Feb 2021 - 4 min read
In this CEAnergy article, we review the actions of two salespersons who either failed to inform or misinformed their clients about stamp duty matters.
Failing to inform client about obligation to pay seller’s stamp duty
In April 2018, while sourcing for potential clients at an industrial building in Kaki Bukit, a salesperson met a prospective client who was looking to sell six units located in the building. After obtaining approval to market the units for sale, the salesperson conducted a title search on the units on 25 April 2018 and confirmed that her client owned them. This was the only due diligence check that the salesperson conducted for her client’s units.
The next day, the salesperson found a buyer for one of her client’s units. The seller and buyer agreed to a selling price of $1,392,300, and on 26 April 2018, the buyer paid an option fee of 1%, which amounted to $13,923. The next day, the salesperson facilitated the signing of the Option to Purchase (OTP) by her client and passed it to the buyer for him to exercise it by 18 May 2018. The buyer exercised the OTP on the same day, rendering it the sale date of the unit, and paid the exercise fee of $55,692.
On 21 May 2018, the seller’s lawyers informed the seller that he had to pay 5% of the selling price, or $69,615, as Seller’s Stamp Duty (SSD) to the Inland Revenue Authority of Singapore (IRAS) by 1 June 2018. This was because the OTP for the sale of the unit was exercised on 18 May 2018 and this was within the three-year holding period from the date (29 May 2015) that the seller had purchased the unit.
As this was new information to the seller, the seller contacted the salesperson immediately to clarify the matter. The salesperson admitted that she had overlooked the SSD issue and claimed that she had spoken to the buyer and gotten his agreement to exercise the option later on 1 June 2018. However, the buyer did not agree to amend the exercise date of the OTP.
Between 22 and 28 May 2018, the salesperson did not respond to her client’s attempts to contact her. The seller thus personally arranged for meetings with IRAS, the buyer, and the salesperson’s estate agent, to resolve the matter. Both the seller and buyer agreed to allow the sale of the property to proceed, pay the necessary stamp duties, then abort the transaction so that the SSD and Buyer’s Stamp Duty would be refunded by IRAS to the seller and buyer respectively.
As a result of the salesperson’s failure to conduct thorough due diligence on stamp duty matters, the salesperson’s client eventually suffered a loss of $24,100 comprising IRAS refund fees, as well as the buyer’s bank loan cancellation penalty fee and legal fees.
The salesperson was charged with a breach of paragraph 5(1) of the Code of Ethics and Professional Client Care (CEPCC) for failing to conduct her business and work with due diligence by failing to inform her client of his obligation to pay the SSD for the sale of its unit, as required by paragraph 2.3.2(b) of the Professional Service Manual (PSM).
The salesperson pleaded guilty to the charge and CEA’s Disciplinary Committee (DC) sentenced her to a suspension term of five months.
Misinforming a married couple on conditions for remission of additional buyer’s stamp duty
In September 2017, a salesperson represented her client to sell their private property located in Eunos. A married couple, who were co-owners of a Housing & Development Board (HDB) flat, were interested in the property after viewing the salesperson’s listing.
When the salesperson met the couple, she claimed that there would be remission of the Additional Buyer’s Stamp Duty (ABSD) charged for the purchase of the property if the wife, a Singapore citizen, purchased it in her sole name and the couple sold their jointly-owned HDB flat within six months of the wife’s purchase of the property. She also claimed that the ABSD rate would be 7%.
These claims were inaccurate as the remission of ABSD would only apply if the property was purchased under both the buyers’ names. Under such a circumstance and as one of the buyers was a Singapore Permanent Resident, the ABSD rate charged would then be 10%. The salesperson had not ascertained or verified the rules on ABSD remission before making her claims.
The other eligibility conditions were that the couple would have to sell their HDB flat within six months of the purchase of the property, they do not purchase a third or subsequent property, and that one of them was a Singapore citizen.
Relying on the salesperson’s inaccurate claim, the couple proceeded to pay 1% of the purchase price of $982,888 as option fee, which amounted to $9,828.88, and received an OTP granted by the seller. Subsequently, the couple was informed by their conveyancing lawyer of the inaccuracies in the salesperson’s claims, and decided not to proceed with the purchase.
The misinformation on the salesperson’s part caused the couple to suffer a loss of $10,328.88 from the forfeiture of the option fee and their legal fees.
The salesperson was charged with a breach of paragraph 6(3) read with 6(4)(c) of the CEPCC for failing to act in a reasonable manner towards all other persons by misrepresenting the eligibility conditions of the remission of ABSD charged for the purchase of a second property by the buyers.
The salesperson pleaded guilty to the charge and CEA’s DC sentenced her to a suspension of four months and a financial penalty of $3,000.
Expert view on the case
By Ms Edith Tay, Executive Director
PropertyBank Pte Ltd
Finding a matching buyer to a property is not “job done” for salespersons. Salespersons play an important role from the beginning, including verifying information about the property and customer.
Very often, salespersons are amongst the first to provide advice on the tax situations of the parties they represent. Mistakes can be avoided if they carry out the necessary additional steps to understand the customer and find out important information, such as the citizenship and date of purchase (or the duration of the ownership) of the property. Without a clear understanding and awareness, as seen from the salespersons in these two cases, their clients might have to bear a hefty financial loss if the transactions go awry.
It is thus critical for salespersons to be equipped with updated knowledge of the relevant taxes applicable to property transactions. Salespersons should keep abreast of the latest tax regulations by attending CPD courses and understanding the tax information on IRAS’ website. Estate agents can also support their salespersons by providing a tax consultant’s contact as an add-on service to clients.
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Information accurate as at 9 February 2021