Stamp duty: Common mistakes to avoid
By Inland Revenue Authority Of Singapore
For the past three years, more than 90% of taxpayers have complied with the requirements for stamp duty, which is paid on documents or agreements related to properties in Singapore as well as stocks and shares. These include tenancy or lease agreements, acceptance of options to purchase as well as sale and purchase (S&P) agreements.
The minority who did not comply were mostly those who failed to stamp their documents, were late in stamping their documents or did not pay the correct amount of stamp duty due to incorrect computation, such as stamp duty being computed based on purchase price, which is far below the market value of the property.
The Inland Revenue Authority of Singapore takes a strong stance against the non-compliant taxpayers to ensure fairness of the tax system. IRAS recovered $21 million in taxes and penalties from stamp duty audits between FY2013 and FY2015. Some non-compliance scenarios that arose from taxpayers’ lack of understanding of stamp duty requirements include:
Transfer of property by way of gift
For transfer of property by way of gift, stamp duty should be based on the market value of the property. In an actual case, a homeowner who transferred his property by way of gift to his son stamped the document based on the consideration amount of $1 instead of the market value.
The recipient of the gifted property, who is liable to pay stamp duty, should ensure that the document is adequately stamped based on the reasonable market value of the property.
Misconception that stamp duty is not required for rental of rooms, sublet and lease renewals
There have also been cases where tenancy agreements were not duly stamped for rental of rooms, rental of whole property units and renewal of leases. Stamp duty is payable on signed documents for subletting and/or renewal of lease. Usually, tenants are responsible for paying the stamp duty, unless otherwise stated in the tenancy or lease agreements.
Tenants should ensure that tenancy agreements for rental of rooms, rental of whole property units and renewal of leases are duly stamped.
Additional buyer’s stamp duty
ABSD, introduced in December 2011, is to be paid on top of the existing buyer’s stamp duty. The ABSD rate depends on whether the buyer is a Singapore citizen, Singapore permanent resident, foreigner or corporate entity, as well as the number of residential properties owned by the buyer.
As the ABSD rate depends on the number of residential properties owned, a buyer should consider all such properties in the property count, including those that are completed or under construction; owned wholly by the buyer or jointly with others; transferred to the buyer by way of gift or inheritance; and held in trust where the buyer is a beneficiary stated in the trust instruments.
Close to 40 out of 437 stamp duty audit cases uncovered in FY2013- FY2015 involved non-compliance with ABSD. Several common non-compliance scenarios arose from negligence or lack of understanding of ABSD.
An example of non-compliance is a buyer who did not pay ABSD on the purchase of his third residential property. His claim was that he was not aware of his joint ownership in two other residential properties that were transferred to him from his late parents.
Another example is someone who did not pay ABSD on his second property as he thought that ABSD was not applicable to him as he had already discharged his loan for his first property, an HDB flat. However, ABSD is not dependent on the number of outstanding loans but the number of residential properties owned.
A third example is someone who did not pay ABSD on the purchase of a second residential property that was under construction, under the impression that ABSD was only payable at the point of completion, or upon the development’s obtaining Temporary Occupation Permit.
The penalties imposed for the cases above were up to two times the amount of ABSD that the buyer failed to pay.
Buyers should therefore seek advice from their lawyers or IRAS if they require assistance in determining their total property count.
Misconceptions on property and land use
There were instances where mixed-use properties had been regarded by buyers as commercial properties, and the buyers mistakenly thought that ABSD would not apply. For mixed-use properties, such as HDB shops with living quarters, ABSD applies to the portion where the permitted use is residential.
Buyers need to pay ABSD on the purchase of the following:
• Building units (including those under construction), where the permanent permitted use at the point of purchase is residential;
• Vacant land or entire building with land, depending on the Master Plan zoning. For example, a Singapore citizen who owned two residential properties bought an HDB shop with living quarters on the second storey. IRAS’s audit found that he paid only the 3% buyer’s stamp duty only. He claimed that the HDB shop with living quarters was a commercial property and would not attract ABSD.
However, ABSD applied to the living quarters on the second storey. The buyer therefore had to pay additional stamp duty of 10% and a penalty of two times the amount of ABSD that he had failed to pay.
Inaccurate advice given by intermediaries
IRAS also found that some intermediaries such as property agents and lawyers had given inaccurate advice on ABSD to their clients. For example, a Singapore citizen purchased his second residential property and signed the S&P agreement on June 11, 2013. ABSD payable was therefore 7%. However, his lawyer had referred to the outdated ABSD rules and failed to advise him that ABSD was payable.
After an audit review, the buyer was asked to pay ABSD of 7%. The lawyer agreed to pay the penalty of two times the amount of ABSD undercharged due to his negligence.
Intermediaries who handle conveyance matters for their clients have to be familiar with prevailing stamp duty policies and rates. They are responsible for ensuring that they provide correct advice on ABSD liability based on the date of document, permitted use/zoning, count of residential properties owned and the residency status of their clients.
Stamp duty fraud
IRAS takes a serious view of any individual or business that deliberately forges stamp duty certificates and knowingly misrepresents counterfeit “certificates” as genuine. IRAS will ensure that these individuals or businesses are dealt with appropriately in accordance with the law. The maximum punishment on someone who has been convicted of such a crime would be an imprisonment term of up to three years or a fine of up to $10,000 or both.
Since 2010, IRAS has prosecuted eight persons who forged or used counterfeit stamp certificates. The latest case pertained to a former paralegal who was convicted in February 2016 of forging and using counterfeit stamp certificates for property transactions. He was sentenced to 12 weeks’ jail.
Potential property buyers and tenants can check the authenticity of the stamp certificates in their possession by visiting the e-stamping website at https://estamping.iras. gov.sg. An authentic stamp certificate should bear the full details of the stamp duty payment, description of the document, address of the property, stamp duty amount and date of document. All these details, including the stamp certificate reference number, should match the information shown on the e-stamping website.
Although stamp duty is usually paid by property buyers and tenants, sellers and landlords should also request copies of stamp certificates and verify them online to protect their interests. For instance, in the event of legal disputes, the document has to be duly stamped before it can be admitted as evidence in court.
This article appeared in The Edge Property Pullout, Issue 756 (Nov 28, 2016) of The Edge Singapore.
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