$2m tax savings likely for developer

Court overrules taxman's assessment in key ruling on deciding land value

Published on Sep 10, 2012

The condo site, where The Sail@Marina Bay now sits, was developed by Glengary. The case is important as it makes it clear for the first time that the sale of units before work begins will be taken into consideration when deciding on the land value for tax purposes. -- ST PHOTO: LAU FOOK KONG

By K.C. Vijayan, Law correspondent

THE High Court has overruled the taxman and held the $51.4 million annual land value assessed for a condo site in Marina Boulevard in 2007 and 2008 should be cut to $27 million as argued by the developer.

It is understood that the ruling would mean tax savings of more than $2 million for Glengary, developer of luxury condo The Sail@Marina Bay.

The case is important to the industry because it makes it clear for the first time that the sale of units before construction begins will be taken into consideration when deciding on the land value for tax purposes. Before this, the Chief Assessor had adopted the practice of ignoring such sales and valued the land as if it was vacant.

Justice Lai Siu Chiu, in judgment grounds released on Friday, made it clear that the taxman's administrative practice is not the law.

A lower land value will mean tax savings for the developer. The annual value is based on 5 per cent of the land value under the relevant section of the Property Tax Act. Then a tax rate of 10 per cent is applied to the annual value to compute the sum payable by developers.

The site, where The Sail@Marina Bay now sits, was acquired by Glengary in 2002 and developed into two tower blocks with 1,111 units.

For the years starting April 2007 and January 2008, the Chief Assessor had valued the land at $51.4 million, basing this on a key section of the Property Tax Act which allowed it to compute the value of the land as if it was vacant.

Glengary objected, arguing that by then, most of the units had been committed as sold and these had to be taken into account as encumbrances - or restrictions and obligations on how the land can be used - which reduce the land value.

Glengary's lawyers led by Mr Tan Kay Kheng argued that these burdens on the land should cut back the land value to $27 million based on a professional valuation.

It lost an appeal against the taxman's ruling at the three-member Valuation Review Board in March this year. It then appealed to the High Court.

The case turned on whether the committed sales of condo units yet to be built could be factored in when the annual land value is being assessed for the purposes of property tax payable.

The industry practice is to promote sales even before construction starts.

Justice Lai's decision in the case, where the taxman's decision is being challenged for the first time, is expected to affect the way other sites with ongoing developments are being assessed.

The Chief Assessor had argued among other things that the committed sales must be disregarded when the annual value is being assessed, based on the Act. The practice had been to peg the annual value at 5 per cent of the vacant land value, during the construction period.

The judge disagreed, pointing out that "the plain wording of s 2(3)(b) of the Act does not necessarily require that committed sales be excluded from consideration in the assessment of annual value, given that committed sales may occur even in relation to vacant land".

The judge added that Parliament did not intend for such committed sales to be ignored when assessing the annual land value. In the absence of statutory authorisation to ignore committed sales, the "property must be valued as it exists at the time when the valuation is made, with all the then existing circumstances", said Justice Lai.

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