Chief Editor April 17 2023

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IRAS deem 99-to-1 property transaction loophole a tax evasion of ABSD

Inland Revenue Authority of Singapore (IRAS) has confirmed that it is investigating property transactions whereby the ownership is structured in the form of 99-to-1 share split. This unique arrangement could be deemed as a tax evasion of additional buyer’s stamp duty (ABSD).

ABSD is one of the property cooling measures implemented in 2011 to manage demand and curb speculation. ABSD is computed on the purchase price or the market value of the property, whichever is higher.

Singaporeans must pay 17 per cent in ABSD when purchasing a second property, and 25 per cent on subsequent purchases.

2 Types Of Property Ownership In Singapore

One would be joint tenancy, which is commonly used by couples for a peace of mind, where both parties will have an equal share of the property. Hence, the surviving co-owner will inherit the full property upon the passing of the other owner when there is no will.

The second manner 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 70 to 30. If a co-owner passes away, their shares do not automatically go to the remaining co-owners, it will be distributed according to the Intestate Succession Act or their will (if any).

What is IRAS probing?

Buyers who have entered into a 99-to-1 ownership scheme in which the 1 per cent stake is sold immediately after the option to purchase (OTP) has been exercised.

Case Study

Desmond is a Singaporean who owns a private condominium in Jurong. His son, Dave, has just completed his National Service. 

Desmond wants to buy a new launch 3-bedrooms condominium as an investment. He is reluctant to do so due to the hefty 17 per cent ABSD for buying a second property.

His property agent advised him to buy the property using his son's name since Dave does not own any property. However, Dave will not meet the Total Debt Servicing Ratio (TDSR) requirement without a pay slip and notice of income assessment (NOA).

TDSR refers to the maximum proportion of a person's gross monthly income that goes towards repaying monthly debt obligations which may include personal loan, car loan and mortgage loan.

So, the property agent shared with Desmond a loophole whereby a 99-to-1 ownership structure can enable him to pay only a fraction of the ABSD.

The new launch property cost S$2 million dollars and Desmond purchases only 1 per cent of this, his share of the property is worth S$20,000. Therefore, Desmond has to pay 17 per cent of S$20,000 – equivalent to S$3,400 – as ABSD.

His son, Dave, will own 99 per cent share of the property rights.

The 99-to-1 property structure allows the bank to take into full consideration the overall income and monthly debt obligations of the two owners, Desmond and Dave. Thus, it has greatly increased the chance of a mortgage loan approval. 

Had Desmond and his son bought the property together from the start, Desmond would be liable to pay 17 per cent of the property purchase price, equivalent to S$340,000.

By exploiting this loophole in 99-to-1 share structure, Desmond paid S$336,600 lesser tax to IRAS.

Will IRAS charge Desmond for property tax evasion in ABSD? 

Desmond should come clean with IRAS as soon as possible before the taxman comes knocking at his door.

We do not rule out the possibility that IRAS will uncover cases dating back to 2011 when ABSD was first introduced.

Does all law firms do 99-to-1 property purchase?

No, due to the sensitivity of this ownership structure, only a few law firms will walk a tightrope. 

Most conveyancing lawyers do not want to take the risk and getting suspended from practicing law. 

Is all 99-to-1 ownership structure illegal?

No. It is legitimate for couples who are buying their first private property to own it in the form of 99 to 1 from the beginning if they foresee buying another property in the near future.

Because ABSD does not apply to first-time home buyers, so they can choose to hold their property in any manner.

Decoupling is a popular move by couples to avoid paying ABSD for a second residential purchase, by allowing one spouse to take full ownership of the existing property so that the other spouse is free to buy another house as a first-time buyer.

Basically, the spouse who owns the 99 per cent stake will “buy” the remaining 1 per cent share. The usual buyer stamp duty (BSD) for this property transaction is payable but it will be nominal.

If the other spouse had used Central Provident Fund (CPF) funds to buy their first property, he must refund this sum plus accrued interest after selling his 1 per cent share before he could buy another residential property.