Selina Lum | The Straits Times | Monday, Apr 29, 2013

SINGAPORE – The taxman is entitled to disregard pre-sold units on a property that is still being built when assessing the annual value of the land, the highest court in Singapore has ruled.

In a written judgment released on Friday, the Court of Appeal ruled in favour of the Inland Revenue of Authority of Singapore (Iras) in a property tax case involving waterfront condominium The Sail @ Marina Bay.

The case centred on the interpretation of “vacant land” in the Property Tax Act, which states that Iras can assess the value of a property under development with reference to the estimated value of the land “as if it were vacant land with no building erected, or being erected”.

But the developer, Glengary, argued that units pre-sold ahead of the property’s completion cannot be ignored in the formula as they are “encumbrances” which affect the development value of the land.

In this case, it would have had the effect of holding the land at 2005 prices, though property prices soared afterwards.

“The landmark ruling… has affirmed Iras’ longstanding practice of disregarding any pre-sales in determining the annual value of the land for property tax purposes,” an Iras spokesman said when asked for comment.

The spokesman said that when pre-sales do not give a good indication of the prevailing market value of the land, it would be valued as though vacant and the assessment would take into account the prevailing market value.

The ruling means Iras will not have to refund about $3.15 million in property taxes to Glengary.

The Sail is a mixed development of residential and retail units. By 2005, when construction was in the early stages, all but five of the 1,111 residential units had been sold.

In early 2007, when property prices had risen steeply, Iras raised the annual value of the land from $26 million to $59 million beginning April 1. The valuation for 2008 held at $59 million.

The current property tax rate is 10 per cent of the annual value.

Glengary objected to the assessments for both years, arguing Iras had misintepreted the law by disregarding the pre-sold units.

The High Court ruled in the developer’s favour but Iras took the case to the three-judge Court of Appeal, which reversed the decision.

The appeal court said the annual value should be determined on the basis of current value. If pre-sales were to be taken as an indication of market value, it would amount to assessing land value for 2007 and 2008 by reference to 2005’s prices.

Given that the property market had moved significantly between 2005 and 2007/2008, the court said Iras was entitled to disregard the pre-sales.

– See more at: http://business.asiaone.com/news/property/iras-wins-land-value-dispute-over-condo/page/0/1#sthash.ugr4KvqO.dpuf