My Budget 2014 Wishlist

Image courtesy of NST RED

Image courtesy of NST RED

I was asked by NST RED to give my Budget 2014 wishlist relating to the property industry, for their issue of ‘Budget 2014 – big impact on property market?‘ which has been published today.

Part of my comments can be seen in the abovementioned issue.

My 2 Budget 2014 wishes for the property industry, in their entirety, is reproduced below:

Tax allowance for buildings use for commercial purposes

Currently, a building which is used as an industrial building, either by the owner for his business (eg. as a factory, mill or workshop), or for rent to a tenant who then uses the building as an industrial building, is entitled to claim, on the qualifying expenditure incurred on the building, a tax allowance know as industrial building allowance. This is a form of tax depreciation on the qualifying expenditure of the industrial building (excluding land), given as a deduction against adjusted income, over several years until fully depreciated.

Currently, this form of tax allowance unfortunately does not extend to commercial buildings. It is my hope that the laws will be changed to allow this equivalent form of tax allowance on commercial buildings.

Redefinition of a Real Property Company (RPC)

In the past, many have sought to avoid paying real property gains tax (RPGT) on the sale of a property by incorporating a company, buying the property through that company and subsequently selling the shares in that company to another party. This effectively means that ownership of the property passes to the new owners, through ownership of the company.

To plug this loophole, the Government introduced a legislation in 1988, under which the sale or purchase of shares in a controlled company whose assets comprised  substantially (not less than 75% of its total assets) of real property or shares in another company which substantially owns real property, is deemed to be an acquisition or disposal of a chargeable asset. A company fitting this description is know as a ‘Real Property Company’ (RPC). Therefore, the disposal of such shares is akin to the disposal of physical real estate and the sale proceeds may be subject to RPGT.

The intention of the legislators was very clear at the point when the law was written, as the (then) Finance Act 1988 explained that the amendment was intended to ensure that individuals do not use companies to acquire land and then dispose of shares in such companies thereby avoiding payment of real property gains tax. Obviiously, this law was intended to curb speculative property activities.

However, Court decisions lately have shown that companies such as property developers and manufacturers were also unfortunately caught by this law.   This has implications even to companies which own hotels and plantations, whose properties make up a  a substantial portion of their overall assets.

The Courts’ decisions were indeed against the spirit of what the RPC law was intended for. I hope that the law will be redefined to exclude properties which are genuinely held  for the purpose of the company’s business. For example, in the case of a property developer, all real properties that are held as ‘stock in trade’ for income tax purposes should be excluded so that the disposal of shares in a company which hold properties or land, as its trading stock, will not be exposed to RPGT.

Besides my Budget 2014 wishlist, read more on what the other industry experts have to say:

Read more: Budget 2014 – big impact on property market? – RED – New Straits Times

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’.

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