Avoiding ABSD through sham deals can cause you to lose your properties

99-to-l arrangements to avoid taxes deemed illegal, even if no transaction has been made

- Tan Ooi Boon

The days of owning properties in disproportionate shares such as 99-to-1 to avoid taxes are over, because doing so can cause you to be in trouble with the taxman or, worse, lose the property in a dispute.

This essentially is the impact of a recent ground-breaking decision from Singapore’s highest court that emphasised that property investors who try to circumvent taxation law that governs real estate can expect to face both state penalties and financial losses.

The ruling will make property investors sit up because the Court of Appeal went as far as outlawing sham arrangements that are done in anticipation of tax gain, even when the investors have yet to go ahead with a transaction that has the effect of evading tax.

While such investors will not face tax penalties since they have not evaded any tax, they may still lose their properties if they get into a dispute because the courts will not help them to uphold a sham arrangement.

This is similar to the rules made by English courts, where “equity”, the legal principle that focuses on fairness and justice, will not help those who have tainted their transactions with “unclean hands”.

In making the landmark ruling for property cases here, three senior judges — Chief Justice Sundaresh Menon and judges of the Court of Appeal Steven Chong and Hri Kumar Nair — overturned an earlier decision of the High Court, which ruled in favour of an owner who bought a $1.9 million condominium unit in a 99-to-1 share with his then girlfriend.

When the couple broke up, the man, who held the 1 per cent share, wanted his rightful share because he paid for over 50 per cent of the property.

He admitted that he had retained only a minute share during the purchase because he wanted to save on taxes in a future “decoupling” — transferring the 1 per cent to the girlfriend - so that he can buy a fresh property as a non-owner who would not need to pay the additional buyer’s stamp duty (ABSD).