Thursday, 28 May 2015

[Straits Times] Review tax breaks on rented property

CITY Developments' (CDL) suggestion that investment in property can help fight income inequality, and therefore, the Government should tweak some of the property cooling measures, is misplaced ("CDL: Property investment can help narrow income gap"; May 14, "Property investment won't narrow income gap" by Mr David Goh Chee Hoe ; last Thursday, and "Property investment: CDL replies"; last Saturday).
On the contrary, property investment will lead to a worsening of income inequality.
This is due to the fact that, by and large, only the rich can afford to borrow and invest in property.
Under the current income tax system, property investors enjoy a tax break, as interest paid on the loan or mortgage taken to purchase the property that is rented out is an allowable expense that can be deducted against rental income.
The Economist calls such tax breaks a "senseless subsidy" and adds: "People borrow more to buy property than they otherwise would, raising house prices and encouraging over-investment in real estate instead of in assets that create wealth. The tax benefits are largely reaped by the rich, worsening inequality."
It is, therefore, important that the cooling measures not only remain, but also be further strengthened by disallowing the offsetting of loan interest against the rental income.
The Inland Revenue Authority of Singapore should treat the loan interest in the same way, regardless of whether the property is owner-occupied or rented.
V. Navaratnam