After many years in the pipeline, my book on property taxation in Malaysia will soon be out! After obtaining the necessary approvals from the authorities, my manuscript has been sent to the printers and the book is expected to be published the middle of this coming September.
Property investment can be a lucrative way to accumulate wealth. Indeed, with the right real estate portfolio you could have sufficient rental income to achieve real financial freedom early in life. It can also secure you a comfortable retirement, as well as a financial legacy to pass onto your children.
While investors busily focus on finding the right property, with the best capital appreciation potential, as well as negotiating the greatest rental returns, many pay scant attention to the largest and surest cost of any real estate investment: TAXATION. As the law currently stands in Malaysia, taxation can account for up to 26% of the income earned by any taxpayer, and that includes property investors!
Under the self-assessment system (SAS) practised in Malaysia, the responsibility for filing tax returns correctly falls on the taxpayer. They are responsible for making the correct declaration of income, as well as the right claims for tax deductions. Getting things right is a daunting task, especially as many taxpayers – especially individuals – do not seek the assistance of a qualified tax agent or accountant, when filing their returns.
Many taxpayers are known to have resorted to ‘creative’ ways to reduce their tax bills. When discovered by the Inland Revenue Board (IRB), which is just a matter of time, they will be slapped with a hefty penalty (as much as 100% of the tax undercharged), through civil action.
During my many years of professional practice, I have come across numerous instances where companies and individuals pay unnecessary taxes and penalties, in other words they give ‛tips’ to the government. I am often asked when the right time is to seek the advice of a qualified tax agent or consultant, in order to best minimise the exposure of a property investment to taxation. And my answer is always the same: right from the very start!
Property investors should realise that there are tax implications at every stage of the way. Tax planning should not be left until you sell your property; it needs to start even before you buy it. That way you can develop a plan that best suits your investment strategy, saving you the most taxes in the process.
In my book, we will explore how taxation – notably Income Tax and Real Property Gains Tax (RPGT) – affects each area of real estate investment in Malaysia. Light will be shed on the complexities of the laws governing property investments, and you will be advised how to minimise your tax exposure LEGALLY, so that you don’t give ‘tips’ to the government.
We will look at the self-assessment system (SAS) and how taxpayers unknowingly contribute to their own unnecessarily large tax bills. Next, we will discuss how income from your properties are taxed and how you can maximise your claims for deductions, as well as avoiding the common mistakes made by most taxpayers. Then come the implications when you sell your property and what expenses you can legitimately claim to reduce your tax bill.
The biggest question in an active real estate market is whether your property disposal is subject to Income Tax or RPGT. We will explore how the IRB will attempt to ‛capture’ a property disposal under Income Tax, and what you should do to minimise the risk of this happening.
We will also look at using business vehicles such as private limited companies and the newly introduced limited liability partnerships (LLPs), to acquire and manage your real estate investments. Owning property through these vehicles has both advantages and disadvantages in tax terms. We will discuss these positives and negatives in detail, as well as providing lots of advice about how to reduce your eventual tax bill.
Do check out my blog often for more updates and as to how you can obtain your own copy of my book on property taxation!