REIT tax discharge in excess of S$2.5 million

In June 2015, OSH assisted the client in obtaining a tax discharge in excess of S$2.5 million from the Comptroller.

The matter concerned the taxability of certain payments received by the client, a REIT, from its unitholders under a trust deed. Under the trust, where the unitholders were late in making payment following a capital call, they were required to pay to the trust (in addition to the capital call amount) a “late compensation payment”. The late compensation payment was computed at a rate which was recognised (in the trust deed) as a “genuine pre-estimate of the loss incurred” by the REIT as a result of the late payment of the capital call amount.

The Comptroller initially took the view that the late payment compensation was revenue in nature as it was compensation for the deprivation for the use of money. Effectively, the Comptroller viewed the payments as interest and therefore subject to tax. OSH provided a legal opinion that the late payment compensation was capital in nature and not thus not subject to tax on the following basis:

  • The payments were not in the nature of interest as there was simply no underlying principal sum to which it was referable.
  • The payments constituted additional capital received by the REIT.

The above conclusion was arrived at after a close review of the documentation, in particular the trust deed and a careful consideration of the obligations of the parties under the trust deed. Despite appearing to be akin to interest at first glance, it was evident from the above that the late payment compensation essentially constituted part of the capital contributed by the unitholders.

The legal opinion was provided to the Comptroller who eventually reconsidered his position and excluded the late payment compensation from tax.

For more information, please contact Joanne Khoo at +65 6804 7568 or