OSH has successfully defended the client’s treatment for gains on disposal of property amounting to approximately S$19 million. The Comptroller, who had initially taken the position that there was a profit-seeking motive with respect to the disposal, has now agreed that the gains are capital in nature and not taxable.
The taxpayer, a multinational insurance group, had disposed of properties consisting of a number of floors in a building which it had developed and occupied as premises for the Head Office of the group. In initially assessing the gains therefrom as income in nature, the Comptroller likely had been influenced by the recent (at the time) Court of Appeal case of Comptroller of Income Tax v BBO  2 SLR 609. One of the statements made by the Court of Appeal in that case was that the nature of insurance businesses would ordinarily give rise to an inference that the gain from a disposal arose from a scheme of profit making. In our legal submissions to the Comptroller, we clarified that the BBO case did not go so far as holding that all gains derived by an insurance company would invariably be of an income nature; rather, the Court of Appeal had made clear that it was ultimately a question of fact to be determined according to ordinary concepts having regard to the circumstances under which, and the purposes for which, the investments were made and held by the taxpayer.
Our review of the relevant corporate documentation revealed there to be numerous features of both the development and sale of the properties in question which should have firmly placed the gains on the capital side. Following several rounds of further queries, the Comptroller ultimately agreed. It is noteworthy that the Comptroller had, subsequent to our legal submissions, issued an e-Tax Guide outlining its administrative position on gains derived from the disposal of investments of insurance companies in light of the BBO decision and acknowledging that certain gains derived by insurance companies are capable of being capital rather than income in nature (see e-Tax Guide: “Income Tax: Tax Treatment of Gains Derived from the Disposal of Investments of Insurers”). This matter illustrates the importance of having an up to date and accurate understanding of the legal position as set out by the courts – especially where such position varies from the administrative one taken by the Comptroller at the time.