A. Introduction

Section 10(1)(g) of the Income Tax Act 1947 (ITA), the “catch all” provision for gains of an income nature, applies to isolated transactions undertaken with a profit-making intent, regardless of the type of asset concerned. Case law has established that the intention of the taxpayer at the time of acquiring the asset is crucial in determining whether the gains from its disposal fall within section 10(1)(g).

In this client alert, we analyse the recent decision of GIO v Comptroller of Income Tax [2024] SGITBR 1, where the Income Tax Board of Review (ITBR) decided that the realisation of quick profits from certain buy-sell real property transactions were income in nature under section 10(1)(g).

B. Background

The dispute concerned the taxation of the Appellant’s gains from the disposal of two properties. The circumstances surrounding the acquisition and disposal of these properties were as follows:

1. The First Property: The Appellant exercised the Option to Purchase (OTP) for S$4.6 million on 6 March 2007. Prior to the completion of the purchase on 15 June 2007, the Appellant granted an OTP to a third-party buyer for S$5.28 million. The subsequent sale of the First Property was completed on 2 July 2007, generating a profit of S$451,510 for the Appellant.
2. The Second Property: Similar to the First Property, the Appellant exercised the OTP for S$4.1 million on 9 July 2007 and then granted another OTP to a third-party buyer for S$5.55 million before the completion of the purchase. The purchase and subsequent sale of the Second Property were completed on the same day, on 17 September 2007, generating a profit of around S$1.27 million for the Appellant.

The Appellant challenged the Comptroller’s assessment to tax on the basis that gains from the realisation of real property were capital in nature. The Appellant further contended that (a) the Myers test (defined below) should not be applied in Singapore to determine if a particular gain is income in nature, and (b) in the alternative, section 10(1)(g) did not apply as the Appellant’s intention in purchasing the two properties were for capital gains.

C. Decision of the Board

The Board decided in favour of the Comptroller.

Firstly, the Board unequivocally rejected the Appellant’s argument that the repeal of section 10F(1) of the ITA meant that all gains from isolated real property transactions were capital in nature. Section 10F(1), which was repealed in 2001, deemed as income gains from the disposal of real property within 3 years of its acquisition. The Board clarified that section 10F(1) was a temporary cooling measure and its repeal did not affect the scope of section 10(1). The Board further reiterated that there was no blanket rule for real property transactions.

In the context of section 10(1)(g), the Board reaffirmed the principle that “gains or profits of an income nature” would cover profits arising out of a transaction that was not carried out in the ordinary course of trade or business. The Board endorsed the Myers test where the Australian court ruled that “if circumstances are such as to give rise to the inference that the taxpayer’s intention or purpose in entering into the transaction was to make a profit or gain, the profit or gain will be income, notwithstanding that the transaction was extraordinary judged by reference to the ordinary course of the taxpayer’s business”. Accordingly, in response to the Appellant’s argument that real property transactions are capital in nature as long as one is not a property trader, the Board was of the view that there was no absolute bar to the increase in value of an item normally regarded as capital in nature, to be caught by income tax. This included speculative profits on a real property transaction. Ultimately, however, the precise facts of each case would have to be examined, especially the taxpayer’s intention at the time of acquisition.

In the present case, the Board highlighted two factors which pointed to the absence of a long-term investment intention for the First Property:

1. Firstly, contrary to the Appellant’s position that the First Property was bought with an existing tenancy with the intention of long-term investment, the Board found that the tenancy had been terminated prior to the completion of the purchase.
2. Secondly, there was an overdraft facility secured on the First Property, provided on the condition that the property would be sold at a certain minimum price and that the overdraft had to be fully repaid within two months from the implementation of the overdraft or completion of the sale, whichever was earlier. This suggested that there was unlikely to be any long-term investment intention.

In relation to the Second Property, where the purchase and subsequent sale were timed to complete on the same day, the Board was similarly of the view that the Appellant had failed to discharge its burden of proving that the assessment was excessive.

D. Our observations

In the context of real property, this decision illustrates that isolated transactions, even if not part of a property trading business, could fall under section 10(1)(g), the “catch all” provision. Here, the quick on-selling of the two properties indicated a profit-making intent. It should be noted that these transactions occurred in 2007, before the introduction of Seller’s Stamp Duty and Additional Buyer’s Stamp Duty. Such speculative property flipping transactions would be highly unusual in today’s context.

In relation to individuals, the Inland Revenue Authority of Singapore (IRAS) has acknowledged that the following gains are generally not taxable:

1. Gains derived from the sale of a property in Singapore as it is a capital gain.
2. Profits or losses derived from the buying and selling of shares or other financial instruments (including digital tokens) are generally viewed as personal investments.
3. Payouts from insurance policies as they are capital receipts.¹

However, the IRAS has also qualified their position above by stating that the gains may be taxable if there is any profit-seeking motive or trading intention. The badges of trade (frequency of transactions, taxpayer’s motive, holding period etc.) would apply to determine if a trading intention existed.

The principles articulated in this decision are not specific to real property transactions and are consistent with the body of case law on section 10(1)(g). The facts in this decision can be contrasted with the 2017 ITBR decision of GBU v Comptroller of Income Tax [2017] SGITBR 3 which concerned the disposal of various share counters by a taxpayer in the business of operating supermarkets. There, the Board found that the shares were acquired with the intention of long-term investment, hence the gains from their disposal were capital in nature and did not fall within section 10(1)(g).

Ultimately, ascertaining the intention of the taxpayer at the time of acquisition of the asset is crucial. Clients may sometimes engage in one-off disposals of assets such as shares, crypto assets, or jewellery, to name a few examples. Regardless of the asset class concerned, all the facts and circumstances will be considered to determine the taxpayer’s intention and accordingly whether the disposal gains are capital or income in nature.

Dentons Rodyk Senior Partner Edmund Leow SC, who is Deputy Chairperson of the Income Tax Board of Review, sat on the Board which decided this case. Please feel free to get in touch with any of our key contacts should you have any questions or similar concerns.

1. https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/what-is-taxable-what-is-not/gains-from-sale-of-property-shares-and-financial-instruments↩