SINGAPORE – If you use a sham property deal to save on paying taxes, do not count on the law to help you if you run into trouble.
At least four property investors learnt this lesson the hard way in recent years when they ended up losing the very real estate from which they had hoped to make money. All of them had concocted plans to let others hold the property for them so that they could pay less tax.
To do this, they named other people as the owners of the properties because, in their mind, they could remain as the real owners behind the scene. As their ownership was not reflected on paper, they later had to go to court to try to get their properties back.
But the courts dismissed their claims, which meant they would lose the properties.
In the most recent case, a man put a 99 per cent share of an apartment in his then girlfriend’s name and kept just 1 per cent for himself. He had planned to transfer his minute share in the future to buy another property without paying the additional buyer’s stamp duty (ABSD).
When the couple broke up, the man wanted to claim more than a half-share of the property, but his claim was dismissed by the Court of Appeal. This meant that the girlfriend could keep 99 per cent of the property.
Here are three other investors who lost their properties after falling on the wrong side of the law.
A woman put a $2 million apartment on trust for her then six-year-old son but wanted to sell it when the value of the property went up by about $500,000.
When she applied to the High Court for permission to sell it, she could not convince the judge that the sale was for the benefit of her son, who is the owner of the property.
This case provides a good lesson for those who think that buying real estate on trust for their children is a good way to avoid paying ABSD for their investment properties.
Properties bought on trust for children effectively belong to them. Even if the parents can get an approval to sell them, they cannot use the proceeds for themselves.
The Inland Revenue Authority of Singapore has warned that those who use the trust scheme to avoid paying ABSD for further properties can face hefty penalties if the arrangement turns out to be a sham.
A couple bought a $5 million home on trust for their son by selling three other investment properties they owned.
But when the couple’s marriage hit the rocks, the adult son applied to the court for the trust to be terminated so that he would become the legal owner of the home.
He did this because he wanted to avoid further squabbles between his parents and to ensure that he, his mother and his sister could continue to live in the house.
His father claimed that he was the true owner of the home because the trust was just a sham to avoid paying the ABSD. But he lost his case as the High Court upheld the son’s case and transferred the property to the son.
Like in the above case, another couple bought a $1.5 million condominium unit and put it under a trust for their elder son while they managed or leased it as the trustees.
All was well until their marriage failed, and the husband staked his claim to the unit. He argued that the condo unit did not belong to his son because the trust was a sham to dodge the ABSD.
Just like in the other case, the High Court threw out the father’s case and ruled that the property belonged to the son.
As the man had undermined the son’s interest, the court approved his former wife’s application to have him removed as a trustee for the property.
So don’t just look at saving on taxes because you should understand your rights first before letting others hold your property.
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