Property developers carry on property development activities i.e. the development of land parcels into residential, commercial and industrial properties for sale, usually prior to the completion of the properties.
Expenses that are directly attributable to the acquisition of land and property development activities are to be capitalised and accumulated in the Development Cost Account up to the Year of Assessment in which the TOP is issued (‘TOP YA’).
In the TOP YA, the sale proceeds due and payable in accordance with the payment schedule in the Sale and Purchase Agreement of the property units sold are taxed. The allowable development costs incurred up to that date on these units are allowed as deduction. If some property units are not sold by the TOP YA, the allowable development costs to be allowed as deduction in the TOP YA have to be apportioned.
Learn more about the taxation of property developers (PDF, 663KB).
Your property developing company is required to keep proper records and accounts of its business transactions for submission upon IRAS’ request. Learn more about your company’s record keeping requirements.
Purchase of Land/ Property
Your property developing company should prepare the following documents when it purchases any land/ property:
- Location/ address of the land/ property
- Date of purchase
- Purchase price and incidental expenses
- Description of the proposed development
- Name and identification number (NRIC/ FIN/ UEN, etc.) of the vendor and whether the vendor is in anyway related to your company, its directors or shareholders. If so, your company should provide details about the nature of relationship and state whether the purchase price is reflective of the market value of the land/ property as at the date of purchase
- When the property purchased is not for development for sale, your company should provide supporting documents to substantiate the intention for the land/ property acquired (e.g. for long-term investment)
- Means of financing the purchase (e.g. bank loans, overdrafts)
Development of Property
When development of land/ property has started, your property developing company should prepare the following documents:
- Description of the development
- Total number of units and floor area of units to be built
- Date or expected date of TOP
- A schedule showing the allowable development costs
Sale of Developed Property Units
Your property developing company should prepare the following documents when the developed property units are sold:
- Date of TOP
- Computation showing the tax adjusted profit or loss on sale of developed property units
- For each developed property unit sold to related parties, your company should provide:
- Official address of the unit
- Full name and identification number (NRIC/ FIN/ UEN, etc.) of the purchaser and nature of relationship
- Contracted date of sale, sale price and the floor area of the unit
- Details of whether the sale price is reflective of the market value of the property unit as at the date of sale
If my property developing company fails to fulfil any of the qualifying conditions stated in the Letter of Undertaking in relation to the remission of Additional Buyer’s Stamp Duty ('ABSD'), it is required to pay ABSD and interest on ABSD. What is the tax treatment of these expenses?
ABSD and interest payable on ABSD are costs related to the acquisition of the land and are part of the development costs.
Learn more about the tax treatment of the ABSD and interest payable on ABSD (PDF, 80KB).
Must my property developing company submit supporting documents to substantiate that the land/ property is acquired for development for long-term investment, together with its Corporate Income Tax Return?
No, it is not required to do so. However, your company should retain supporting documents such as directors' resolutions and notes of board meetings stating such intention when it purchases the land/ property, and submit them upon IRAS' request.
What are allowable development costs?
The allowable development costs include land cost, stamp duty, property tax, construction cost, architect fee, differential premium, development charge and financing cost.
Are marketing and promotional expenses incurred by my property developing company for the development of properties for sales and capitalised in the Development Cost Account for accounting purposes deductible in the year in which they are incurred?
Marketing and promotional expenses are deductible in the year in which they are incurred. Examples of such expenses are advertising fees, property agency fees, banners, brochures, architectural models and expenses incurred on a temporary show flat built purely for marketing purposes (i.e. the show flat will be dismantled and removed subsequently).
Are sales commission incurred by my property developing company in respect of the sale of specific units deductible in the year in which they are incurred?
Sales commission are direct expenses incurred in respect of specific units sold. Hence, such expenses are deductible in the Year of Assessment in which the sales proceeds of those specific units are brought to tax.
If my property development company decides to keep some unsold property units held for trading as long-term investments, do I need to declare the change and what is the tax impact?
You are required to give notice (i.e. complete an AC Reporting Form (PDF, 115KB)) of any appropriation of trading stock for non-trade or capital purposes to the Comptroller of Income Tax at the point of filing the tax return.
When the unsold units are appropriated for long-term investment, they are treated as sold on the date of appropriation. The resulting profit or loss which is computed based on the open market value (OMV) of the unsold units as at the date of appropriation is taxable or deductible.
If my property development company owns an investment property which was held as long-term investment but now decides to redevelop it for sale, do I need to declare the change and what is the tax impact?
You are required to give notice (i.e. complete an AC Reporting Form (PDF, 115KB)) of any conversion of non-trade or capital asset to trading stock to the Comptroller of Income Tax at the point of filing the tax return.
Any gain or loss upon the conversion relating to the change in the value of the investment property up to the date of conversion is capital in nature and is not taxable or deductible.
Where the investment property that is converted to trading stock included qualifying plant or machinery in respect of which capital allowance has been claimed, balancing adjustment1 (i.e. balancing allowances or charges (BA/ BC)), which is based on the difference between the tax written down value (TWDV) of the qualifying asset and its open market value (OMV) as at the date of conversion, must be made. A BC is taxable while a BA is deductible. The BC, if applicable, is capped2 at the amount of capital allowances previously granted in respect of that non-trade/capital asset.
In computing the gain or loss arising from the subsequent sale of the redeveloped property, the OMV of the investment property as at the date of conversion is treated as part of the cost of the trading stock.
1 Section 20(1)(b)(ii) of the Income Tax Act 1947 (ITA) is applicable to a qualifying plant and machinery in respect of which capital allowances had been given
2 Section 20(4) of the ITA