RES exam question on Taxes & Duties: IRAS apply as "badges of trade" in its assessment
IRAS is investigating whether Mr Chua's frequent property purchases and disposals over 18 months constitute "trading" in property, making the gains taxable as income. Which of the following would IRAS apply as "badges of trade" in its assessment? (i) The frequency and number of similar property transactions undertaken (ii) Whether Mr Chua used his CPF Ordinary Account funds to pay for the properties (iii) The length of ownership before each disposal (iv) The method and extent of financing used to acquire the properties
- A(i), (ii), (iii) and (iv)
- B(i), (iii) and (iv) only
- C(i), (ii) and (iv) only
- D(ii), (iii) and (iv) only
Show answer & explanation
Answer
B. (i), (iii) and (iv) only
Explanation
(i) CORRECT — Frequency of transactions is a classic badge of trade (repetitive buy-and-sell suggests trading intent). (iii) CORRECT — Short holding periods before disposal support an inference of trading intent. (iv) CORRECT — Heavy borrowing to fund quick acquisitions and rapid resales is consistent with a trading business model. Other relevant badges include: the purpose at acquisition, improvements made, and whether transactions are connected to the taxpayer's business or profession.
Why the other options are wrong
- (ii) INCORRECT — CPF usage is a financing choice available to both investors and traders; it is not a recognised badge of trade.
Study the concept behind this question: Decoupling & ABSD in Singapore: How It Works (and the Traps)
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