chapter 9

REAL PROPERTY GAINS TAX (RPGT)

(CHAPTER 12; PAGE 425)

ATXB223 MALAYSIAN TAXATION II 1

Learning Outcomes


INTRODUCTION

The first legislation to tax gains from the disposal of real property was introduced via Land Speculation Tax Act (1974)

The Act was repealed in 1975 and replaced with Real Property Gains Tax Act (RPGTA) 1976

RPGTA provide mechanism for taxing capital gains derived from chargeable gains arising from the disposal of real property or shares in a real property company

No RPGT regime: from 1 April 2007 to 31 December 2009

Year of assessment: calendar year


CONCEPTS AND DEFINITION “REAL PROPERTY”: any land situated in Malaysia and

any interest, option or other right in or over such land

Section 2 RPGTA defines land as: The surface of the earth and all substances forming

that surface The earth below the surface and substances therein Buildings on land and anything attached to land or

permanently fastened to anything attached to land Standing timber, trees, crops and other vegetation

growing on land Land covered by water


CHARGEABLE PERSONBody of person and partnershipCo-proprietorshipIncapacitated personNon-resident personRuler & ruling chiefCompaniesHindu joint familyExecutorTrusteeJoint & several liability of trustees & executors


CHARGEABLE GAINS RPGT was payable on the chargeable gains which is

the difference between the disposal price and the acquisition price of a real property

The tax is imposed at scale rates based on the holding period of the asset prior to disposal

The holding period is measured from the date of acquisition of the property up to the disposal date


CHARGEABLE GAINSRates of Real Property Taxes (schedule 5 RPGT Act)

Year Effective from 1 January 2010 – 31 December 2012

Disposal within the following period after acquisition

companies Individuals & non-corporate entities

In the first two years 30% 30%

In the third year 20% 20%

In the forth year 15% 15%

In the fifth year 5% 5%

In the sixth year & thereafter

5% Nil


CHARGEABLE GAINSRates of Real Property Taxes (schedule 5 RPGT Act)

Year Effective from 1 January 2013

Disposal within the following period after acquisition

companies Individuals & non-corporate entities

In the first two years 15% 15%

In the third year 10% 10%

In the forth year 10% 10%

In the fifth year 10% 10%

In the sixth year & thereafter

Nil Nil


CHARGEABLE GAINS (non citizen and non resident)

Rates of tax on Chargeable Gains on Disposal of a Chargeable Asset

Rate %

Disposal within five years after the date of acquisition of the chargeable asset

30

Disposal in the sixth year after the date of acquisition of the chargeable asset or thereafter

5


ACQUISITION PRICE (PARA 4, SCH 2)

Purchase consideration + any incidental costs (or permitted expenses):

Fees, commission or remuneration paid for professional services

Cost of transfer (i.e. stamp duty)

Other incidental costs (i.e. advertising cost to find a seller)

Interest paid (not allowable wef 1 January 2010)


Cont…..

In addition the following expenses may be deducted in arriving at the acquisition price:

Compensation for damages, injury, destruction, risk of depreciation etc

Receipts under a policy of insurance for damages to the property

Deposits forfeited in respect of the property


Disposal Price

Sale consideration in money LESS:

The amount of any expenditure wholly & exclusively incurred after acquisition for the purpose of enhancing/ preserving the value

The amount any expenditure wholly & exclusively incurred after acquisition for the purpose of establishing, preserving or defending the owner title

Incidental costs


Incidental costs:

Fees, commission or remuneration paid for the professional services of any surveyor, value, accountant, agent or legal adviser

Cost of transfer (i.e. stamp duty)

Cost of advertising to find a buyer

Refer Example 3


Cont…..

Date of Disposal and Acquisition

The date of the written agreement

If there is no written agreement, the date of completion of the disposal

Conditional contract

The date the contract was made; or

The date when all the condition satisfied

Disposal of deceased person’s asset

The date of death of the deceased


EXEMPTIONS (SECTIONS 8 & 9, SCH 4)

Gains from disposal of private residence (by election)

Once in a lifetime

Citizen or a permanent resident of Malaysia

A residential property/ part of the building used for residence

Owned by the individual/spouse

(Wef. 1 October 2005: exemptions given to both husband & wife)


Co-owned land

Prior to RPGTA

Disposal by government

RM10,000 or 10% of chargeable gain (whichever the greater) [paragraph 2, schedule 4] prior to 1 January 2010 is only RM5,000 Taken into account prior to ascertaining the

exemption limiting the effective rate of tax to 5% The chargeable asset must not be part of a larger

asset at the time of the disposal Given irrespective of the nationality or residence

status of the individualATXB223 MALAYSIAN TAXATION II 16

Cont…..

Disposal by BIMB

Where the DGIR is satisfied that the disposal was made to satisfy or settle an estate duty (a gain equal to estate duty will be exempted)

Gains accruing from the disposals of chargeable assets required pursuant to Islamic financial and capital market product approved from 11 September 2006

Gains accruing to any person on the disposal of any chargeable assets to or in favor of a “special vehicle”

Gains from the disposal of Islamic securities

wef YA 2005, disposal by individual to a REIT companies


Cont…..

EXEMPTION ON DISPOSAL OF ASSET WITHIN FIVE YEARS

Wef 1 January 2010: where the disposal of asset is made within 5 years from the date of the acquisition, the person is exempted from the application of Sch 5

Subject to the condition that the chargeable gain shall be determined in accordance with the following formula:

A/B X C Where;A = [chargeable gain x applicable tax rate –

(chargeable gain x 5%)]B = chargeable gains x appropriate tax rateC = amount of chargeable gains


EXAMPLE 1

ZZZ Sdn Bhd purchased a shop house on 24.02.2009 ata price of RM240,000 on sold that shop house on04.02.2012 at the value of RM300,000.

Required:Compute the real property gains tax (if any)



RMAnswer:

EXEMPTION ON DISPOSAL OF ASSET AFTER FIVE YEARS

REAL PROPERTY GAINS TAX ACT (EXEMPTION) (NO. 2) ORDER 2009 This order exempt any person from the payment of

RPGT on the chargeable gains in respect of anydisposal of a chargeable asset on or after 1 January2010

Where the disposal is made after five years from thedate of acquisition of such chargeable asset

The exemption on the chargeable gains are accordedto all types of real property including shares in RPCsold by all categories of property owner (companiesand individuals)


EXAMPLE 2ZZZ Sdn Bhd purchased a shop house on 24.02.2006 at a priceof RM240,000 on sold that shop house on 01.06.2012 at thevalue of RM300,000.

Required: Compute the real property gains tax (if any)


RPGT IN A JOINT VENTURE CASE

In a joint venture case:

the date of the disposal is the date of the jointventure agreement

The disposal price is the market value of theproperty at the date of the agreement


EXAMPLE 3(a)

Ali owns a piece of land, which he acquired on 20.06.08 at theprice of RM2 million. He entered into an agreement with adeveloper company on 02.08.2011. according to theagreement, Ali will transfer the right to develop the land to thedeveloper and will be given 8 units of normal terrace housesand 2 units of end-lot terrace houses in return. The developerhas set up the sale price of the normal terrace house atRM300,000 per unit, and for the end-lot terrace house, theprice is RM400,000 per unit. The market value of the land as at02.08.2011 is 5 million.

Required:

Determine the RPGT applicable to Ali from this joint ventureagreement


EXAMPLE 3(a)RM


EXAMPLE 3(b)


On 05.09.2014, Ali disposed a normal terrace house at a price of RM550,000. the computation of RPGT on the disposal is as follows:

RMDisposal price as at 05.09.2014 550,000Acquisition price:Acquisition price/ market value of the disposed unitTotal value/market value of all units received

Multiply by market value of the land @ the date of the agreement

ALLOWABLE LOSS (SECTION 7)

Prior to 1 January 2010

The allowable loss qualifies for relief as a set off againstfuture gains

The tax loss relief is a given a special treatment where it isallowed as deduction from the total tax assessed on thechargeable gain of a taxpayer for the year of assessment inwhich the loss arises



From 1 January 2010Disposal of asset within 5 years

A relief is given to an allowable loss by deducting itfrom the total chargeable gains for the year of thelossAny amount that cannot be set off due toinsufficient of chargeable gains can be carriedforward and offset in future years

Disposal of asset after 5 yearsLoss from the disposal cannot be set off againstfuture chargeable gain (permanent loss)

ALLOWABLE LOSS (SECTION 7)

EXAMPLE 4

On 02.01.2008, Aishah purchased a piece of land in Alor Setarat the price of a RM 350,000 and then disposed the land on21.03.2010 at the price of RM300,000. details are as follows:


RMdisposal price 300,000less: incidental cost (legal fees & advertisement) 2,000disposal price as at 21.03.2011 298,000

less: Acquisition price as at 02.01.2008amount paid 350,000add: incidental cost 4,500 (354,500)allowable loss ( 56,500)

EXAMPLE 4 – cont’d

On 29.04.2008, Aishah purchased another piece of land inKulim at the price of RM255,000 and disposed in on01.04.2010 at the price of RM500,000. the gain from thisdisposal (after all exemption) is RM8,865.


RM

gain from disposal 8,865

Less: allowable loss (restricted) (8,865)

chargeable gain nil

TREATMENT OF GIFTS [PARA 12, SCH 2]

Disposals shall be deemed at the market value Except for the gifts between husband and wife,

parent and child, or grandparent and grandchild If the gift is made within 5 years to the related party,

the situation is considered as “no-gain no-loss”situation and thus be exempted from RPGT

The donee is deemed to have acquired the propertyat the donor’s acquisition price plus all enhancementactivity and permitted expenses

A gift of property or shares in a real property maygive rise to tax liability


NO GAIN NO LOSS SITUATIONS where a gift is made and the donor and the donee are

related and the gift is made within 5 years after the date of acquisition

The devolution of the asset of a deceased person on his executor or legatee under a will or intestacy or to his trustee of the trust

The transfer of assets owned by an individual, his wife (or jointly) to a company controlled by them (at least 75%)

The acquisition from or disposal to a nominee or trustee resident in Malaysia by an individual or his wife (or both), where the nominee or trustee has absolutely no vested interest in the asset


NO GAIN NO LOSS SITUATIONS

The transfer of real property between spouses

The transfer of an asset by way of security

The conveyance or transfer of an asset by way of security or the transfer of a subsisting interest or right by way of security in or over an asset by a person to Islamic bank where the individual is financed by loan from the bank in accordance with the syariahprinciple

The disposal of an asset as a result of a compulsory acquisition under the law


EXAMPLE 5Mr Tan transferred a house to his daughter Susan on 25 February2008 when the market price was RM650,000. the incidental costsfor the transfer amounted to RM5,000. The house was acquiredby Mr Tan on 1 March 2004 for RM300,000.Required:State the tax position of Mr Tan after transferring the house to hisdaughter and determine Susan’s acquisition price as at 25.02.08


RM

disposal price by Mr Tan (300,000+5,000) 305,000

less: acquisition price (300,000+5,000) 305,000

chargeable gain nil

note: Susan’s acquisition price is RM305,000

REAL PROPERTY COMPANY (RPC) RPC is a controlled company which owns real property or

shares or both where the defined value of the asset is not less than 75% of the value of the company’s total tangible asset (TTA)

TTA was defined as the aggregate of the defined value of real property or shares or both and the value of other tangible assets

A “controlled company” is defined as a company not having more than 50 members and controlled by not more than 5 persons


EXAMPLE 6

On 31.01.2010, EFG Sdn Bhd acquired a property at the price of RM350,000. The company’s total tangible asset as that date was RM430,000.

350,000

------------ x 100% = 81%

430,000

Since the defined value of the asset is 81%, EFG Sdn Bhd is a RPC.


Q & A


chapter 9

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