Policy Stance on "99-to-1" Arrangements for Stamp Duty Payment in Property Transactions and Measures to Prevent Recurrence

Mr Chua Kheng Wee Louis asked the Deputy Prime Minister and Minister for Finance (a) what is the assessed number of cases in each year over the last five years where first-time buyers of private residential properties have signed fresh agreements to sell 1% of the same property shortly after exercising the purchase options; (b) how many audit letters have been sent by IRAS questioning such transactions in 2023; and (c) what is the impact of such transactions on the residential and mortgage markets in Singapore.

Ms Mariam Jaafar asked the Deputy Prime Minister and Minister for Finance in light of the probe by the Inland Revenue Authority of Singapore (IRAS) on property purchases structured in a "99-to-1" manner for the purpose of avoiding the Additional Buyer's Stamp Duty (ABSD), what are steps that the Government is considering to hold agents and other marketers of such potential tax avoidance schemes accountable.

Mr Don Wee asked the Deputy Prime Minister and Minister for Finance regarding IRAS' investigation into cases of property purchases structured in a "99-to-1" manner to avoid the Additional Buyer's Stamp Duty (ABSD) (a) how many cases have been uncovered so far; (b) what are the three most common relationships between the property owners; and (c) why has it taken IRAS more than a decade to start investigations as the ABSD was introduced in 2011.

Mr Murali Pillai asked the Deputy Prime Minister and Minister for Finance (a) how many cases suspected to be structured in a "99-to-1" manner to avoid Additional Buyer's Stamp Duty (ABSD) are being investigated by IRAS; (b) what is the estimated aggregate amount of ABSD that is avoided as a result of these suspected transactions; and (c) whether IRAS also investigates the role of facilitators to the purchase transactions with a view to establishing whether they have abetted the buyers to avoid ABSD.

Thank you. Sir, my response to these Parliamentary Questions will also address the Parliamentary Quesiton filed by Mr Desmond Choo1, that is scheduled for a subsequent Sitting. Mr Choo may wish to withdraw his Parliamentary Question after this Sitting, if he is satisfied with the reply to his question.

When a residential property is jointly purchased by two or more buyers, the Additional Buyer's Stamp Duty (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.

The "99-to-1" property purchase arrangements typically involve individuals without any prior property count buying residential properties in their name initially and then, within a very short period of time, selling the 1% interest to another individual who has a higher ABSD profile.

From 2018 to 2021, about 0.5% of private residential properties transacted involved such "99-to-1" or similar arrangements, where the owners sold a partial interest in their property to another buyer within a short period of time. 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. By structuring the transaction in this manner, the parties involved have effectively reduced the ABSD on the purchase of the property.

Individuals may enter into various property purchase arrangements for different reasons, both tax and non-tax-related. The Inland Revenue Authority of Singapore (IRAS) adopts a risk-based approach to detect and enforce against non-compliance and tax avoidance.

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 to better understand the circumstances of each case and ensure that buyers fulfil their rightful stamp duty obligations.

Whether a "99-to-1" arrangement involves tax avoidance depends on the facts and circumstances surrounding the specific case. 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% surcharge on the additional stamp duty payable. There is no statutory time limit for stamp duty audits.

As these "99-to-1" arrangements make up a very small proportion of the overall residential property market transactions, their impact on the residential and mortgage markets in Singapore is not significant.

Other than the buyers, the Government also takes a serious view against individuals who promote or facilitate such tax avoidance arrangements. IRAS will refer those identified of doing so to the relevant regulatory agencies. In the case of property agents, which Members asked about, IRAS will refer them to the Council for Estate Agencies (CEA) for investigation and disciplinary action in accordance with CEA's Code of Ethics and Professional Client Care. Depending on the severity of the breach, agents may face financial penalties and/or suspension of their registrations.

IRAS takes a firm stance against tax evasion and avoidance. The large majority of taxpayers are compliant and pay the taxes that are due. We thank them for their contributions to our fair and progressive system of taxes and transfers, where individuals with greater means will contribute more and those who are vulnerable and earn a lower income will receive more help.

Thank you, Mr Speaker. I thank the Senior Minister of State for his reply. I just have a very short supplementary question. Will the Ministry of Finance (MOF) also consider working with the Monetary Authority of Singapore and the banks to monitor the structuring of such loans for property purchases?

Mr Speaker, the main concern that we have is about tax avoidance and not so much on the risk to banks. The financial institutions do not assume additional credit risks for mortgage loans structured in a "99-to-1" arrangement. This is because the borrowers are jointly and severally liable for the mortgage loans, regardless of the proportion of legal ownership of the property; and any party will be fully liable for the mortgage loan.

Thank you, Speaker. I would like to ask the Senior Minister of State, will MOF consider working with Ministry of Law or Law Society, to look into this matter as its members also have a duty to highlight such risks to their clients when drafting the agreements?

Mr Speaker, I mentioned in my main reply that we will be looking at the different groups of individuals who are involved. And I said in my reply that we take a serious view against individuals who promote or facilitate such tax avoidance arrangements.

So, besides the CEA which oversees real estate agents, if there are other groups of individuals who are involved in such arrangements, certainly, I think we will work with the relevant regulatory authorities on this matter.

Thank you, Mr Speaker. Just two short supplementary questions for the Senior Minister of State.

The first is in relation to the question within the Parliamentary Question that I had asked, in terms of the number of audit letters that were sent out by IRAS recently questioning these transactions and based on IRAS findings, what number or percentages of these transactions were bona fide and which are tax avoidance?

The second supplementary question is in relation to the various property agents or conveyancing lawyers, has the Government similarly send out audit letters to these parties to the transactions?

Mr Speaker, I mentioned the aggregate percentage of all the private residential property transactions. And I said in my main reply that this is about 0.5% where we observe such arrangements and we have sent out letters to those cases that we want to look into further.

As the investigations are still ongoing, I seek the Member's understanding that I am unable to reveal more details at this point in time. But we do want to take a close look and get a better understanding on the transactions on a case-by-case basis, because the circumstances for each case will be important for IRAS to determine whether this is a genuine case or whether there are tax avoidance concerns.

Thank you, Speaker. Just two quick clarifications. Firstly, of the cases that are currently considered to be under investigation, what would be the estimated total tax that should have been collected? The second is: what would be the consequences for those who have been caught flouting the rules and the penalties that would apply to them.

Mr Speaker, I thank Ms Foo for her questions.

As to the amount of the tax that is payable, it is too early for me to give a number now because the investigations are still ongoing. But if there are cases where the rightful amount of ABSD is not paid fully, as I mentioned in my reply, IRAS will be able to ask the buyers to pay for the full amount and may impose a 50% surcharge in such cases.

Taxpayers who wish to come forward voluntarily to disclose and make good any underpayment of taxes may do so. Of course, IRAS will look into each case on a case-by-case basis, depending on the circumstances. But in general, I would say that if you come forward in such cases to voluntarily disclose, IRAS will look at the case more favourably.