Category Archives: Tax Matters / Property Tax

In the recent property boom that ended last year, Mr Lee (not his real name), a vice-president in a company here, sold three properties within a year.

One was a home he had lived in for many years, while the other two were investment properties whose prices were too good to pass up.

Just before he sold the third property, Mr Lee’s lawyer warned him that all this buying and selling might get him into trouble with the Inland Revenue Authority of Singapore (Iras).

Specifically, Iras could deem him a property ‘trader’, which means that he relies on property transactions for income. If this happened, the profits he had earned on the three properties would have been added to his income that year, significantly increasing his tax burden.

With the property market in hyperdrive, however, Mr Lee, who is in his 30s, decided to take the risk and sell the third property. ‘If you’re going to get whacked, you’re going to get whacked,’ he said.

Fortunately for him, Iras left him alone. But the period of indecision he suffered over whether he would be taxed on the sale is not uncommon for property investors and genuine owners, even if they space out their property sales over a number of years. Continue reading →

Whether or not a property seller is taxed on his profits is ultimately up to Iras.

The tax agency does not require individuals to alert it when they sell their properties. Iras has always conducted its own audits of property transactions for possible cases of assessable income.

It will use yardsticks such as the circumstances leading to the sale, how long the investor has held the disposed property and how frequently he has been selling properties in the past.

Let’s assume that a certain investor is among those audited for income, and that after taking all these factors into consideration, Iras decides that he should be taxed.

If he earns an annual income of $100,000, and he has made a gain of $300,000 on selling his properties, his total assessable income for the year will now jump to $400,000.

A back-of-the-envelope calculation shows that his income tax will also soar by $51,600 – from $7,100 to $58,700.

This is largely because the surge in his income has pushed him into a higher tax bracket: his top tax bracket has gone from 14 per cent to 20 per cent.

In Singapore, individuals do not pay tax on their first $20,000 of annual income.

They will pay 3.5 per cent tax on the next $10,000 they earn and 5.5 per cent on the following $10,000.

Income above $40,000 will be taxed at 8.5 per cent, and for amounts more than $80,000, the rate goes up to 14 per cent.

The maximum rate is 20 per cent, which is applied to whatever income an individual earns over his first $320,000.

Source : Sunday Times – 12 Jul 2009