In Singapore, property tax is based on Annual Value(AV). It is important to know how AV is being determined so that you know what is taxable and you can have a more in-depth calculation by adding this cost into your investment calculation. I will share with you about the primary definition of AV. I will move on to explain the statutory formula that the Chief Assessor(CA) is able to use to calculate AV. In this post, you will also learn that actually, vacant land is still taxable. This post is a sequel from Properties Chargeable Under Property Tax Act and Property Tax Overview In Singapore.
Definition Of Annual Value
In relation to a house or building or land or tenement, not being wharf, pier jetty or landing-stage, means the gross amount at which the same can reasonably be expected to be let from year to year, the landlord paying the expenses of repair, insurance, maintenance or upkeep, and all taxes (other than goods and services tax).
In relation to a wharf, pier jetty or landing-stage, means the gross amount at which the same can reasonably be expected to be let from year to year, the tenant paying the expenses of repair, insurance, maintenance or upkeep.
It is important that you notice the word gross amount because any expense related to letting out needs to be borne by the owner unless expressly stated in the lease agreement.
Landlord Expenses To Include Under s2(1)(a):
- Cost of repair or replacement of building/fixtures
- Building insurance
- Cost of maintenance or upkeep of premises
- All taxes – income tax, property tax, but excluding GST
Do you know that HDB service and conservancy(S&C) charge is not to be included in the AV? This is because S&C is meant to be for the overall upkeep of the property and not for the individual HDB unit itself.
Service Fees to Be Excluded
Sometimes, the landlord will add in service fees in the rent so as to maintain the upkeep of property as a whole. For example, Advertisement and Promotion (A&P) contributions. Such fees are related to rental because it is expressly stated in the lease agreement. Since it is related we need to take note if it should be included or excluded, there is a need to remove them as it will inflate the market rent. If A&P contributions is not stated in the lease agreement we cannot deduct these expense as it is an expense related to letting out. When the advertisement and promotions are good it would attract more tenants.
Exclusion of Machinery
Section 2(2) of the PTA:
In assessing the annual value of any premises in or upon which there is any machinery used for any of the following purposes:
- The making of any article or part thereof;
- The altering, repairing, ornamenting or finishing of any article; or
- The adapting for sale of any article,
the enhanced value given to the premises by the presence of such machinery shall not be taken into consideration, and for this purpose, machinery includes steam engines, boilers and other motive power belonging to that machinery.
You will be able to exclude machinery from the AV as long as it fulfills the above criteria.
Pipelines Are Excluded?
Machinery comes with pipelines, generally, if the machinery needs the pipeline to operate and the pipeline is part of the manufacturing process, it is excluded from the AV because it forms part of the machinery. In accordance with the reading of s2(2), in which machinery is “confined to machinery directly involved in, inter alia, making, altering, and adapting for sale an article while excluding machinery involved in peripheral processes such as the transportation and distribution of finished articles”.
What Is An Article?
You take it that an article is something that is produced, altered or adapted for sale. Producing means that you make a new article out of raw materials. Altering involves changing the article and it does not have to be permanent. Adapting for sales involve an article being change to use for sale. Both altering and adapting will have an end result similar to the starting article. For example, water is cooled. You need to note that such definitions are very wide and different cases have different outcomes depending on the situation and scenario.
Summary IRAS e-Tax Guide On Fixed Machinery
Note that Service Machinery such as air-con, fire protection, etc. are taxable because they are not reasonably understood as a ‘manufacturing process’. They are an integral part of the building that is related to letting out. Machinery that is performing peripheral functions such as transporting or storage is still taxable.
Statutory Formula For AV s2(3)
“In assessing the annual value of any property, the annual value of the property shall, at the option of the Chief Assessor, be deemed to be the annual value as defined in this Act or the sum which is equivalent to the annual interest at 5% –
- on the estimated value of the property, including buildings, if any, thereon; or
- on the estimated value of the land as if it were vacant land with no buildings erected, or being erected, thereon.”
The Chief Assessor has the power to decide if they want to use the statutory formula instead of the usual method of letting out basis. AV, in this case, is calculated based on 5% of the freehold capital value.
Annual Equivalent Rent s2(4)
“In estimating the annual value of any house, building, land or tenement, the annual value ….. shall, at the option of the Chief Assessor, mean the annual equivalent of the gross rent at which the same is let or licensed to the occupier or occupiers, as the case may be, and in arriving at the annual equivalent the Chief Assessor may also give consideration to any capital or periodical sums or any other consideration whatsoever, if any, which, it appears to the Chief Assessor, may have also been paid.”
In some case, actual rent may be above or below fair market rent. Thus, CA will generally use the fair market rent instead.
Excess Land s2(5)
“Subject to subsection (6), where land is occupied as appurtenant to any house or building, but is in excess of the area fixed by the Comptroller with the sanction of the Minister, the excess land shall be deemed to be vacant land and the annual value shall be separately assessed at a sum which is equivalent to the annual interest at 5% on the estimated value of the land.”
You may be thinking of leasing more land than necessary at the start so that expansion can take place easily in future. However, you need to note that the excess land that is unused is subjected to tax as well. This land is assessed separately. It could amount to a huge sum depending on the estimated value of the land. AV = 5% of estimated land value, Property Tax = 10% of the AV.
AV of Strata Lots s2(7)
“In assessing the annual value of any property which comprises a lot the title of which is issued under Land Title (Strata) Act:
- the subsidiary proprietor of the lot shall be deemed to be the owner thereof;
- the annual value of the lot shall be determined as if that lot comprised a freehold estate in land; and
- no separate annual value shall be attributed to the land upon which the subdivided building stands”
AV will be calculated based on the individual lot. There is no need to separately assess the land value.
Leasing With Public Authority s2(8)
“In assessing the annual value of any property comprised in a statutory land grant or State lease or a lease of property by a public authority (where the public authority is the lessor) for a period exceeding 3 years –
- the grantee or lessee of the property shall be deemed to be the owner thereof;
- the annual value of the property shall be deemed as if that property comprised a freehold estate in land; and
- no deduction shall be made of any premium or rent payable to the Government or the public authority”
Prescribed % Gross Receipts Basis s2(9)
“In assessing the annual value of any property required to be assessed on the basis of gross receipts by any order made under section 7, the Chief Assessor shall determine the annual value of the property in the manner specified in the order and the amount so determined shall be deemed to be the annual value of the property”
|Property Tax Order||Prescribed % gross receipts|
|Property Tax (Valuation by Gross Receipts for Hotel Premises) Order 2007||25%|
|Property Tax (Valuation by Gross Receipts for Port Facilities) Order||9%|
|Property Tax (Valuation by Gross Receipts for Jurong Port) Order|
|Property Tax (Valuation by Gross Receipts for COSCO-PSA Port Facilities) Order|
|Property Tax (Tourist Projects) Order||6% (in 1st 5 yrs)|
|Property Tax (Downtown Line) Order 2007||28% (in 1st 5 yrs)|