What IRAS’s investigation into the 99-to-1 Property Scheme means for you?

In April 2023, ABSD-related headlines dominated news cycles as IRAS announced revisions to the ABSD rates, impacting homebuyers. Now, a year later, history seems to be repeating itself, albeit with a twist. Instead of revisiting ABSD rates, discussions are swirling around the 99-to-1 scheme in property-related circles.

So, what’s the deal exactly, and should you be concerned?

IRAS’s probe into 99-to-1 Scheme

The Inland Revenue Authority of Singapore (IRAS) is currently conducting audits to uncover cases of property purchases structured in a 99-to-1 manner, aiming to avoid the Additional Buyer’s Stamp Duty (ABSD).

Taking a step back: A refresher on the ABSD and 99-to-1 Scheme

Let’s break it down a bit. 

The ABSD is a tax added by the Singapore government on property purchases. This tax, layered on top of the Buyer’s Stamp Duty (BSD), applies to specific categories of property buyers. The rates of this duty change depending on the residency status of the buyer and how many properties they already own. For example, if you’re a Singaporean buying your second property, you might have to pay a 12% ABSD rate, while foreigners might face a 20% rate.

Now, let’s talk about the 99-to-1 scheme. This is a method property buyers use to minimise their ABSD liability. Essentially, it involves splitting property ownership between two parties in a 99:1 ratio, with one party owning just a tiny 1% share. By setting up the ownership this way, buyers aim to lower the amount of ABSD they have to pay. However, authorities are now keeping a close eye on these arrangements to prevent misuse and ensure everyone is following the tax rules.



IRAS’s response to tax avoidance

If IRAS finds that tax avoidance has occurred, they’ll take action to recover the rightful amount of stamp duty and might impose a 50% surcharge. They can also penalise those who don’t pay their duties on time. And remember, even if you sell the property, you’re still responsible for your stamp duty obligations.

The difference between tax avoidance and evasion

Let’s clarify something here. Tax avoidance is all about legally minimising tax liabilities through strategic planning and arrangements within the bounds of the law. This might include the 99-to-1 scheme if used correctly. 

However, tax evasion is a whole different story. It involves illegal activities aimed at deliberately evading tax obligations, like providing false information to tax authorities. IRAS is on the lookout for both, but tax evasion comes with serious consequences, including fines and jail time.

Expert opinions and legal considerations

Legal experts have weighed in on these matters. They emphasise the importance of having legitimate commercial reasons and proper documentation to back up your arrangements. Without these, you could find yourself facing extra scrutiny and potential penalties. So, it’s crucial to ensure everything is above board and in line with tax regulations.

What should I know if I plan on using the 99-to-1 Property Scheme in the future?

Experts advise caution when engaging in tax avoidance schemes like the 99-to-1 arrangement. Transparency and compliance with tax regulations are key. Make sure you have proper documentation to justify your arrangements and demonstrate genuine commercial purposes beyond just tax reduction. Without it, you could be risking trouble with the tax authorities.

TL;DR – I’ve used the 99-to-1 Property Scheme, should I be worried?

In short, if you’ve been involved in the 99-to-1 property scheme to avoid paying ABSD, you might want to brace yourself. IRAS is cracking down on these arrangements, and if you’re found to have engaged in tax avoidance, you could face hefty penalties. So, it’s essential to ensure your property dealings are above board and comply with tax laws.

Otherwise, for those who haven’t utilised this scheme for tax avoidance, there’s no need to fret. IRAS’s investigation serves as a reminder of the importance of transparency and compliance in property transactions. By following the rules and ensuring your affairs are in order, you can navigate the property market confidently and without unnecessary worry. Remember, staying on the right side of the law not only safeguards your interests but also contributes to a fair and equitable system for all.

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This article is a product of 99.co and is based on information gathered from various sources, including CNA. These sources are used in good faith to provide valuable insights. The source of the referenced content is duly credited and we recommend readers refer them for a comprehensive understanding of the topic. 99.co is not responsible for errors, omissions, or consequences from using this information.