Revenue and Tax Law

AuthorTAN Kay Kheng LLB (Hons) (National University of Singapore), CDipAF (Association of Chartered Certified Accountants), MAcc (Charles Sturt University), FCPA (Australia); FTIA; FSIArb; Advocate and Solicitor (Singapore). Leonard GOH MA (Cambridge); Advocate and Solicitor (Singapore); Legal Officer, Accounting and Corporate Regulatory Authority.
Citation(2007) 8 SAL Ann Rev 390
Published date01 December 2007
Date01 December 2007

21.1 The Supreme Court cases on revenue law which were decided in 2007 arose from the following tax types: income tax, stamp duty and property tax. Under income tax, the High Court had the occasion of ruling on a case involving feng shui considerations affecting the taxpayer”s decision to sell a real estate property. In the realm of property tax, the cases not only involved shopping centres (as was the case in 2006), but also floating dry docks, district cooling plants, development sites and a strata-titled shop unit. For a change, property tax cases comprised more than half the revenue law cases. As for stamp duty, the High Court dealt with an ‘interesting’ question relating to en bloc sales in one case, as well as a question of the admissibility in evidence of instruments not duly signed in a second case.

21.2 The Supreme Court decided eight cases in 2007 which had relevance to revenue law:

Tax Type

High Court

Court of Appeal

Income tax



Stamp duty



Property tax

4 (Two cases went on to the Court of Appeal. The Court of Appeal decided one case in 2007 and heard the other without delivering any judgment as yet.)

3 (Two of these appeals related to the High Court decisions mentioned in the previous column. The remaining case arose out of a High Court case in 2006.)

Income tax

21.3 There was only one income tax decision in 2007. But it discussed a very important topic: what transactions constitute trading so that gains are taxable under s 10(1)(a) of the Income Tax Act (Cap 134, 2004 Rev Ed) (‘ITA 2004’).

Whether buying and selling properties amounted to trading

21.4 The case was NP v Comptroller of Income Tax[2007] 4 SLR 599. The taxpayers were a married couple. During an eight-year period, they bought eight residential properties and sold seven of them.

21.5 The Comptroller of Income Tax (‘Comptroller’) claimed that the taxpayers” profits from some sales came from their trading activities. These gains were, therefore, taxable under s 10(1)(a) of the ITA 2004. The taxpayers disagreed. The High Court had to consider two such sales, viz (a) a unit in the condominium development Waterside (‘Waterside unit’), and (b) a house at Watten Close.

Waterside unit

21.6 This was the second property the taxpayers had bought. They held it for just over two years. The taxpayer said they had sold their first property (their residential home) because of feng shui. A geomancer had told them their second child”s medical condition was due to bad feng shui of their first residential home. The geomancer had also said the feng shui at the Waterside was generally good. The taxpayers bought the Waterside unit whilst it was still under construction.

21.7 Subsequently, another geomancer told the taxpayers that the feng shui at the Waterside unit was bad for their (then unborn) third child. Accordingly, the taxpayers sold the Waterside unit and made a profit. It later transpired that the taxpayers” third child was born with a minor medical condition.

21.8 Judith Prakash J allowed the taxpayers” appeal in relation to this unit. Firstly, as early as 1997, the taxpayers had explained (to the Comptroller) that bad feng shui was the reason they had sold the Waterside unit. The medical conditions of their two children gave the taxpayers a basis for their belief in feng shui. The Income Tax Board of Review (‘ITBR’) had accepted that the taxpayers did believe in feng shui.

But Prakash J considered that the ITBR had not given enough weight to the taxpayers” evidence on feng shui (at [34]).

21.9 Secondly, the taxpayers had held the Waterside unit for more than two years. This was not an unduly short period of time. Besides, the Waterside development was still under construction when the taxpayers bought it. If the taxpayers had sold the Waterside unit whilst still under construction, it would have been strong evidence of trading. But they had not done so (at [35]).

21.10 Thirdly, Prakash J accepted that the taxpayers had used the sale proceeds of the Waterside unit to purchase/reinvest in their next property (at Watten Close). Such reinvestment would usually not amount to trading, even if (a) the Waterside unit had been sold at a profit, and (B) the Waterside unit had been held for a short time (at [36]).

21.11 To this end, Prakash J also accepted that the taxpayers had taken a bank loan to buy the Watten Close property. This did not square with trading: rational parties would endeavour to reduce their financing costs where possible (at [38]).

Watten Close

21.12 This was the taxpayers” third property. After selling the Waterside unit, they bought Watten Close. But they sold it after four months and again at a profit.

21.13 The taxpayers” claimed they sold Watten Close because of a dispute with their contractor. The taxpayers had supposedly agreed to pay the contractor $200,000 for renovating their Watten Close property. No agreement was signed. But they paid the contractor a $20,000 deposit.

21.14 Subsequently, a dispute arose. The contractor now purportedly doubled the renovation costs. The taxpayers said they were concerned about having to pay damages to their contractor. Accordingly, they sold the Watten Close property and settled the dispute with their contractor.

21.15 Prakash J dismissed the taxpayers” appeal in relation to this property. The taxpayers had to convince the court that they had sold the Watten Close property because of the dispute with their contractor (at [44]). The taxpayers” evidence did not indicate this.

21.16 Firstly, the taxpayers could not show any written agreement for the renovations. Yet they paid the contractor $20,000. The husband further agreed in cross-examination that an experienced businessman

like himself would not have paid $20,000 based on an oral agreement (at [45]).

21.17 Secondly, the taxpayers had settled the dispute very easily. The contractor was willing to forget the contract once the taxpayers informed him they were selling Watten Close. The contractor did not return the $20,000 deposit to the taxpayers. But he allowed the taxpayers to set-off the deposit against the cost of buying furnishing from the contractor”s shop (at [46]).

21.18 Prakash J found that the taxpayers could have reached the same settlement and still kept the Watten Close property. On the flipside, if the taxpayers indeed had a binding renovation contract, selling the Watten Close property would not have affected the validity of the contract (at [46]).

21.19 Thirdly, unlike the Waterside unit, the taxpayers could not show that they had reinvested the sale proceeds of Watten Close (by purchasing another property) (at [48]). Moreover, they had only held the Watten Close property for a very short time of four months. This short period was a prima facie indication that Watten Close had been purchased and sold for trading purposes (at [42]).

Badges of trade

21.20 The taxpayers relied on Prof Teo Keang Sood”s identification of the ‘badges of trade’ (characteristics of trading activities) (see ‘Badges of Trade Revisited’[1996] Sing JLS 43). These are (NP v Comptroller of Income Tax[2007] 4 SLR 599 at [9]):

  1. (a) taxpayer”s motive;

  2. (b) nature of subject-matter;

  3. (c) method of financing;

  4. (d) has there been multiplicity of similar transactions;

  5. (e) duration of ownership;

  6. (f) application of special skill or supplementary work; and

  7. (g) reasons for realisation.

21.21 The Comptroller, in contrast, relied on the badges of trade in the 1954 UK Royal Commission on the Taxation of Profits and Income, Final Report. They are similar to Prof Teo”s list. But the UK report does not include ‘method of financing’ as a badge (NP v Comptroller of Income Tax[2007] 4 SLR 599 at [9]).

21.22 The High Court did not explicitly state which list was preferred. But it did hold that it was an objective test to decide if a particular transaction was or was not a trading transaction (NP v Comptroller of Income Tax[2007] 4 SLR 599 at [10]).

21.23 Prakash J noted another important point. The motives in acquiring a property could change. What was initially bought as an investment might become a trading item or vice versa (NP v Comptroller of Income Tax[2007] 4 SLR 599 at [33]).

21.24 Finally, s 81(2) of the ITA 2004 only allows an appeal to the High Court on a question of (a) law, or (b) mixed law and fact. The Comptroller had argued that the taxpayers” appeal (ie, whether a trade had been carried on) was only on a question of fact. The High Court disagreed and held that it was a question of mixed law and fact (NP v Comptroller of Income Tax[2007] 4 SLR 599 at [8]). Prakash J accepted that the ITBR”s findings had to be respected. At the same time, the court had to decide if a reasonable tribunal would have reached the same conclusion on the facts as the ITBR had (at [6] and [8]).

Property tax

21.25 There were five property cases in 2007.

21.26 The decisions considered the following provisions of the Property Tax Act (Cap 254, 1997 Rev Ed) (‘PTA 1997’) and (Cap 254, 2005 Rev Ed) (‘PTA 2005’):

(a) long title of the PTA 1997;

(b) section 2 of the PTA 1997 — determining the annual value and how advertising and promotion expenses should be treated;

(c) section 2 of the PTA 1997 — whether the definition of ‘buildings’ include a floating dry dock;

(d) section 2 of the PTA 2005 — whether in determining the annual value, pipelines connected to and extending beyond a property should be excluded;

(e) section 2(2) of the PTA 1997 — determining whether a dry dock is machinery which should be excluded from the annual value for the property on which it is located;

(f) section 2(2) of the PTA 2005 — determining whether machinery in a district cooling plant should be excluded from the annual value for the property on which it is located;

(g) section 2(3) of the PTA 1997 — whether the Chief Assessor”s option...

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