Zhao Hui Fang and others v Commissioner of Stamp Duties

• Jurisdiction: Singapore
• Judge: Aedit Abdullah JC
• Judgment Date: 11 May 2017
• Neutral Citation: [2017] SGHC 105
• Docket Number: Originating Summons No 269 of 2016
• Date: 11 May 2017
• Published date: 16 May 2017
• Plaintiff Counsel: Joanna Yap Hui Min, Lam Zhen Guang and Rebecca Liu Maeyann (KhattarWong LLP)
• Defendant Counsel: Julia Mohamed and Li Yourui, Charles (Inland Revenue Authority of Singapore, Law Division)
• Court: High Court (Singapore)
• Hearing Date: 25 July 2016,20 June 2016,24 October 2016
• Subject Matter: Additional buyer's stamp duties,Revenue Law,Beneficiaries,Interpretation Act,Assessment,Stamp duties,Purpose trusts,Trusts,Charitable purpose trusts,Beneficiary principle,Statutory interpretation,Extrinsic aids

Aedit Abdullah JC:

The applicants (“the Applicants”) are trustees of a charitable trust who dispute their liability imposed by the Commissioner of Stamp Duties (“the Respondent”) for additional buyer’s stamp duty (“ABSD”) charged on a conveyance of property to them in their capacity as trustees. As the statutory provisions stipulate liability for ABSD where the transfer of property is to beneficial owners who comprise entities or foreigners, the primary question is whether the beneficial owners of the subject property in our case, if at all identifiable, included such entities or foreigners. Having considered the arguments, I find in favour of the Applicants that ABSD is not chargeable.

Statement of the case

A statement of the case was filed under s 40 of the Stamp Duties Act (Cap 312, 2006 Rev Ed) (“SDA”), which provided the background to this dispute. The statement sought the opinion of the court on whether a sale and purchase agreement (“SPA”) attracted ABSD under s 4(1) read with Art 3(bf) of the First Schedule of the SDA. Under this SPA, Goodwood Residence Development Pte Ltd (“the Vendor”) agreed to sell the subject property located at 263 Bukit Timah Road #05-09 Singapore 259704 (“the Goodwood Property”) to the Applicants, who acted in their capacity as trustees for the Chew How Teck Foundation (“the Foundation”).

The Foundation is a charity registered in Singapore with the Commissioner of Charities and was established by Mr Chew Chee Thong (“the Settlor”) in 1994. The constituting deed states that the objects of the Foundation are: the promotion in Singapore and Malaysia of Medical Research into the causes and treatment of cancer and heart disease; the relief of hardship, poverty or distress of persons resident in Singapore or Malaysia; the furtherance of the education of persons resident or whose parents or guardians are resident in Singapore or Malaysia, and who are in need for financial assistance; and the erection of new hospital buildings of any Chinese hospital in Singapore or Malaysia.

The Settlor left a will dated 26 August 1994 (“the Will”) when he passed away. Grant of Probate was issued by the High Court to Chew Hwee Ming and Sat Pal Khattar (collectively “the Executors”) on 30 October 2001. Clause 2 of the Will provided, in respect of a property located at 37 Chee Hoon Avenue (“the Chee Hoon Property”), as follows:

My property known as No. 37 Chee Hoon Avenue, Singapore 1129 shall be made available to my wife ZHAO HUI FANG for her personal use during her lifetime or until she remarries whichever is earlier. If my wife does not wish to use the said property as her personal residence, the said property shall be given to my daughter CHEW HWEE MING for her use during her lifetime and or for the use of any one or more of her children during their lifetime as their personal residence. My daughter may in her discretion at her own cost improve build rebuild erect enlarge decorate or improve the said property with a view to using it as her residence. It is my desire however that my daughter does not apply more than Singapore Dollars Two Million ($2,000,000.00) in improving or rebuilding the said property.

Provided that when my daughter’s youngest surviving child attains the age of thirty (30) years, neither my daughter nor any one of or more of her children wish to use the said property as their personal residence, the property may be leased or disposed and any income or the proceeds thereof shall be paid to the CHEW HOW TECK FOUNDATION (“the FOUNDATION”) a charity established by a Trust Deed (hereinafter called “the Trust Deed”) made on 26th August 1994 between me of the one part, and Zhao Hui Fang, Chew Hwee Ming, Sat Pal Khattar and Jerry Lee Kian Eng (hereinafter collectively called “the Trustees”), of the other part.

In 2014, on the application of the Executors, the High Court granted an order allowing the Executors to sell the Chee Hoon Property and purchase the Goodwood Property as a substitute (“the Order of Substitution”). The order, which was made with consent of the Applicants, provided, inter alia, that: the Executors be empowered to sell the Chee Hoon Property at not less than $22.8m, freed from all life and contingent life interests set out in the Will; part of the proceeds be utilised for the purchase of a unit at the Goodwood residence (in which the Goodwood Property is located) at a price of not more than $6.6m in the name of the Foundation; the balance to be paid to the Foundation subject to trusts set out in its constituting deed; and Clause 2 of the Will to continue to apply with full force and effect in relation to the Goodwood Property (instead of the Chee Hoon Property) with necessary modifications.

The purchase of the Goodwood Property was also authorised by the Commissioner of Charities by order dated 10 February 2015, vide, Charity Proceedings Order No 1 of 2015.

The SPA for the purchase of the Goodwood Property was thereafter executed at a purchase price of $6.56m.

In April 2015, the Applicants sought an adjudication of the stamp duties payable on the SPA. Ad valorem stamp duty was some $191,400, which the Applicants duly paid. The SPA was thus stamped on 7 April 2015. However, on 23 April 2015, the Applicants wrote to the Respondent arguing that ABSD should not be charged on the SPA. They represented that the Goodwood Property had been purchased principally for the benefit of Mdm Zhao Hui Fang, the Testator’s wife (“Mdm Zhao”), and that the other persons entitled under the Will did not intend to stay in the said property and were prepared to disclaim, relinquish and renounce all their rights therein. As such, ABSD ought not to be imposed on the SPA as Mdm Zhao was a Singapore citizen who did not hold any other residential properties in Singapore. Further, after Mdm Zhao’s death or re-marriage, the Foundation would take possession of the Property to further its charitable objects, and the Foundation was not an entity per se.

The Respondent, however, replied in November 2015 that the legal and beneficial interest of the Goodwood Property resided in the Foundation, which was an entity, and hence ABSD of 15% on the purchase price of $6.56m, being $984,000, was payable.

This was disputed by the Applicants, who maintained, inter alia, that (a) Mdm Zhao had a life interest in the Goodwood Property and not a mere licence to reside, (b) she was Singaporean and did not hold another residential property, (c) the Foundation was not an entity per se, and (d) the ABSD legislative framework did not contemplate the Applicants’ position such that any levy of ABSD on the SPA would be out of its scope.

Despite their objections, the Applicants paid under protest, on 22 January 2016, the assessed ABSD of $984,000 and the late payment penalty $2,965, for a total sum of $986,965. By way of letter dated 16 February 2016, the Respondent informed the Applicants that the assessment of ABSD was maintained on the basis that the beneficial interest in the Goodwood Property rested in the Foundation.

The Applicants then filed an appeal under s 40 of the SDA to the High Court on 16 March 2016. Under this procedure, a case is to be stated by the Commissioner of Stamp Duties setting out the question(s) upon which the Commissioner’s opinion was required and the decision made by him in that regard (s 40(1)). Thereupon, the matter is to be heard by the High Court for its determination of the question(s) submitted. If the Commissioner’s decision is confirmed, the court may order the applicant to pay costs of the appeal to the Commissioner (s 40(5)). If the Commissioner’s decision is, however, found to be erroneous, the court shall order the repayment of any excess duty, fine and/or penalty paid in conformity with the erroneous decision, with or without costs (s 40(4)).

The questions stated for determination by the court are: whether the SPA is chargeable with ABSD under s 4(1) read with Art 3(bf) of the First Schedule of the SDA; and if the SPA is chargeable with ABSD, the ABSD with which the SPA is chargeable.

As will be elaborated upon below, under s 4(1) read with Art 3(bf)(viii) of the First Schedule of the SDA, ABSD is chargeable on an instrument executed in Singapore, on or after 12 January 2013, for the sale of residential property “if the grantee, transferee or lessee [of that property], or any of 2 or more joint grantees, transferees or lessees is a foreigner or an entity”. The phrase “grantee, transferee or lessee” is in turn defined under Art 3(2)(d), vis-à-vis a trust, as a reference to the beneficial owner of the property.

The Applicants’ case

At the outset, the Applicants argue that the Foundation is not liable for ABSD on the SPA under Art 3(bf)(viii) of the First Schedule for three main reasons: (a) the Foundation is not the beneficial owner of the Goodwood Property, (b) the Foundation is not an “entity”, and (c) ABSD is not intended to be imposed on a charitable purpose trust.

First, as regards the reference to beneficial ownership of the Goodwood Property, the Applicants argue that while the term “beneficial owner” is not statutorily defined, Art 3(2)(d) must refer to a legal personality vested with the equitable interest in the property at the time of execution of the sale and purchase agreement. The Inland Revenue Authority of Singapore (“IRAS”) e-tax guide provides some guidance but is over-simplistic as it refers to the “intended owner” which is not the same in law as a “beneficial owner”. The various cases cited by the Respondent are also not relevant as they relate to foreign tax provisions.

On this approach, Mdm Zhao holds a life interest under the Will in the Goodwood Property and should be regarded as its beneficial owner at the time of execution of the SPA. ABSD is thus not chargeable as Mdm Zhao is a Singaporean and does not hold any other residential property.

In any event, the...