Tag: Property Tax Act

Goods and Services Tax (Amendment) Bill [No. 17/2013] introduced in Parliament

On By taxsgIn Goods and Services Tax Act, Income Tax Act, Latest Tax News, Legislative Updates, Property Tax Act, Stamp Duties Act

24 October 2013

The Goods and Services Tax (Amendment) Bill was introduced in Parliament on 21 October 2013. This Bill seeks to amend sections 6, 25, 27, 33, 37B and 79 of the Goods and Services Tax Act (Cap. 117A, 2005 Ed.) and insert a new section 83E.

In addition, the Bill also makes related amendments to the following:

  • Sections 6 and 57(6A) of the Income Tax Act (Cap. 134, 2008 Ed.)
  • Section 38(11) of the Property Tax Act (Cap. 254, 2005 Ed.)
  • Section 70(7B) of the Stamp Duties Act (Cap. 312, 2006 Ed.)

Full details of the amendments can be found in the “Explanatory Statement” of the Bill. A copy of the Bill is available on the Parliament of Singapore website at http://www.parliament.gov.sg/publications/bills-introduced.

Source: Government Gazette

MOF conducts public consultation on changes to the Property Tax Act

On By taxsgIn Latest Tax News, Property Tax, Property Tax Act

26 July 2013

The Ministry of Finance is seeking feedback on the draft Property Tax (Amendment) Bill 2013 relating to changes announced in the 2013 Budget Statement. This exercise will be conducted from 25 July to 14 August 2013.

The proposed amendments include the removal of property tax refund for unoccupied residential and non-residential dwellings, effective 1 January 2014. This is in agreement with the policy intent of taxing property wealth rather than use. It is also consistent with the tax treatment of all vacant properties.

Another key change is the introduction of progressive property tax rates for residential properties from 1 January 2014. Additionally, the Bill extends the deadline for filing objections and appeals on property tax assessments from the current 21 days to 30 days.

For full details, please refer to the Ministry of Finance’s website or the REACH consultation portal.

Source: Ministry of Finance

Court of Appeal – HSBC Institutional Trust Services (Singapore) Ltd v Chief Assessor – [2013] SGCA 4

On By taxsgIn Case Updates

3 February 2013

Property Tax – Annual value

The Appellant is the trustee of a trust which owns a shopping centre (“the Property”). The Asset Items of the shopping centre consist of escalators, lifts, air-conditioning and fire safety systems installed within the Property. It is common ground that the Asset Items are fixtures.

A sum of $0.20 psf, representing the annual depreciation of the plant and machinery of the Property including, inter alia, the Asset Items, was included in each tenant’s monthly gross rent.

The Appellant sought to exclude the depreciation component in the computation of the annual value of the units in the Property for the purposes of assessment of property tax. However, the Chief Assessor ruled that the depreciation component should be included in the computation of the annual value of the units.

The Valuation Review Board agreed with Appellant but this decision was reversed by the High Court.

The Appellant appealed to the Court of Appeal. The question was whether the High Court Judge was correct to have refused to exclude the depreciation component in the rent paid by a tenant in determining the “annual value” for the purposes of property tax assessment.

The issues before the Court of Appeal were:
(a) what is the proper test for excluding an expense which has been included in the gross rent when determining the annual value of a property, and in particular the relevance of the fixture test and/or the enhancement test in that regard (“Issue 1”); and
(b) on the application of the test determined by Issue 1, whether the depreciation component should be excluded from the annual value of each unit in the Property (“Issue 2”).

“Annual value” is defined in s 2(1) of the Property Tax Act to be “the gross amount at which the same [property] can reasonably be expected to be let from year to year, the landlord paying the expenses of repair, insurance, maintenance or upkeep and all taxes (other than goods and services tax)”.

Two phrases in s 2(1) were analysed. The first being “reasonably be expected to be let from year to year”, and the second being “the landlord paying the expenses of repair, insurance, maintenance or upkeep and all taxes” (other than goods and services tax)”(“the qualifying words”).

On Issue 1,the Court of Appeal agreed with the High Court that the touchstone was whether each component in the gross rent, was related to rent or letting (“the rent or letting test”). This is based on the first phrase in s 2(1). In this regard, the fixture and/or the enhancement tests may be helpful because, as the rent or letting test is about whether the expense is related to the use or occupation of the heritable subject (ie the real property), it follows that expenses related to accepted fixtures, being components of the heritable subject, are related to rent or letting.

The starting point, however, is not to apply the rent and letting test straight away, but to first decide whether the particular expense falls within the qualifying words in the second phrase of s 2(1). If the expense belongs to one of these categories, it has to be automatically included in determining annual value. It is only if an expense does not fall within any of the categories in the qualifying words that the rent or letting test comes into play.

Although the qualifying words represents a closed list, the omission of an expense, such as depreciation, from that list only means that the expense is not to be automatically included in the computation of annual value. If the expense is found to be related to “rent or letting” when applying the rent or letting test, it will still be included in the annual value at the second stage of inquiry.

Depreciation represents the recognition that, even with maintenance, an item which has a certain useful life span will not stay in good repair for an infinite time. Depreciation is therefore not a species of maintenance, and does not fall under the qualifying words.

This then leads to whether the depreciation (which is distinct from maintenance) of the Asset Items, is related to “rent or letting”, ie whether the depreciation component in the tenant’s gross rent is related to the use or occupation of the heritable subject. Applying the fixture or enhancement test, not only are the Asset Items fixtures and a part of the heritable subject, they also clearly and directly enhance the enjoyment of each tenant’s occupation of his unit.

Based on the above, although depreciation did not fall under the qualifying words in s 2(1), it was found to be related to “rent or letting” under the rent or letting test. Accordingly, the Court held that the depreciation component should be included in the annual value of each unit.

As the $0.20 psf representing the depreciation component had already been directly attributed to the Asset items and accepted by the Assessor as a fair and reasonable rate, the depreciation component should, upon payment by the tenants, be immediately included in the assessment of annual value without the need to remit the matter back to the Chief Assessor.

The above judgement was delivered on 17 January 2013.

High Court – BFC Development LLP v Comptroller of Property Tax – [2012] SGHC 237

On By taxsgIn Case Updates

3 February 2013

Property Tax — Refund on unoccupied buildings

The taxpayer owned two tower blocks at Marina Bay Financial Centre and had, prior to the Temporary Occupation Permit (“TOP”) dates of each block, already found parties committed to leasing various units of these tower blocks. Under the lease agreements, the tenants were granted legal possession of the units upon issuance of the TOPs and also given a rent-free period for the units to be fitted out for occupation (“fitting-out period”) before the commencement of the leases.

The units were assessed for property tax which was duly paid. The taxpayer later claimed vacancy refunds for the units for the rent-free fitting-out period of the respective leases. These claims were made pursuant to s 8(1) of the Property Tax Act which provides for a refund of property tax where the property is “unoccupied” for an unbroken period of at least 30 days or a calendar month.

The refund claims were initially allowed, but later withdrawn by the Comptroller explaining that refunds were not due as the units were “occupied” and that the rent-free fitting-out periods did not qualify for refunds as the tenants were already in “possession” of the properties. The taxpayer consequently applied for a mandatory order and a declaration that it was entitled to such refunds over the rent-free period.

The meaning of “unoccupied” in s 8(1) of the Act was at the crux of the dispute and the specific issue to be resolved was whether a property could be said to be “unoccupied” for the purposes of s 8 of the Act where a tenant had commenced work to fit out the property before actually moving in.

The key word “unoccupied” is not defined in the Act and so legislative intent was examined.

Based on the purposive approach, the Judge noted that Parliament’s intention, when reintroducing the refund provisions by way of the Property Tax (Amendment) Ordinance 1963, was clearly to alleviate the financial burden on property owners who have failed to obtain tenants for their properties despite having expended reasonable efforts to let out their properties at a fair rental. The requirement in s 8(4)(b) of the Act that the property owner must establish that he has made “every reasonable effort to obtain a tenant” rests on the premise that no tenant has yet been found by the property owner claiming a refund under s 8. This was clearly absent in the taxpayer’s case where a tenant had already been found and had been given the permission to take possession of the units and commence fitting-out works before moving in. It was also noted that the non-collection of rent (a commercial decision taken willingly by the landlord) was a separate matter from the inability to secure a tenant (and therefore having no rental income) and it was clearly the latter which Parliament was concerned with.

The judge agreed with the respondent’s justification of the meaning of “occupation”, citing Lee Wah Bank Ltd v The Commissioner of Federal Capital of Kuala Lumpur (1962) 28 MLJ 23 which equated “occupation” with “possession” ie that there must be sufficient control over a property for the property to be occupied. He also agreed with the respondent’s submission that “possession” should be the touchstone, such that the taxpayer’s tenants must for all intents and purposes be taken to be occupying the units from the time they take possession at the start of the fitting-out periods. The judge added that the right to occupy is equated with occupation even if the tenants had not factually shifted into the units and the fact that certain restrictions were imposed during the fitting-out periods did not detract from the reality that the tenants were in possession of their units and had the right to occupy (ie move into the units) even though they chose not to do so temporarily, be it for fitting-out the units or other specific reasons.

The taxpayer’s application was accordingly dismissed. In summary, it was held that

• on a purposive reading of the statutory provisions, the units cannot be said to be unoccupied or vacant within the meaning of s 8 of the Act during the fitting-out periods, and
• given that the refund in s 8(1) is “subject to” s 8(4), and s 8(4) states clearly that no refund shall be allowed unless ALL four conditions listed in s 8(4)(a) to (d) are satisfied, even if the units were deemed unoccupied or vacant, the taxpayer could not have fulfilled the requirement in s 8(4)(b), which only becomes relevant where no tenant has been obtained.

The above judgement was delivered on 28 November 2012.

High Court of Singapore: Chief Assessor v HSBC Institutional Trust Services (Singapore) Ltd [2012] SGHC 120

On By taxsgIn Case Updates

24 June 2012

The case relates to the Chief Assessor’s appeal against the Valuation Review Board (“the Board”) made on 24 May 2011. The Respondent, HSBC Institutional Trust Services (“the Landlord”), is the trustee of CapitalMall Trust which owns the shopping centre known as Bugis Junction. Bugis Junction has 180 units which are normally leased to tenants carrying on various types of businesses at the shopping centre.

The Chief Assessor did not exclude a portion in the gross rent for depreciation arising from wear and tear of escalators, lifts, air-conditioning and fire safety systems installed in Bugis Junction, in the computation of the annual value of the various tenanted units for the valuation years of 2004 and 2005.

Dissatisfied with the assessment made by the Chief  Assessor, the Landlord appealed to the Board.  The Board accepted the Landlord’s contention and ruled that the claim for depreciation was a constituent part of the total cost of the services provided by the Landlord, and that it should be excluded from gross rent in the determination of annual value for the relevant tax years.

It was agreed between the parties that the question of law for this appeal is whether, as a matter of principle, a component in the gross rent for depreciation of the asset items (ie, escalators and lifts, air conditioning and fire safety  systems) should be excluded from gross rent in the computation of annual value.

The Chief Assessor submitted that the Board had erred in allowing the exclusion of a portion of the gross rent for depreciation in the computation of annual value and argued that the Board had focussed on the wrong question, viz, whether the Landlord required the asset items to provide services to the tenants. The Chief Assessor argued that the Board was wrong to have ruled as irrelevant its own findings that the asset items were permanent features and, hence, an integral part of the building.

The Landlord’s argument, on the other hand, was that as depreciation constituted part of the total cost of the services provided and the gross rent was formulated with the depreciation in mind, then it ought to be excluded from the gross rent in order to arrive at the annual value of the property. The Landlord accepted that the asset items are in the nature of plant and machinery, but disagreed that they formed “integral parts of the building”.

The Chief Assessor’s appeal was allowed with costs as:

  1. The Board did not consider whether the asset items were potentially assessable to tax together with the subject building under section 6(1) of the Property Tax Act (“PTA”). Tax is payable on immoveable properties such as houses, buildings, lands and tenements. Therefore, a building is assessable together with fixtures that are on or in the building unless the fixtures are manufacturing or industrial machinery exempted under section 2(2) of the PTA. The Board found that the asset items were fixtures and, hence, part of the building, but nevertheless ruled that its findings were irrelevant and had no application in law to this case. Consequently, it cast aside the statutory imposition of tax on fixtures in or on immoveable property in the determining what constitutes “building” for property tax assessment.
  2. Following from the first error, the Board’s focus on services led it to decide that its finding that the asset items were fixtures and an integral part of the building that comprises Bugis Junction was irrelevant to the issue before it. As the asset items are assessable to tax together with the building, in assessing annual value, it cannot be said that depreciation of the asset items has nothing to do with letting of the Premises.
  3. The Board erred in its ruling that a portion of the gross rent for depreciation was related to the total cost of services. The mode of finding out the annual value is laid down in the PTA which is to ascertain the rent which a hypothetical tenant (not the tenant) taking one year with another might reasonably be expected to pay.
  4. As the Board found on the facts in evidence, the asset items were fixtures and they formed integral parts of the building. In a sale of property, the transfer of the real estate would include the fixtures and the transfer instrument to be assessed for duty would include the transferor’s title to or interest in the fixtures. Either test should reach the conclusion that the asset items are affixed to land so as to become part of the land and, thus, be assessable to tax together with the building concerned under section 6(1).
  5. It follows that the portion of the gross rent for depreciation of the asset items in question has to do with the letting of the premises, which, in turn, means that the depreciation component in the gross rent is related to rent or letting of the premises. Therefore, the depreciation component in the gross rent has to be included in the computation of annual value in the valuation years of 2004 and 2005.

The decision was delivered on 4 June 2012.