Tax evasion is a criminal offence. IRAS gave the example of someone deliberately providing inaccurate or incomplete information about their activities to reduce their tax liability.
NOT ALL 99-TO-1 STRUCTURES ARE SHAMS: EXPERT
Professor Kelvin Low from the National University of Singapore's Faculty of Law said that while "not all 99-to-1 tenancy in common shareholding structures are shams", the cases that IRAS is looking into have raised eyebrows.
"Based on blog posts and YouTube videos, it appears that the 99-to-1 holding structure was initially intended for the initial purchase by a couple of their first private property," he said.
However, for the cases in the IRAS probe, it is "strongly arguable that the 99-to-1 shareholding structure was intended from the outset, making the initial 100 per cent ownership intermediate transaction simply a sham" to avoid paying ABSD, said Prof Low.
"Based on media reports, these persons (the initial buyer) are typically unable to purchase the property because they would not be able to meet the TDSR rules put in place by MAS and borrow sufficient funds for the purchase. In other words, the participation of the other 1 per cent co-owner was always necessary for the purchase.
"This makes it very difficult to argue that the initial transfer to the eventual 99 per cent co-owner of 100 per cent of the property was not a sham."
TDSR, or total debt servicing ratio, refers to the maximum proportion of a person's gross monthly income that goes towards repaying monthly debt obligations.
According to tax specialist Vincent Ooi, there are two ways taxpayers can possibly get into trouble with a 99-to-1 arrangement – if they entered into it to avoid stamp duties and if they “understamp”, which means they did not pay the correct amount of duty.
Tax avoidance is when an arrangement has the effect of giving a person a tax advantage and the arrangement is entered into without bona fide commercial reasons, said Mr Ooi, who is also a lecturer at Singapore Management University’s (SMU) Yong Pung How School of Law.
In the case of tax avoidance, the correct amount of tax based on the arrangement under the law is paid, but IRAS invokes the general anti-avoidance provision to negate the tax advantage.
For cases of understamping, an incorrect amount of tax under the law is paid.
“For example, if a taxpayer perpetuates a sham to pay less stamp duties, the legal effect of the sham is that it is void, meaning that less tax than the law requires was in fact paid,” Mr Ooi said.
However, buyers should not fear having to answer IRAS’ questions as long as their arrangement is defensible and does not count as avoiding tax or understamping, he added.
Iras to reward whistleblowers on private property deals exploiting ‘99-to-1’ loophole to evade ABSD
THE Inland Revenue Authority of Singapore (Iras) is offering a reward of up to $100,000 to whistleblowers who call out private property buyers who use the so-called “99-to-1” or similar arrangements to evade or reduce additional buyer’s stamp duty (ABSD) on their purchase.
A reward based on 15 per cent of the tax recovered – capped at $100,000 – for each case will be given to informants if the information and/or documents provided lead to tax recovery, the tax regulator told The Straits Times on Tuesday (Apr 25).
This is not the first time Iras has offered a reward for information on tax avoidance or evasion.
About 0.5 per cent of private residential properties transacted in the period from 2018 to 2021 involved 99-to-1, or similar, purchase arrangements, where the owners sold a partial interest in the home to another buyer within a short period of time, Senior Minister of State for Finance Chee Hong Tat told Parliament last Friday in response to questions by MPs on such arrangements.
The loophole enables those who already own property to reduce or avoid paying ABSD while still becoming the additional property’s co-owner and a co-applicant for a loan to finance the purchase.
Earlier in April, ST reported that Iras sent letters to some first-time buyers asking them to explain why they sold just 1 per cent of the property to a relative within a short period of time after exercising the purchase option.
https://www.businesstimes.com.sg/property/iras-reward-whistleblowers-private-property-deals-exploiting-99-1-loophole-evade-absd
Iras probes home buyers who used ‘99-to-1’ loophole to avoid paying ABSD
SINGAPORE - The taxman has launched an audit of property investors who have used a loophole “99-to-1” sales contract to dodge paying the additional buyer’s stamp duty (ABSD).
The Straits Times has learnt that letters are being sent to some first-time buyers of private real estate to demand that they explain why they signed fresh agreements to sell just 1 per cent of the same properties to their relatives barely a week after exercising the purchase options.
Such backdoor deals allow those relatives who own other properties to become co-owners and co-applicants for bank loans without being involved in the main purchases, which would have attracted the ABSD.
The audit by the Inland Revenue Authority of Singapore (Iras) will ruffle the property investment community because such cases are apparently quite common.
A veteran financial planner told ST that he came across about five cases recently.
A property agent added that he was not surprised by the audit because he knew that quite a number of buyers at property launches were advised to exploit “this loophole” to bring in co-owners later, as they were not required to have bank loans ready when confirming their purchases with the developers.
Iras letters seen by ST showed that the audit was for transactions that took place in 2021, but the investigation is likely to target all cases involving such agreements, as there is no time bar for such probes.
An Iras spokesman declined to provide details of the audit, but said: “Iras takes a stern view of any arrangements for the purpose of reducing or avoiding tax. This includes the scenario where buyers purchase properties under a contrived or artificial arrangement in order to reduce or avoid the ABSD they have to pay.”
Cases that are being audited have common factors: The first buyers did not own any real estate, so when they bought properties, seemingly for themselves, they did not have to pay ABSD. Shortly after, they signed 99-to-1 agreements to sell just 1 per cent of the same properties to relatives who have other residential units.
Such two-stage deals are done because the first buyers do not have sufficient incomes for bank loans, and so they need co-owners to be co-applicants. If they buy the unit together from the start, ABSD is payable so long as one of the parties is a home owner.
By getting a second co-owner to buy the 1 per cent share later, they think they need to pay ABSD only for that minute portion, thus saving 99 per cent of the duty.
The audit letter asks the first buyers to provide copies of both the first and second sales agreements.
They are also asked why they sold a partial share “in such a short period of time” and why the sale to the second buyer comprised only 1 per cent of the property.
The Iras spokesman said: “In cases of tax avoidance, the Commissioner of Stamp Duties will disregard or vary any tax avoidance arrangement, claw back the rightful amount of stamp duty and impose a 50 per cent surcharge.”
Singaporeans who have second properties pay 17 per cent ABSD; those with more properties pay 25 per cent.
So if the property bought under the 99-to-1 loophole cost $1 million, the total tax plus penalty would be $252,450 if the second Singapore buyer already has a property. If they own more than one, they have to cough up $371,250 in total.
Those payments would be $504,900 or $742,500 if the property was worth $2 million. Permanent residents and foreigners pay higher ABSDs, so their penalties would be even heftier if they are caught.
And there could be even more pain in store, as Iras notes: “Further penalties of up to four times the outstanding amount may be imposed if the stamp duty and surcharge are not paid by the deadline.”
Singapore’s leading tax expert, Associate Professor Stephen Phua of National University of Singapore Law Faculty, said the audit may potentially implicate lawyers who have helped clients to enter into such arrangements. “They were under a duty to highlight the risks of doing so to clients,” he said.
But the law here does not impose separate penalties on promoters of tax avoidance schemes, unlike in New Zealand and Australia, which deter professionals from helping clients escape paying taxes. There are also rules for compulsory disclosure in Britain.
“Perhaps Iras could consider putting in place such measures to combat aggressive or abusive schemes, for the protection of revenue and sound public policies from being undermined,” Prof Phua added.
https://www.straitstimes.com/business/invest/iras-probes-home-buyers-who-used-99-to-1-loophole-to-avoid-paying-absd
99-to-1 property scheme: IRAS conducting regular audits to uncover 'contrived or artificial' arrangements
SINGAPORE: Audits of a property purchase arrangement – commonly known as a 99-to-1 scheme – are part of regular checks by Singapore's tax authority to uncover "contrived or artificial" setups that home buyers use to avoid paying tax or stamp duties.
The ongoing probe, which looks into arrangements where the ownership of a property is split in a 99:1 ratio, also covers those where the second owner has a share greater than 1 per cent, said the Inland Revenue Authority of Singapore (IRAS) on Thursday (Apr 6) in response to CNA's queries.
The Straits Times reported last weekend that IRAS had begun investigating cases of property purchases structured in a 99-to-1 manner for the purpose of avoiding the Additional Buyer’s Stamp Duty (ABSD).
TAX AVOIDANCE OR EVASION?
In its statement on Thursday, IRAS said it would "review the facts and circumstances surrounding the arrangement".
If it determines that tax avoidance has taken place, it will recover the rightful amount of stamp duty and impose a 50 per cent surcharge on the additional duty payable.
If the stamp duty and surcharge are not paid by the deadline, it can also impose penalties of up to four times the outstanding amount.
IRAS added that the time frame does not matter and that audits can be conducted on any past cases or transactions.
On the distinction between tax avoidance and tax evasion, it said that the former "normally involves an arrangement that is artificial, contrived or has little or no commercial substance and is designed to obtain a tax advantage that is not intended by the government".
Tax evasion is a criminal offence. IRAS gave the example of someone deliberately providing inaccurate or incomplete information about their activities to reduce their tax liability.
NOT ALL 99-TO-1 STRUCTURES ARE SHAMS: EXPERT
Professor Kelvin Low from the National University of Singapore's Faculty of Law said that while "not all 99-to-1 tenancy in common shareholding structures are shams", the cases that IRAS is looking into have raised eyebrows.
"Based on blog posts and YouTube videos, it appears that the 99-to-1 holding structure was initially intended for the initial purchase by a couple of their first private property," he said.
However, for the cases in the IRAS probe, it is "strongly arguable that the 99-to-1 shareholding structure was intended from the outset, making the initial 100 per cent ownership intermediate transaction simply a sham" to avoid paying ABSD, said Prof Low.
"Based on media reports, these persons (the initial buyer) are typically unable to purchase the property because they would not be able to meet the TDSR rules put in place by MAS and borrow sufficient funds for the purchase. In other words, the participation of the other 1 per cent co-owner was always necessary for the purchase.
"This makes it very difficult to argue that the initial transfer to the eventual 99 per cent co-owner of 100 per cent of the property was not a sham."
TDSR, or total debt servicing ratio, refers to the maximum proportion of a person's gross monthly income that goes towards repaying monthly debt obligations.
According to tax specialist Vincent Ooi, there are two ways taxpayers can possibly get into trouble with a 99-to-1 arrangement – if they entered into it to avoid stamp duties and if they “understamp”, which means they did not pay the correct amount of duty.
Tax avoidance is when an arrangement has the effect of giving a person a tax advantage and the arrangement is entered into without bona fide commercial reasons, said Mr Ooi, who is also a lecturer at Singapore Management University’s (SMU) Yong Pung How School of Law.
In the case of tax avoidance, the correct amount of tax based on the arrangement under the law is paid, but IRAS invokes the general anti-avoidance provision to negate the tax advantage.
For cases of understamping, an incorrect amount of tax under the law is paid.
“For example, if a taxpayer perpetuates a sham to pay less stamp duties, the legal effect of the sham is that it is void, meaning that less tax than the law requires was in fact paid,” Mr Ooi said.
However, buyers should not fear having to answer IRAS’ questions as long as their arrangement is defensible and does not count as avoiding tax or understamping, he added.
More at https://www.channelnewsasia.com/singapore/99-1-private-property-absd-iras-tax-avoidance-evasion-stamp-duty-3395916
I wonder if there's a reward for whistleblowing.....
Hope IRAS comes down hard and swift on these sneaky motherfuckers.
Mr Tan Ooi Boon moonlights for IRAS siboh?