Real Property Gains Tax 101 (Part 2)


Continuation from Real Property Gains Tax 101 (Part 1)

Image courtesy of Vichaya Kiatying-Angsulee / FreeDigitalPhotos.net

 

Exemptions

Pursuant to Paragraph 2, Schedule 4 of the Real Property Gains Tax Act (RPGTA), an individual is entitled to an exemption of 10% or RM10,000 of the chargeable gain on the disposal of a property, whichever is higher. This exemption applies to each and every disposal of property that an individual makes. This exemption is only available to individuals, so for this reason, it is always more tax-advantage if a property is purchased under an individual’s name as compared to a company.

Previously, this exemption does not apply to a part disposal of a larger chargeable asset. However, with effect from 1 January 2014, an individual who disposes part of a chargeable asset may claim a portion of the exemption of RM10,000 or 10% of the chargeable gain from such disposal, whichever is higher, allowable under that paragraph proportionate to the part of the chargeable asset disposed of, as determined in accordance with the following formula:

A / B x C

where A is part of the area of the chargeable asset disposed;
B is the total area of the chargeable asset;
C is RM10,000 or 10% of the chargeable gain whichever is greater.

Private Residence Exemption

The above is not to be confused with the once-in-a-lifetime exemption given to an individual (citizens and permanent residents) for the disposal of a private residence. This exemption is like a ‘Joker’ that an individual can play at any time, but only once in a lifetime. Therefore, an individual has to decide when to claim for this exemption, as one can never foresee the possible huge gain that a person may make on a future disposal of property. Besides, looking at the past trend of RPGT rates, there is huge possibility that RPGT rates may be further increased over the next few years, so therefore claiming an exemption for private residence in future, may be more beneficial than if it were to be claimed now.

Loss Relief 

If you make a bad property investment and happens to suffer a loss on the disposal of your property, don’t despair. The losses that you suffer on the disposal of that property can be utilised to set off against chargeable gains of your subsequent property disposals until fully utilised.  For individuals, you will still be given the RM10,000 or 10% of chargeable gains exemption first before the losses are utilised against the balance of chargeable gains.

The RPGT Computation

While it is convenient for the common man to remember the effective RPGT rates of 15% for disposal of real properties within 2 years and 10% for disposals after 2 years and up to 5 years, it is also interesting to know how the effective rates are arrived at. It is important to know that the RPGT rates as per the RPGTA since the year 1995 has been as follows:

Through a complex mathematical equation effected by the application of the Real Property Gains Tax (Exemption) Order 2012 on the existing RPGT rates per the RPGTA, we arrive at the effective RPGT rates of 15% and 10% as mentioned above. It is important for the reader to realise here is that if the exemption order were to be revoked in future, RPGT rates would then revert to their original position, ie. ranging from 30% to 5%, depending on the holding period of the property.

About Richard

Richard Oon Hock Chye has more than 25 years of experience in taxation and business advice, with particular expertise in Malaysian property law. He began his taxation career with Deloitte Touche Tohmatsu, a ‛Big Four’ accounting firm, before starting his own practice, ConsulNet Tax Services Sdn. Bhd., in 1996. He is currently the National Tax Director of TY Teoh International, one of the leading consulting service providers in Malaysia. It is a member of the MSI Global Alliance, a global network of more than 250 independent legal and accounting firms, in over 100 countries. Richard sits on the board of two companies listed on the Main Board of Bursa Malaysia, as an independent non-executive director. He is also a regular contributor to several magazines and publications, and has shared his tax expertise on numerous occasions with organisations and property developers. As well as being a member of the Malaysian Institute of Accountants (MIA), Richard is a fellow member of both the Association of Chartered Certified Accountants (ACCA) and the Chartered Tax Institute of Malaysia (CTIM). He is a Certified Financial Planner (CFP) and holds a tax agent licence issued by the Ministry of Finance. Richard is also the author of the book, ‘Every Property Investor’s Guide To How To Pay Less Tax Legally’.

55 thoughts on “Real Property Gains Tax 101 (Part 2)

  1. What I understand is a developer company disposes of a landed property, then it will be subjected to an income tax as oppose to real property gains tax. In such case, does the developer company requires to submit any return form to the Inland Revenue Department. If the answer is it does not requires to file the return form, under which provisions will govern this?

    • A developer is not required to file a CKHT return as the the landed property held by a developer would form part of its inventory of development property which is subject to Income Tax.

      The Real Property Gains Tax Act (RPGTA) only imposes tax on chargeable gain accruing on the disposal of any real property not assessed to Income Tax. Under Section 2 of the RPGTA, the definition of ‘gain’ means gain other than gain or profit chargeable with or exempted from income tax under the income tax law..

  2. If a developer company disposes of a landed property which the Developer bought/bidded from auction, then will the disposal of the Landed Property be subjected to an income tax as oppose to real property gains tax? In such case, does the developer company requires to submit any return form and any gain yaxable to the Inland Revenue Department? If the answer is it does not requires to file the return form and gain taxable, under which provisions will govern this?

    Thank you

    • By virtue of the nature of business of the company, ie. that of a developer, the disposal of the property bought from auction (unless the profit-making objective has been defeated through a compulsory acquisition by the government/government-appointed parties) would be subject to income tax (having said that, do check out my earlier post on badges of trade to evaluate the circumstances applicable to your case).

      A developer is not required to file a CKHT return as the the landed property held by a developer would form part of its inventory of development property which is subject to Income Tax.

      The Real Property Gains Tax Act (RPGTA) only imposes tax on chargeable gain accruing on the disposal of any real property not assessed to Income Tax. Under Section 2 of the RPGTA, the definition of ‘gain’ means gain other than gain or profit chargeable with or exempted from income tax under the income tax law..

  3. If I inherited a piece of land from my late father in last year 2012, and I plan to sell it by this year 2013, will I be charged for the RPGT tax? If yes, can I utilise the once-in-a-lifetime exemption given to an individual (citizens and permanent residents) for the disposal of a private residence?

    • The bad news: yes, it will be subject to RPGT. The good news is, you would have deemed to have acquired the land when it is transferred to you at the MARKET VALUE at the time of transfer. As the period of deemed acquisition to the date of your proposed disposal is rather short so therefore there should not be a considerable increase in market value when you propose to dispose of the land, there should not be a huge exposure to RPGT, even at 15% RPGT rate for disposals within 2 years. Unfortunately, you will not be able to take advantage of the once-in-a-lifetime exemption as it is only applicable to residential properties.

  4. Hi, Richard,
    Talking abt the once in life-time exemption, do we need to fill in any form and submit to whom? Thanks in advance.

    • Yes, you can obtain a copy of the form from the Inland Revenue Board’s website or follow this link. The form is to be submitted to the Inland Revenue Board, CKHT division.

      • Thanks. How if the properties is under 2 names e.g brothers? Do we qualified? if yes, submission of the form is by both OR only one of us? Please advise. :)

  5. Thank Richard. I downloaded the file. Got 1 question, if the properties is under my name and my brother name (i.e. 2 names under S&P and Loan). Is that this untitled for life-time waiver, as i only saw one column for put in the applicator name? Or both owners need to fill-in separate form and submit together? Thanks in advance.

    • Really sorry for the late reply; that’s the challenge when I’m the web administrator, contributor, author, etc. all rolled into one, besides running a practice of my own!

      Each person will have to submit his/her own CKHT form in respect of each person’s share of disposal. You can then elect for the once-in-a-lifetime waiver, although logic would suggest that it’s not advisable to elect for the exemption for joint ownership properties and if you intend to invest in more properties in future, unless the gain is very substantial.

  6. Hi Richard, I had sold a unit @238k (S&P dated 1Aug’13) from previous price @138k (S&P dated 27Jul’10), how does the calculation like, if I have the renovation billed @20k + furniture @10k? Do I enjoy the 10k tax exempt?

    • Yes, you will still enjoy the 10% exemption or RM10,000 of the chargeable gain, whichever is higher, when you dispose off the property.

      • IS it possible to offset RPGT if you have invested capital to improve the building?
        Say I bought for RM400,000, spent RM100,000 on renovation and sold it for RM600,000.

        Do I pay tax on RM200,000 or RM100,000?

        • Yes, you are entitled to deduct ‘enhancement costs’ against the gain that you make from the disposal of that property.

  7. Dear Richard,

    From your Real Property Gains Tax 101 (Part 2) posted on February 5, 2013, are you meaning that “an individual is entitled to an exemption of 10% or RM10,000 of the chargeable gain on the disposal of a property, whichever is higher” is already calculated and taken into the effective RPGT rates of 15% and 10%. Therefore, an individual will still need to pay the RPGT on the gain on disposal of property @ 15% or 10% depends on holding period? He or she will not enjoy the “exemption” in “real rebate money”? Appreciate of your advice.

    • Regardless of how many properties an individual own, an exemption of 10% of the chargeable gain, or RM10,000, will be given on each disposal of property. This net chargeable gain, after deducting this exemption, will be subject to RPGT, the rates which will depend on the holding period of the property.

  8. Hi Good Morning
    I have a question :-

    1. If my company is dealing with whole sale product and have just bought the land and is going into a Joint Venture, with having a sharing 25% on the total selling price. When my company get this money how much tax will my company has to pay and what about the gain from my actual business tax? Will I land up paying 15% or 25%?

    • From the information you have furnished, it sounds to me that your company will be playing an active role in the joint-development of the land, considering that you would have a share in the selling price, ultimately the profits, rather than in exchanging the land for a predetermined number of completed units of the project.

      In my opinion, your company will be subject to income tax instead of RPGT. That will be at a rate of 25% (or 20% on the first RM0.5 million of chargeable income,if the paid-up capital of your company does not exceed RM2.5 million).

  9. Dear Richard,

    I bought a piece of land in August 2009 at RM430,000.
    Started construction of building (bungalow) in Nov 2009 & completed in June 2010 with cost of RM900,000
    If I am selling the house at RM2,000,000, what will be the taxable amount & rate.

    Your advice is much appreciate. Thanks you

    • Oh dear, I was hoping that the information which I’ve provided in parts 1 and 2 of this blog would be sufficient to assist the reader in working out the tax liability from the disposal of a property.

      Please do give Part 1 another look to determine if you could work it out for yourself, thanks.

  10. Dear Richard,
    Good day.
    If i buy a property with a joint holder names (registered under husband and wife names), if i sell it later and apply for the RPGT once-in-a-lifetime exemption, will the two joints holders lost the “joker” (exemption) or only of of the property holders will lost the exemption ?

    thanks.

    • The joint owner who did not apply for the private residence exemption now, will still have this exemption to use in respect of his/her future property disposal.

  11. My friend’s mother just pass away in 2013 yr. Inside the will, the land transfer to his son. Now he want to sell off the property within 5 years, may i knw he need to pay the rpgt tax? Tq.

    • The son (legatee) would be deemed to have acquired the land at the date of transfer from the estate to him. Therefore, the acquisition date is that of the transfer, not of the deceased’s original acquisition date. He would however, be deemed to have acquired the land at its market value, at the time of transfer and not the deceased’s original acquisition price.

      Obviously, there will be some RPGT exposure, but perhaps not much, if the period between the date when the land is transferred to him and when he eventually sells it is short and the appreciation in the land’s market value between that period is not great.

  12. I bought a property in 1997 and sold it in 2013 at a loss. Can this loss be offset against the gain that i made on a property that i sold in 2013

    • Unfortunately, losses on disposal of a property made after 5 years from its acquisition date does not qualify for deduction against chargeable gains of subsequent real properties.

  13. Hi Richard, thanks for providing elaboration of how RPGT is derived but on the other hand, can I know whether the allowable expenses include loan penalty within lock-in period and progressive interest incurred during construction if I were to dispose of my property after collecting key from the developer (2 years after SPA), to compute the gross chargeable capital gain ? Am I right to assume real estate agent fee, legal related cost & stamp duty are all allowable expenses ? Appreciate your input. Thanks.

    • Unfortunately, loan penalty and progressive interest are not allowed as an incidental cost for disposal under RPGT laws so therefore are not deductible.

      You are correct with regard to the latter part of your question.

  14. Hi Richard
    I inherit a house from my dad last year
    and I decide to sell it now. Do I have to pay
    RGPT and how to determine the value of house..during time
    of transfer to my name or time my dad bought the house?..I ask this because
    I called up CKHT and one of their staff told me value of house will
    be base on the time my dad bought it.!!!
    Thanks

    • Hi Erica,

      I assume that your dad gave you the house as a gift and (pardon me) not inherited it as part of a distribution from an estate due to death.

      Unfortunately, the IRB officer is correct as gifts between parent-child is one of the situations where it give rise to a no-gain, no-loss situation on the donor. The recipient is deemed to have acquired it at the disposer’s original acquisition price.

      Even worse news; your acquisition date of the house is the date when the house was transferred to you and NOT your father’s original acquisition date.

      • Hi Richard
        Thanks for your reply.
        However I am not very sure on what u have written
        under the…even worse news…
        Example: house bought by my dad in 1972 and was transferred
        to myself (given as gift) in 2012..so the date of acquisition is WHEN?
        Thanks

  15. Hi there,

    In view of the 2014 budget, some owner would be targeting to sell their property by year end.

    Predicated on:-
    “Pursuant to Paragraph 2, Schedule 4 of the Real Property Gains Tax Act (RPGTA), an individual is entitled to an exemption of 10% or RM10,000 of the chargeable gain on the disposal of a property, whichever is higher”

    1. assuming transacted to sell by this year end is within 3 years from the original SPA date – 15% RPGT. Is the net RPGT only 5% ?
    2. and if the property were to be transacted next year. 30% RPGT, the net is only 15% ?

    • The exemption doesn’t work that way, unfortunately. The exemption only applies at the chargeable gain level, so for example, if the chargeable gain on the disposal of a property is RM150,000, you’ll get RM15,000 off (higher of RM10,000 or 10%). The balance of RM135,000 will then be taxed at the prevailing RPGT rates.

  16. Hi Richard,
    Thanks for the wonderful article. I have a query that needs your clarification :

    I have a property that was purchased under joint name (another friend).
    My partner has claimed his private residence exemption previously.
    For disposal of this property, am I entitled to claim my exemption while my partner pays his rpgt ?

    • So long as you haven’t exercised your once-in-a-lifetime private residence exemption, you are entitled to claim it on your portion.

  17. Hi Richard,

    I already used RPGT waiver (once in a life) during my first disposal. Based on your posting, i still entitle for 10% exempted for my second disposal right? Apprecite your confirmation. Thanks

    • Yes, you are correct, Nizam. This 10% exemption of the chargeable gain or RM10,000, whichever is higher, is available to an individual in respect of all his property disposals.

  18. Dear Richard,

    Thanks for the info sharing. I’m confused on RPGT under new budget 2014. Does this mean new RPGT will be imposed for existing properties or only for new property purchase from 1 Jan 2014 onwards?

    • The new RPGT rates will take effect from 1 January 2014. This means regardless of when you purchased your property, the new rate will apply if you were dispose your property on or after 1 January 2014.

  19. Hi Richard,
    Further to your comment on 10% exemption, does it mean each individual is allowed to claim full RPGT exemption once in a life time & thereafter 10% exemption for subsequent sale transaction within 5 years of purchase?
    Also can you advise on details & examples of allowable expenses to derive net property disposal value ? Thanks a lot.
    Terence

    • Yes, you are correct re the 10% exemption. The allowable incidental costs of making an acquisition or disposal of a property include professional and legal fees, brokerage, advertisement costs, cost of transfer, etc.

  20. Dear Richard,
    1) I bought a piece of land in 1993. Now I want to build a bungalow and if I decide to sell instead of stay do I need to pay RPGT? If I bought the land for RM100k in 1993 and build a house for RM900k,then sell it for RM1.8million. That means I have to pay RPGT on RM800k. At 30% that would amount to RM240k. I have not claimed my once-in-a-lifetime. Can I claim for the full RM240k?

    2) If make a profit of RM100k for a property after 2 years of S&P. I have to pay 30% RPGT on RM90k after deducting 10%. Can I still be allowed to claim for legal and agent fees and fees I pay for the memorandum of transfer (MOT)?

    Thank you in advance for your kind reply. So far I find that your website is the best because your answers are clear and accurate.

    • Thanks for your kind words about my website, which I am truly touched.

      Here are the reply to your questions:
      1) Yes, you would still be subject to RPGT on the sale of the land together with the bungalow. IF you chose to exercise your once-in-a lifetime exemption for private residence, you will not need to pay a single sen of RPGT.
      2) Yes, those are incidental expenses in connection with the sale of your property and they will be allowed as a deduction.

      • Dear Richard,

        I was pleasantly surprised to receive a reply from you more than a month after posting my question here that I had actually forgotten that I had made a query at your website. You must have been very busy. Better late than never. Thank you so very much for the kind,clear and accurate reply. It helps me make the right decision.

        Gong Xi Fa Cai for the year of the wooden horse.

        I have another question about the 10% exemption. I sold a piece of bungalow plot in 1989. I paid 15% RPGT on the profit I made. Why was I not given the 10% exemption? Does it only apply to residential property or was the 10% deduction not yet in force in 1989? Thank you in advance for your kind and expert advice.

  21. Hi. May I ask if bank interest paid can be deducted from the profit made from the same of my house? In Borang 1A it’s only started PERBELANJAAN LAIN. That’s quite general.

  22. Dear Richard,

    I am lucky enough to have bumped into your website while searching for an answer to the following and would greatly appreciate if you would enlighten me on the following:-

    1) In selling and purchasing of shares in a real property company, whether the purchaser is bound by RPGT to file the return forms for the seller to the inland revenue; or whether such is subject to corporate income tax to be filed by the company secretary/tax agent not under RPGT?

    Thank you in advance for your generousity in sharing the knowledge.

    • Hi, the disposal of shares in a real property company is a disposal of a chargeable asset and the normal RPGT rules will apply.

      Each person (ie. the buyer and seller) is responsible for filing his/her own RPGT Form, ie. CKHT 1B for the seller and CKHT 2A for the buyer.

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