Earlier this year, Channel News Asia reported that 59,000 people in Singapore owned two private properties in Singapore, while 20,000 people owned between three and ten private properties. From a wealth planning perspective, one should naturally consider the tax implications associated with the re-sale of such properties.
This legal update discusses the recent case of BQY & Anor v Comptroller of Income Tax, where the Singapore High Court determined the circumstances under which a party will be required to pay income tax on profits from the sale of additional properties that were intendedly purchased as family homes. To start, this article shall help you define, as it is in Court, what exactly matrimonial assets are.
BQY ANOR V COMPTROLLER OF INCOME TAX
The case involved a wealthy businessman and his wife who owned their Binjai Park family home. They had previously lived in a West Coast Road home which they still owned; and had bought and re-sold three other Good Class Bungalows between 29 June 2005 and 11 January 2011.[i] These resale profits amounted to S$16,047,336, and the Tax Comptroller asserted that the Good Class Bungalows were bought and sold with the intention of reaping an income gain.
The couple disagreed, and explained that their intentions at the time of the individual purchases were to use the properties as their residential homes. The properties were subsequently re-sold because they were found unsuitable. While it was undisputed that the sale of a house intendedly purchased as a residential home would constitute a capital gain rather than an income gain, the Comptroller argued here that the profits in this case were actually income gains. This assessment was based on the circumstances surrounding the re-sales, and the Comptroller consequently subjected the profits to income taxation in accordance with Section 10(1)(g) of the Income Tax Act – which provides the statutory obligation to pay income tax on any “gains or profits of an income nature”.
BUYER’S INTENTION AT TIME OF PURCHASE
The couple’s legal counsel argued that it did not matter that the three re-sales were done in less than six years. This was because the key consideration should be the buyer’s intention at the time of the purchases, and the re-sale gain should not constitute a taxable income since there was an absent intent to make any income gains.
Additionally, it was argued that the Tax Review Board erred when they adopted a ‘reasonable man test’ rather than considering the actual intention “objectively inferred from the actual surrounding circumstances”. In response, Justice Choo found that there “is no magical or fail-safe method” in ascertaining such intentions, and that “the court as a finder of fact, can only look at the action or conduct of that person and see on the balance of probabilities, whether the conduct was more consistent with one intention or the other”.
CONDUCT OF THE PARTIES
According to Justice Choo, there was a “need to see beyond the three properties in question, or we may not see the whole picture”. The original West Coast Road home was never sold, while the parties never moved into the three properties in dispute which “were turned over in about nine, ten, and three months respectively”. The parties had “moved into the Binjai property which was bought in June 2012 — but that was after the Comptroller had started asking questions in February 2012, concerning the previous three properties”. Based on the facts in the case, Justice Choo eventually reached the conclusion that “the intention of the appellants was to purchase those properties for resale with a view of making a profit”.
As affluence continues to result in multiple private property ownerships, issues regarding associated tax obligations will continue to appear. The judgment in BQY & Anor v Comptroller of Income Tax indicates that the High Court is prepared to find that income tax need not be paid on re-sale gains on properties intendedly purchased as family homes. However, a key determining factor in reaching such a conclusion is the court’s assessment of the intention of the parties based on their “whole picture” conduct at the time of purchase. This conduct must have exhibited an intention to purchase the property for use as a residential home, in order for the re-sale gains to be considered capital gains.
– Bek Benjamin, Legal Research Intern and ANU Law Student
Please note that this article does not constitute express or implied legal advice, whether in whole or in part. If you require legal advice, please contact us firstname.lastname@example.org for your free first legal consultation. While efforts have been made to ensure the accuracy of the work, any errors remain the author’s own.
[i] A Wilby Road bungalow was purchased on 29 June 2005 for $5.4m and re-sold about nine months later on 17 March 2006 for $6.25m – yielding a gain of $580,255. A Brizay Park bungalow was purchased on 21 October 2009 for $20.4m and re-sold on 26 July 2010 for $35m – earning a profit of $13,617,092. A Garlick Avenue bungalow was purchased for $18.7m on 19 October 2010 and re-sold on 11 January 2011 for $21.8m – making a profit of $1,849,989.