Tax on property gains: Up to Iras to decide

Source : Sunday Times – 12 Jul 2009

Whether or not a property seller is taxed on his profits is ultimately up to Iras.

The tax agency does not require individuals to alert it when they sell their properties. Iras has always conducted its own audits of property transactions for possible cases of assessable income.

It will use yardsticks such as the circumstances leading to the sale, how long the investor has held the disposed property and how frequently he has been selling properties in the past.

Let’s assume that a certain investor is among those audited for income, and that after taking all these factors into consideration, Iras decides that he should be taxed.

If he earns an annual income of $100,000, and he has made a gain of $300,000 on selling his properties, his total assessable income for the year will now jump to $400,000.

A back-of-the-envelope calculation shows that his income tax will also soar by $51,600 – from $7,100 to $58,700.

This is largely because the surge in his income has pushed him into a higher tax bracket: his top tax bracket has gone from 14 per cent to 20 per cent.

In Singapore, individuals do not pay tax on their first $20,000 of annual income.

They will pay 3.5 per cent tax on the next $10,000 they earn and 5.5 per cent on the following $10,000.

Income above $40,000 will be taxed at 8.5 per cent, and for amounts more than $80,000, the rate goes up to 14 per cent.

The maximum rate is 20 per cent, which is applied to whatever income an individual earns over his first $320,000.