Note : 

• Lawyer Professional fees to be included 6% of government tax.
• Disbursement  Fees to be in the range of RM1000- RM1500.00 ( based on estimation)

We did post an article about Property Gain Tax before, however, we would like to summarized the new RPGT features in a simplest way for our viewer.

Now, that issue on real property gain tax (RPGT) had resolve. Therefore, it is our chances now to take control and understand more on the situation. Let’s us clear the air for everybody on the RPGT issue. This will contribute to smoother buying and selling process in Malaysia.

The Budget 2010 presented last year October was a shocked to all of us. After few years of suspension, the RPGT was restored with a flat rates 5% for all disposals of real property, regardless of their holding period and their category (either individual or company).

The good news, government responded to the tremendously ensuing feedback and finally came up with some changes and exemptions.

The summary as follows:

1)   ONLY CHARGE 5% FLAT RATE

From 1^st January 2010, RPGT is impose at 5% flat rates for gains arising from property disposal. This is only applicable for property sold  in Malaysia within 5 years of acquisition.

After this law put in place the actual calculation of RPGT can be very tedious and complicated. Please refer No. 5 for the simple example and calculation on RPGT.

2)   ONE RATES FOR ALL

The flat rate of 5% is applicable to all persons- individuals, companies, residents, citizens, non citizens, non residents, trusts and so on.

3)   NO TAX AFTER FIVE FOR ALL !

If the holding period exceed five years, there will be a blanket exemption.  Compare to those old days, this definitely an act of  improvement and thanks to the government.

It’s value highlighting that companies also qualify for this exemption. Beneath the old scheme, there was a perpetual 5% tax rate for disposals, even after five fulfilled years. As a result, this action represents a advantage for companies. Do bear in mind though that it must be five full years. So you mustn’t be short by even a day.

Example 1 :

If the property was purchase on 5^th June 2005, ( as per sales and purchase agreement date), and you are selling on 5^th June 2010, this mean, you are selling the property on sixth calendar year. Therefore, you are exempted from RPGT.

4)   ONE RESIDENTIAL PROPERTY EXEMPTION

Previously, the once-in-a-lifetime exemption from RPGT is in regard of single residential property from each citizen or permanent resident. Beside, each spouse qualifies for the one-time exemption in his/her own right.

You ought to request for the exemption in writing and it is unchangeable, therefore be very careful. Make sure it’s the finest thing to act under the circumstances. Also, remember that the residential property possibly will be rented out or used as your own residence. As long as it is a property fit for residential purposes, it should eligible for this exemption. By the same token, shoplots, office premises, shophouse, warehouse, vacant land, factory and so on will not qualify. Clearly, companies do not eligible for this exemption.

5)   EXEMPTION FOR INDIVIDUALS

This exemption only eligible for individuals, companies do not eligible for this . There is  exemption of RM100,000 or 10% of the chargeable gain, whichever is higher. 

6)   ACQUIRER’S RESPONSIBILITY TO WITHOLD MONEY

The acquirer is compulsory to withhold 2% of the disposal consideration in cash and forward it to the inland Revenue Board (IRB) within 60 days of the date of disposal.

Example 2 :

The acquirer of a property sold for RM500,000 on July 1, 2010 must withhold RM10,000 (2%) and forward it to the IRB by Aug 29, 2010. If he fails to do so, he will be face a penalty. The reminder of RM490,000 may be released to the disposer as per the terms of the agreement.

7)   FURNISH A RETURN TO IRB

Both the disposer and the acquirer are essential to provide the IRB with their respective RPGT returns, on the prescribed forms, within 60 days of the date of disposal. The forms are obtainable from the IRB.

8)   INTEREST NO LONGER DEDUCTIBLE

Any interest charges incurred earlier to the problem of the certificate of fitness will no longer be deductible in arriving at the chargeable gain from the disposal.

9)   LOSSESS

Any loss sustained in a disposal may perhaps be set off t against another profitable disposal by the same individual in the same year or may be carried forward to be set off against a subsequent profitable disposal. This provision has always been applicable but the computation of the amount to be set off is now different.

10) CONDITIONAL CONTRACT

Normally the date of the signing of the sale and purchase agreement ( S&P) is the date of disposal. However, an S&P is considered a conditional contract if it is contingents upon the approval from the government. The date of the  approval is treated as the date of disposal.

Examples of approvals required those from the Securities Commission or the Foreign Investment Committee. It has been clarified by the authorities that approval needed from state governments for the transfer of certain properties (subject to conditions) will not been included in this category.

With knowledge of the RPGT provisions and some advance planning exposure to the tax may be reasonably contained or minimizes.

RPGT on Budget 2010

The Malaysia Government has proposed to reimpose 5% real property gains tax (RPGT) for gains arising from property disposal with effective Jan 1 2010, on property sold within five years of the date of purchase. The RPGT for the first year is 5% and is the same for the second, third, fourth and fifth year. Meanwhile, the Government has provided exemption for following:-

1. Disposal of a residential property once in a lifetime.

2. Transfer as gifts between parent and child, husband and wife, grandparent and grandchild; (No exemption for transfer between sibling) and

3. Exemption of RM10,000 or 10% of the chargeable gain, whichever is greater, for each disposal of a property by an individual.

Example to illustrate calculation of Real Property Gains Tax (RPGT) payable: Mr.X purchased a property on year 2006 at RM100,000.00 and sold after or on Jan 1 2010 at RM200,000.00 (within five years of the date of purchase). He made RM100,000.00 from the transaction and the gains are subject to 5% RPGT.

RPGT Calculation:

RM100,000 (Property Gains) – RM10,000 (Waived Exemption) = RM90,000 (Taxable Gains)

RM90,000 (Taxable Gains) x 5% (RPGT Rate) = RM4500 (RPGT Chargeable)

The RPGT will be restored on January 2010 before its suspension in April 2007 with the tax rate as mentioned above.

Basis Of Taxation

The chargeable gains arising from the disposal of any land situated in Malaysia and any interest, option or other right in or over such land or the disposal of shares in a ‘real property company’ is subject to Real Property Gains Tax.

Disposer’s Responsibilities

The disposer of a real property has to submit the following within 30 days from the date of disposal of the asset:

1. Completed Form CKHT 1;

2. Copies of stamped Sale and Purchase Agreement or Form 14A (memorandum of transfer) to prove the acquisition and disposal of the asset;

3. Copy of grant/title deed (if any);

4. Copies of bills and receipts for expenses claimed. (in case of companies or non-citizen and non-permanent resident individuals, details not required if asset is disposed in the sixth or subsequent year from the date of acquisition).

Acquirer’s Responsibilities

An acquirer has to submit the following within 30 days from the date of disposal of the asset:

1. Completed CKHT 2 forms;

2. Copy of stamped Sale and Purchase Agreement or Form 14A (memorandum of transfer) to prove the acquisition;

3. Copy of grant/title deed (if any).

Acquirer (or his solicitor) is also required to retain the whole of the consideration monies or a sum not exceeding five percent (5%) of the total value of the consideration whichever is the lower, until he receives clearance (Form CKHT 4 or CKHT 5) from the Inland Revenue Board.

Exemptions Available For Real Property Gains Tax (RPGT)

(i) A gain arising on disposal prior to 7 November 1975, the date of coming into force of the RPGT Act 1976.

(ii) An amount of RM5,000 or 10% of the chargeable gain, whichever is greater, for each disposal of a property by an individual.

(iii) A gain accruing to the Government, a State Government or a local authority.

(iv) A once in a lifetime exemption on a gain accruing to an individual who is a citizen or a permanent resident or to a husband and wife in respect of the disposal of two private residence (each for husband and wife as amended in Budget 2005).

(v) A gain equal to to the amount of estate duty payable where the disposer is compelled to dispose the property in order to pay the estate duty.

A No Loss And No Gain Situation

Applicable only to companies (as defined in the RPGT Act 1976) for the following situations:-

(i) Transfer of asset between companies in the same group to bring about greater efficiency in operation for a consideration consisting of not less than 75% syer in the transferee company and the balance of a money payment.

(ii) Transfer of asset between any companies for any consideration in any scheme of reorganisation, reconstruction or amalgamation whereby the transferee company is being restructured to implement any such scheme in compliance with Government policy on capital participation in industry.

(iii) Distribution of asset by a liquidator of a company and the liquidation of the company was made under a scheme of reorganisation, reconstruction or amalgamation whereby the transferee company is being restructured to implement any such scheme in compliance with Government policy on capital participation in industry.

Several Transactions Where Disposal Price Is Deemed Equal To Acquisition Price:

(i)    Transfer of assets between spouses.

(ii) Gifts made to the Government, State Government, local authority or a charity exempt from income tax.

(iii) Disposal of an asset as a result of a compulsory acquisition under any law.

(iv) Disposal of an asset by a person to an Islamic Bank under a scheme where that person is financed by such bank in accordance with the Syariah.