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99-to-1 property scheme: IRAS conducting regular audits to uncover 'contrived or artificial' arrangements

The arrangement to split property ownership in this manner has attracted the attention of authorities over possible cases of tax avoidance.

99-to-1 property scheme: IRAS conducting regular audits to uncover 'contrived or artificial' arrangements

File photo of private homes in Singapore. (Photo: CNA/Jeremy Long)

SINGAPORE: Audits of a property purchase arrangement – commonly known as a 99-to-1 scheme – are part of regular checks by Singapore's tax authority to uncover "contrived or artificial" setups that home buyers use to avoid paying tax or stamp duties.

The ongoing probe, which looks into arrangements where the ownership of a property is split in a 99:1 ratio, also covers those where the second owner has a share greater than 1 per cent, said the Inland Revenue Authority of Singapore (IRAS) on Thursday (Apr 6) in response to CNA's queries.

The Straits Times reported last weekend that IRAS had begun investigating cases of property purchases structured in a 99-to-1 manner for the purpose of avoiding the Additional Buyer’s Stamp Duty (ABSD).

What is ABSD and how does the 99-to-1 scheme work?

The government introduced ABSD as a tax in 2011 to manage demand for property. Singaporeans must pay 17 per cent in ABSD when purchasing a second property, and 25 per cent on subsequent purchases.

Those figures are higher for permanent residents and foreigners.

ABSD is computed "on the purchase price as stated in the dutiable document or the market value of the property", whichever is the higher amount, according to the IRAS website.

There are two ways to buy property in Singapore when there are two owners: One would be joint tenancy, which is commonly used by couples, where both parties will have an equal share of the property.

The second way would be tenancy-in-common, which is commonly used for investment properties. Under this structure, the co-owners own a specific number of shares in the property and this could be split in any ratio, such as 80 to 20.

IRAS is looking into the second way – private property buyers who have entered into split agreements with the possible intention of avoiding ABSD.

If the 99-to-1 intention is declared at the outset, the ABSD is payable as long as one party is an existing property owner.

What IRAS is looking out for are cases of possible tax avoidance by buyers who have entered into a 99-to-1 scheme in which the 1 per cent stake is sold immediately after the purchase option is exercised.

Using such an arrangement, where the 1 per cent stake is sold in the second stage, as an example:

A person who owns a residential property buys a second. This means he is liable to pay ABSD of 17 per cent.

If the property costs S$1 million (US$752,000) and he buys 1 per cent of this, his share of the property is S$10,000. Therefore, he has to pay 17 per cent of S$10,000 – that is, S$1,700 – as ABSD.



In its statement on Thursday, IRAS said it would "review the facts and circumstances surrounding the arrangement".

If it determines that tax avoidance has taken place, it will recover the rightful amount of stamp duty and impose a 50 per cent surcharge on the additional duty payable.

If the stamp duty and surcharge are not paid by the deadline, it can also impose penalties of up to four times the outstanding amount.

IRAS added that the time frame does not matter and that audits can be conducted on any past cases or transactions.

On the distinction between tax avoidance and tax evasion, it said that the former "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".

Tax evasion is a criminal offence. IRAS gave the example of someone deliberately providing inaccurate or incomplete information about their activities to reduce their tax liability.


Professor Kelvin Low from the National University of Singapore's Faculty of Law said that while "not all 99-to-1 tenancy in common shareholding structures are shams", the cases that IRAS is looking into have raised eyebrows.

"Based on blog posts and YouTube videos, it appears that the 99-to-1 holding structure was initially intended for the initial purchase by a couple of their first private property," he said.

However, for the cases in the IRAS probe, it is "strongly arguable that the 99-to-1 shareholding structure was intended from the outset, making the initial 100 per cent ownership intermediate transaction simply a sham" to avoid paying ABSD, said Prof Low.

"Based on media reports, these persons (the initial buyer) are typically unable to purchase the property because they would not be able to meet the TDSR rules put in place by MAS and borrow sufficient funds for the purchase. In other words, the participation of the other 1 per cent co-owner was always necessary for the purchase.

"This makes it very difficult to argue that the initial transfer to the eventual 99 per cent co-owner of 100 per cent of the property was not a sham."

TDSR, or total debt servicing ratio, refers to the maximum proportion of a person's gross monthly income that goes towards repaying monthly debt obligations.

According to tax specialist Vincent Ooi, there are two ways taxpayers can possibly get into trouble with a 99-to-1 arrangement – if they entered into it to avoid stamp duties and if they “understamp”, which means they did not pay the correct amount of duty.

Tax avoidance is when an arrangement has the effect of giving a person a tax advantage and the arrangement is entered into without bona fide commercial reasons, said Mr Ooi, who is also a lecturer at Singapore Management University’s (SMU) Yong Pung How School of Law.

In the case of tax avoidance, the correct amount of tax based on the arrangement under the law is paid, but IRAS invokes the general anti-avoidance provision to negate the tax advantage.

For cases of understamping, an incorrect amount of tax under the law is paid.

“For example, if a taxpayer perpetuates a sham to pay less stamp duties, the legal effect of the sham is that it is void, meaning that less tax than the law requires was in fact paid,” Mr Ooi said.

However, buyers should not fear having to answer IRAS’ questions as long as their arrangement is defensible and does not count as avoiding tax or understamping, he added.


Ms Joanna Yap, managing director of Sabara Law, said that unlike tax evasion, tax avoidance is not a crime.

“Assuming that the case in question is not one of tax evasion, IRAS, who invoked the tax avoidance provision to recover the shortfall of ABSD, surcharge and interest (if any), will lie as a civil claim against those who took advantage of the scheme,” she said.

“This means that there will not be any criminal sanctions imposed.”

For those who fail to pay the shortfall of ABSD, IRAS can initiate proceedings – such as appointing agents to recover funds, said Ms Yap. 

On the other hand, fraudulently declaring or withholding information from IRAS is considered tax evasion – an act that is “a lot more serious”, said SMU's Mr Ooi, adding that offenders face up to three years in jail.

He also noted that Singapore makes a distinction between cases of tax avoidance and tax evasion.

“Under the law, the taxpayer would pay the correct (lower) amount of tax, but the IRAS may invoke the general anti-avoidance rule to negate that tax advantage,” he said.

“In the case of tax evasion, the taxpayer engages in fraudulent activity to pay an incorrect (lower) amount of tax.”

There is also another possibility – those who understamp can also be penalised even though they may not have any fraudulent intent.


"The 99-to-1 split is not a hard and fast rule," Mr Ooi said. "IRAS is likely to audit cases with any proportion of holdings that they think requires probing."

Property buyers hoping to avoid tax or understamp their assets should not do so, he added.

"If they wish to engage in a 99-to-1 split arrangement for bona fide commercial reasons, they should clearly document their reasons for doing so," he said.

"IRAS has enacted targeted anti-avoidance rules to deter tax avoidance on numerous occasions in the past. Moving forward, it may well do so in the present case as well."

Those who are involved in such arrangements should take the opportunity to make a voluntary disclosure as soon as possible before their case is picked up for an audit, said Ms Yap.

As the ABSD was introduced in 2011, there is a possibility that cases dating back over a decade could be uncovered.

“With the announcement that IRAS is probing the (99-to-1) scheme, it is quite clear that IRAS is expecting those involved to make a voluntary disclosure," she added.

“If no voluntary disclosure is made, then it would be a case of when or if ever the case will be uncovered by IRAS, given that there is no time bar."

However, she pointed out that lawyers who helped buyers enter into such arrangements currently fall outside the purview of IRAS.

Mr Ooi said the lawyers may have also "expressly declined to advise on such matters or limited their liability for their advice".


Ms Yap said options for those who are already involved in the 99-to-1 scheme are “very limited” – those who have been picked up for audit will need to resolve it with IRAS, while those who are yet to be picked should consider voluntary disclosure.

“Those who can demonstrate that there were bona fide commercial reasons and the main purpose of entering the scheme was not to avoid or reduce ABSD should be prepared to defend their position against IRAS,” she said.

Mr Ooi added: "Clearly such audits have currently become a priority and we can expect the frequency of audits to go up considerably."

Ms Yap also said that it is not possible to unravel the arrangement and that selling the property does not absolve parties of their obligations to pay the stamp duty.

“The IRAS probe means that the ‘loophole’ is generally no longer available,” Ms Yap said.

“Any declaration of 99-to-1 sharing at the exercise option or as per the scheme will cause IRAS to raise its eyebrows. If there are indeed legitimate reasons for doing so, then such reasons should be properly documented and made available to IRAS when the occasion calls for it.”

Source: CNA/ga/ac(sn/mi)


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