SINGAPORE - When the taxman goes after potential tax cheats, all sorts of human situations get uncovered.
Like people who admit they have a "sugar mummy" or "sugar daddy" providing cash for large purchases they are unlikely to be able to afford on their income.
Or a married man who pays for an apartment in his lover's name.
So if you buy a condominium apartment or a car that is priced completely out of proportion to your income, expect the taxman to pop by asking where the money came from.
You could receive a "Source of Funds" letter from the Inland Revenue Authority of Singapore (IRAS). Since 2009, it has been sending such letters to people suspected of under-declaring their income.
IRAS assistant commissioner of investigation and forensics division Loh Lee Kim told The Sunday Times: "If you buy assets and we compare the value of your assets and the amount of income you have declared and they are not in sync, you will be on our radar."
IRAS has sent out 4,285 letters over the past five years to query individuals about the source of their money.
These taxpayers had bought "high-value" assets such as property and cars between 2008 and 2012, yet declared small incomes that made such purchases unlikely, Ms Loh said.
They are advised to check their past income declarations and come clean if they had erred or omitted declaring some income, she said.
Most people have been able to justify their purchases, she added. They said their family or loved ones had given them the money. Or they had made money from investments, or were tapping on savings.
As for those with "sugar mummies" or "sugar daddies", Miss Loh said: "These people tell us they have someone who gives them money. But I wouldn't say their numbers are very large."
Take, for example, a woman in her late 30s who did not declare any income for several years, then bought a property in the eastern part of Singapore.
Queried by IRAS, she said a married man in his 50s had bought the property for her and that she was his "second wife".
She produced the bank loan agreement showing that she and the man were borrowers. IRAS established that her lover had the means to finance the mortgage.
From its audits, only 6 per cent of the taxpayers queried had under-declared their income.
They include a married couple who run employment agencies. The couple bought a property even though their declared income suggested they could not afford it.
Queried, they claimed they had savings but could not produce any evidence to back this up. IRAS investigated and found that they had omitted almost $2 million from their declared income over six years.
They were made to pay taxes and penalties amounting to $258,000.
Mr Chiu Wu Hong, a partner at auditing firm KPMG, said that IRAS has wide powers to check on individuals' income and assets.
It can get data from banks and other agencies if it is investigating someone. It can also seize documents it needs.
Mr Wu said: "These 'Source of Funds' letters should serve as a warning to potential tax cheats that tax evasion is an offence and they should come clean and report any under-declaration of income."
The tax filing period is until April 18.
This article was published on April 6 in The Straits Times.
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