Introduction
On September 20, 2024, a significant milestone was reached in Singapore’s legal history as a mother and son were charged with providing false information to the Inland Revenue Authority of Singapore (IRAS) during an audit of a “99-to-1” property purchase scheme. This case marks the first prosecution under this specific arrangement, highlighting the importance of understanding and adhering to tax laws in property transactions.
The ’99-to-1′ Property Purchase Scheme
The “99-to-1” scheme involves a property owner selling 1% of their stake to a co-owner, thereby reducing the Additional Buyer’s Stamp Duty (ABSD) payable. This arrangement is often used by individuals who already own residential properties and are subject to higher ABSD rates on subsequent purchases.
How It Works
- Step 1: Initial Purchase – The primary owner, typically a Singaporean citizen or permanent resident, buys the property in full, avoiding the ABSD.
- Step 2: Transfer of Ownership – The primary owner then sells 1% of the property to the co-owner, who pays the ABSD only on that 1% share.
- Example Illustration – If the property costs $1 million, the primary owner would sell 1% to the co-owner for $10,000. The co-owner would pay $2,000 in ABSD (20% of $10,000), significantly reducing the overall tax liability.
The Case: Mother and Son Charged
A mother and son duo were charged with providing false information to IRAS during an audit of their “99-to-1” property purchase. This case underscores the risks associated with exploiting loopholes in tax laws.
Charges and Investigation
- Charges – The mother and son were charged with providing false information to IRAS, which is a serious offense under Singapore’s tax laws.
- Investigation – The IRAS audit revealed that the duo had structured their property purchase to avoid paying the full ABSD. This arrangement was deemed suspicious, and further investigation was conducted to determine if they had engaged in tax avoidance.
Legal Consequences
The prosecution of the mother and son serves as a warning to those who attempt to exploit loopholes in tax laws. The legal consequences of such actions can be severe and include:
Penalties for Tax Evasion
- Reassessment of Transactions – IRAS has the authority to reassess transactions that are deemed to be part of a tax avoidance scheme. This can result in the imposition of the full ABSD plus a penalty.
- Penalties and Fines – Individuals found guilty of providing false information to IRAS can face significant fines and penalties, including imprisonment.
Lessons Learned
The first prosecution of the “99-to-1” property purchase scheme highlights several key lessons for property buyers and sellers in Singapore:
Understanding ABSD
- ABSD Rates – The Additional Buyer’s Stamp Duty rates vary based on citizenship and the number of properties owned. For example:
- Singapore Citizens: 0% for the first property, 20% for the second property, and 30% for subsequent properties.
- Singapore Permanent Residents: 5% for the first property, 30% for the second property, and 35% for subsequent properties.
- Foreigners: 60% for all properties.
- Entities or Trustee: 65% for all properties.
Legal vs. Illegal Arrangements
- Legitimate 99-1 Arrangement – IRAS allows the 99-1 arrangement if there are bona fide commercial reasons and not used to evade ABSD. This arrangement can be structured legally by consulting a professional real estate consultant or a lawyer specializing in property transactions.
- Illegal Loophole – The 99-1 loophole involves buying the property in full and then selling a small share to a co-owner who already owns another property. This is considered tax avoidance and can lead to severe legal consequences.
Conclusion
The first conviction in Singapore’s “99-to-1” property purchase scheme underscores the importance of adhering to tax laws in property transactions. While the 99-1 arrangement can be structured legally, exploiting loopholes can result in severe penalties. It is crucial for property buyers and sellers to understand the differences between legitimate and illegal arrangements to avoid legal consequences.
