Detailed investigation into personal finances makes investing tough

OF LATE, relatives and friends looking into investing in property have found the process very difficult, with the Inland Revenue Authority Of Singapore (Iras) asking for details pertaining to their property transactions. These investigations are highly detailed and intrusive; tend to drag on for months and may even involve face-to-face meetings with a panel of senior tax officials.

Iras typically takes issue with two things: The source of funds and whether the individual is deemed to be a property trader.

Documents requested for include sales and purchase agreements, tenancy agreements, personal bank statements (occasionally including that of spouses and children), mortgage loan contracts and profit and loss statements.

But why should the burden of proving that funds came from a legitimate source fall on property investors? How individuals manage their finances is a very personal matter. The veil accorded under the Banking Secrecy Act should only be lifted if there are strong reasons for Iras to believe that the source of funds are illegitimate.

Generally, the profit derived from the sale of a property in Singapore is not taxable as it is considered a capital gain.

However, when someone is deemed to be trading in properties, the gains from the sale of property is taxable. To determine if this is so, Iras looks at the frequency of transactions, the buyer’s financial means to hold the property for the long term, the reasons for acquiring and selling of property and the holding period.

These factors were only put up on the Iras website recently. Previously, even if investors had wanted to act in accordance with the law, they would have been groping in the dark.

Also, “reasons for acquiring and selling of property” and “holding period” are very fluid considerations. An individual may have initially intended to buy a property to generate rental income over the long term. However, the property boom in 2007 was an extraordinary time. Capital values of many properties doubled or even tripled within months.

The profits made from selling these properties would have been equivalent to 15 to 25 years of rental income! Iras should not blacklist owners who changed their minds and sold off their properties quickly under these circumstances.

Tan Choon Meng

Source : Today – 11 Feb 2009

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