Some home buyers facing ‘99-to-1’ ABSD probes blaming it on advice from real estate agents
Source: Business Times
Article Date: 23 May 2024
Author: Jessie Lim
Lawyers say holding property in such an arrangement would not always constitute tax avoidance.
As the government continues to probe residential property deals for tax avoidance, some buyers now facing investigation are claiming they were coached by real estate agents to structure their purchases with the so-called “99-to-1” arrangement.
One such buyer, who now faces a few hundred thousand dollars in Additional Buyer’s Stamp Duty (ABSD) payment and surcharges, told The Business Times she was “advised by (the) agent, with the assistance of the banker and lawyer, to go with this arrangement” so that the couple could secure sufficient financing for their home purchase.
The buyer, speaking to BT under conditions of anonymity, said they were looking for a new home a few years ago and she was earning a higher income than her fiance back then. They bought a condominium unit for under S$2 million.
While she already owned another property, she had every intention to put it up for sale afterwards, she said.
“My fiance bought the unit first and sold a 1 per cent share to me after. I sold my house immediately. I wasn’t even holding onto it,” she said.
Another buyer told BT that he was encouraged by the agent marketing a property that he viewed to do a 99-to-1 structured deal.
He said: “When we met him, he said we should really do ‘99-to-1’. He kept saying how in the future we could sell the 1 per cent share and avoid ABSD.”
While the buyer bought the property, he did not engage the agent or take his advice. “The agent wasn’t even secretive about it. He said everybody does it, and I think maybe he shared this because he wanted to have our business in the future.”
Some agents openly advertise their ability to “advise” on ABSD. One such website lists several ways to “beat ABSD” and explains the process and the “benefits” of a 99-to-1 property ownership arrangement.
As at April, Iras has completed a review of 187 cases involving 99-to-1 schemes, of which 166 cases were found to have involved tax avoidance. About S$60 million in ABSD and surcharges will be clawed back.
Out of the 166 cases found to have involved tax avoidance, about 10 cases with evidence of potential involvement by property agents are currently under review by the Council for Estate Agencies (CEA).
The 99-to-1 scheme is essentially a tenancy-in-common structure where ownership of the property is split in an agreed ratio.
Iras is cracking down on arrangements where one owner, who already owns a property, is assigned a 1 per cent share in what would be their second property. For instance, a Singapore citizen owner, who would otherwise have to pay 20 per cent ABSD on their second property, would then pay ABSD on only 1 per cent of the purchase price. Under the scheme, the owner would later sell their 1 per cent share to the other co-owner.
In Iras’ view, the single purchase has been split up into two or more steps to reduce the tax payable.
When asked whether it is illegal to structure deals in a 99-to-1 arrangement, Iras said: “Where a “99-to-1” arrangement is found to be tax avoidance, the Commissioner of Stamp Duties is empowered… to disregard the individual steps and assess stamp duty as a single joint purchase, and to recover the rightful amount of ABSD due.”
In response to queries from BT, Iras said the agency’s audit will be done in phases.
“Iras will audit as far back as necessary. In cases of tax avoidance, Iras may impose (a) 50 per cent surcharge. The 50 per cent surcharge is applied on the additional duty payable.”
A tax avoidance arrangement normally involves an arrangement that is “artificial, contrived or has little or no commercial substance” and is designed to obtain a tax advantage that is not intended by the government, Iras said.
Lawyers said that holding property in a “99-to-1” arrangement would not always constitute tax avoidance.
For instance, if two siblings decide to buy a property together, but one of them can only afford to pay a small portion of the purchase price, they may decide to make this clear in the shareholding, said Mabel Tan, a senior partner at law firm Joseph Tan Jude Benny.
Norman Ho, a senior partner in corporate real estate at Rajah & Tann, said that in some genuine cases, owners may decide to jointly hold the property in different proportions, say 99-to-1, for the purpose of estate planning, risk allocation or with the intention to purchase another property.
Structuring holdings in a 99-to-1 method allows the 1 per cent stakeholder to exit the deal by selling the 1 per cent stake to the co-owner, so that the individual is no longer a property owner when they buy another property.
Tan said: “One situation involves planning for the future just in case an owner wishes to buy another property; the other is very clearly to avoid paying ABSD.”
If lawyers or agents are directly involved in advising buyers knowing that the intention is to avoid tax, then they may also be liable under their respective professional rules for aiding the scheme to avoid tax payment, said Ho.
Justin Quek, chief executive officer of OrangeTee & Tie, said: “In light of the recent discussion surrounding the ‘99-to-1’ arrangement by Iras, our company has taken proactive measures by advising our agents to discontinue discussion of this method of ownership, if any. Furthermore, we have been working closely with legal professionals to ensure that this is no longer practised.”
Eugene Lim, ERA’s key executive officer, said: “Buyers should always seek advice from the relevant professionals such as lawyers and tax professionals on the types of co-ownership and their implications before committing to a purchase. The agent’s role is to facilitate the transaction, and in the process of doing so, may recommend that buyers seek advice from professionals.”
CEA said it takes a serious view of property agents who do not act responsibly and professionally, and that it would take action against agents or agencies who breach the Code of Ethics and Professional Client Care.
Failure to comply with regulations could lead to agencies incurring a fine of up to S$200,000 per case, while individual agents could face fines up to S$100,000 per case. CEA may also suspend or revoke a property agency’s licence, or an agent’s registration.
Source: Business Times © SPH Media Limited. Permission required for reproduction.
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