Wednesday, July 08, 2009

Does proposed property tax law make sense???

http://www.straitstimes.com/Breaking%2BNews/Singapore/Story/STIStory_400458.html

There is a proposed change to income tax laws to tax property sellers when they profit from the sale. The law is targeted at speculators as it allows a person to sell one property without tax in any four year period. So if you sell another property within 4 years of your last sale you can be taxed.

If you read the article carefully, the law is supposed to provide certainty in our tax laws. Under the current law, the tax man can come after you if he decides that you're a property trader. However, the law is ambiguous on what constitutes 'trading'. I've never heard of any individual being taxed for property trading. However, with the amendments - the certainty is the taxman now can come after you if you sell 2 properties within 4 years.

This proposed law caused property stocks to tumble today on the stock exchange.

The proposed law looks like it is aimed a property speculators. However, not everyone who sells 2 properties within 4 years is a speculator. For example, if you sold your property and upgraded to a private property that gets en bloc, you are forced to sell your property. Or you might want to upgrade your home within 4 years because you found a better place. People change the place they work often these days and they might shift to a better location within 4 years.

One way to fix this law is to make it non-applicable to own occupied properties. If I buy a place to stay, and then shift twice in 4 years but each time I own only one property which I occupy, it is unlikely for me to be a trader.

Making the law clearer doesn't make the law better.


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When to tax property gains 10 min
By Goh Eng Yeow, Senior Correspondent
A PROPOSED change to income tax laws will make clearer to property sellers when they will be taxed on their profits.
Anyone who sells only one property in any four-year period will not be taxed on his profit, according to a proposed amendment to the Income Tax Act.

But if he sells another property within four years of the first sale, the profit from the second sale may be taxable.
If the proposal becomes law, it will provide certainty for owners who now cannot be sure if the taxman will come calling after they sell.
Under existing rules, an individual does not pay tax on gains made from selling a property unless the taxman decides that he is trader - someone who buys and sells multiple properties within a short time span. And there is no way for the seller to know in advance if he might be deemed a trader.
The new way of taxing property profits is one of many changes listed in a draft Income Tax (Amendment) Bill 2009 put up for public feedback last month by the Finance Ministry. If implemented, the change will take effect from January.
A ministry spokesman told The Straits Times on Tuesday that the proposed change aims to provide certainty of non-taxation to individuals who own property.
Once it takes effect, the individual who sells a property for a profit can be sure that his gains will not be taxed - provided he had not sold any other property in the previous four years.
If he sold other properties within that period, the spokesman said, the Inland Revenue Authority of Singapore (Iras) will decide whether he should be taxed, 'based on the facts and circumstances, no different from the present tax treatment'.
The draft Bill can be read at the Finance Ministry website www.mof.gov.sg and the public has up to next Tuesday to give feedback. The Bill is expected to go before Parliament later in the year.
Read the full story in Wednesday's edition of The Straits Times

10 comments:

Anonymous said...

Great news ! This will nail all these speculators who have been "screwing" up the property prices. Now let's sit and wait for the property price to drop.

What a welcoming news.

Anonymous said...

yeah, dude. can't wait for the property market to crash...

Anonymous said...

Property market won't crash in Singapore lah. 700 sq km only what. Gahmen just control the supply the price will move also what. Or get in more foreigners price also move what. Just like COE. I just heard it rise again.

So gahmen can control one, don't worry got crash unless you hope PAP voted out at next election! Hope long long lah.

Ghost said...

The proposed law looks good. If you sell 2 properties within 4 years, chances are you are a speculator. Few people I know can upgrade their property within 4 years

Anonymous said...

I bet to differ with the above opinions and would say that the property tax law does not make sense.

Before 1998 Asian Economic Crisis, the government was worried about speculation in the property market and came up with the Anti-speculation Act which people could not sell the property unless after 3 years. Then later, when the economy turned bad, they abolished the anti-speculation act.
The tax law does not make sense because like any other policies, it would just 'blanket' everybody. I think it is necessary sometimes to consider the objective of such a policy. I remembered when I was in school, we were taught about cost-benefit analysis and several other methods when it comes to drafting policies.
As for property prices, people have different schools of thoughts. My view is that the private property market prices are not driven primarily market demand. Singapore has an unique situation whereby 80% of us lived in HDB. If HDB five room flat is $500k, do you expect the private developers to price their units lower than that?
I do not know whether this law applies to HDB flat. If the law is aimed at stablising resale flats, then it also does not make sense because if you downgrade HDB flat, you will not enjoy substantial interest savings from HDB.
In my opinion, I think it may affect only a certain group of people, but is it really necessary?

Anonymous said...

Anon 10:15 AM

I like your informed views. And I am also wondering why the subject policy is necessary.

I know of more people who lose than those who profit through upgrading or buying a 2nd property.

But then when we think of PAP the blood sucker, we should understand why.

Well, PAP employs many underlings who have been trained to be "sniffer dogs". They will sniff every part of society and when they detect some people making money from properties even though it is a minority, they will propose a new policy to extract blood.

Of course these clever underlings are not bothered about those who lose big on properties like those miserable shop owners who have bought HDB shops from the govt many years back.

The main reason they are suffering according to some shop owners I know is because PAP created so many shopping centres that pull away all their customers.

Anonymous said...

It makes perfect sense.
The rich and connected are not affected at all while making sure that undeserving small people do not get a free lunch.

Anonymous said...

the gahment certainly does not wish to see the property market crash lah. In fact it has everything to gain from a buoyant property market & i think the opposite will happen - more certainty for ppl to speculate.

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