The gain from the sale of property is usually regarded as capital gain. In Singapore, there is no capital gain tax. However, if the seller is trading in properties, then the gain from the sale of property will be regarded as revenue gain and subject to Singapore Income Tax.
The badges of trade are:
1. Subject matter
The subject matter in real estate is property. Property is possible to be purchased for investment but it can also be purchased for trading.
2. Length of period of ownership
The longer the period of ownership, the less likely that it is treated as trading.
3. Circumstances responsible for realisation
The circumstances leading to the sale of the property is an important consideration. If the sale is meant to realise profit, then there is an element of trading.
The motive or reason for the acquisition of the property will determine the purpose of the purchase. If the purpose is to trade, then the profit may be subject to tax. If the purpose for the purchase is meant for long term investment or owner occupied, then it is less likely to be treated as trading.
5. Supplementary work done
If there is supplementary work done in connection with the realisation, then the possibility of trading in property will be higher.
6. Frequency or number of similar transactions
If the sale is an isolated transaction, then it is unlikely that the sale is treated as trading. If the owner has been buying and selling of property frequently, then it is likely that the transactions on property are trading in nature.
Once the owner is trading in property, the profit on the sale of property is subject to income tax. The gain from the sale shall be added on to his other income to determine the tax payable by the owner.
I hope you have gained a better understanding on how to advise your clients about their real estate and financial planning needs.