As published on straitstimes.com, Tuesday 5 July, 2022.
Additional duties on property transfers and stake transfers in property holding entities to nameless living trusts are not meant to be wealth taxes but are instead part of market cooling measures, Senior Minister of State for Finance Chee Hong Tat said on Tuesday (July 5).
He was responding in Parliament to questions from four MPs about proposed changes in the law aimed at plugging a gap in the existing stamp duty regime.
Transfers of stakes in a property holding entity into living trusts with non-identifiable owners will be subject to additional conveyance duties (ACD) of up to 44 per cent if the new Bill is passed. Property holding entities include asset holding companies and family offices' fund vehicles which have their tangible assets mainly in residential properties in Singapore.
The ACD (Trust) duties will be payable on such transfers executed from May 10 and in situations where the significant ownership threshold has been reached. This means it will apply to a person who beneficially owns at least 50 per cent of the equity interests or voting power in the entity.
Under the proposed changes, a stamp duty is also imposed when interest in a residential property held on trust is renounced by a beneficial owner.
These changes affect people such as high-net-worth individuals who have been trying to use a nameless trust to avoid taxes.
Mr Chee said they are not expected to affect Singapore's position as a wealth management hub, in response to questions by Mr Don Wee (Chua Chu Kang GRC) on the move's impact on the country's hub status and its contribution to tax revenue.
He said: "ABSD (additional buyer's stamp duty) or ACD already apply to purchases of residential properties in Singapore, or transfers of equity interests in property holding entities as part of our property market cooling measures.
"The proposed amendments in this Bill are to ensure a fair and consistent tax treatment when such purchases or transfers are made through trusts."
The changes follow the introduction of ABSD for trust, or ABSD (Trust) which took effect on May 9. Under the rule, transfers of residential properties into a living trust are subject to an ABSD of 35 per cent, even if there is no identifiable beneficial owner at the time the property is transferred.
Workers' Party MP Louis Chua (Sengkang GRC) asked why the changes were not implemented earlier, what was the volume and value of such transactions that made use of this gap in the regime, and if there was an increase in transactions that prompted the Finance Ministry's review.
Mr Chee said that before ABSD (Trust) was introduced, transfers of residential properties into a trust with an identifiable beneficial owner were subject to ABSD.
Such transfers were not separately tracked before May 9 and were instead accounted for according to the profile of the identifiable beneficial owner, he said.
"ABSD would not apply before May 9 for trusts which do not have an identifiable beneficial owner, and this is what the proposed changes... seek to address, to ensure that ABSD and ACD continue to remain relevant as property market cooling measures, irrespective of whether trusts are used," added Mr Chee.
Trusts can be set up for various reasons, including non-tax purposes such as to provide for charitable giving, he said.
"Given the diversity and complexity of trust instruments, we decided to study the proposed changes carefully, and do a thorough review so that we could achieve our policy objectives while avoiding unintended consequences," he added.
Mr Louis Ng (Nee Soon GRC) asked how the Inland Revenue Authority of Singapore (Iras) determines the existence of an associate relationship between parties with an oral or implied agreement, or an arrangement to acquire, hold or dispose of equity interests and exercise votes in a property holding entity. Examples of associates include parents, children, spouses and associated companies.
Mr Chee said such relationships are already factored in under the existing ACD regime, and Iras examines supporting documents that include a declaration of associates and equity interests in the property holding entities they beneficially own.
Progress Singapore Party Non-Constituency MP Leong Mun Wai said Singapore has a tax regime that favours the rich, citing examples such as a lack of capital gains taxes and low personal income taxes, and added that loopholes should be dealt with strictly.
Mr Chee said in response that Singapore's system of taxes and benefits is fair and progressive when considered as a whole.
He added: "Everybody contributes, but those who earn more and have more will contribute more, while those who have less and are more vulnerable, the lower income, they will receive more benefits and more help."