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 1st 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 5th June 2005, ( as per sales and purchase agreement date), and you are selling on 5th 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.
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.