Budget 2014 And The Property Speculator

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

In view that the Real Property Gains Tax rates will be increased substantially due to the Budget 2014 proposals, perhaps it’s time for the property speculator to rethink his strategy.

On 25 October 2013, our Prime Minister cum Finance Minister, Datuk Seri Najib Tun Razak, tabled the much-anticipated Budget 2014 proposals. Much-anticipated by many due to the expected adverse changes to the Real Property Gains Tax (RPGT) laws to curb property speculation and the announcement of the introduction of Goods and Services Tax (GST) in Malaysia.

Along that front, our PM didn’t disappoint us, as among other proposals, those changes were among the major highlights of revenue collection measures that became the talk of the town of late.

The proposed changes to the RPGT rates announced during the Budget 2014, which are to take effect from 1 January 2014 for disposal of real properties and shares in real property companies, are as follows:

Screen Shot 2013-12-19 at 20.07.04

Many, especially property speculators, complained that the RPGT rates doubling from its current position is very high and will adversely affect their property investment decisions.

There’s no need to press the panic button!

In my humble opinion, RPGT is only part of the equation as far as any property investment decision is concerned. No matter how high the RPGT rate is, speculation in properties will still occur so long as the return on investment is attractive enough. After all, real estate investment, after deducting RPGT at its highest rate of 30%, can still give attractive returns compared to any other form of investments which are available in the market.

Then again, are the proposed RPGT rates really that high?

It is interesting to note that the proposed changes to the RPGT rates are nothing more than, to a great extent, reverting the RPGT rates to its prior position in 1997. In 1997, the RPGT rate was 30% for disposal within two years after the date of acquisition of a property, which will now be extended to three years. A comparison of the RPGT rates for individuals (citizens and permanent residents) then and moving forward in 2014, is illustrated below:

Screen Shot 2013-12-19 at 20.08.43

The proposed RPGT rates don’t even come close to the highest RPGT rates that the country, in the history of the Real Property Gains Tax Act 1976, (RPGT Act), has experienced. When the RPGT Act was first introduced, the disposal of a property which occurred within two years after the date of its acquisition was subject to RPGT at a hefty rate of 50%!

So now that we are faced with the RPGT regime in 2014, property investors, especially the speculators, will have to better plan their taxation strategy in order to reduce their tax exposure on their property investments as best as they can, legally.

It must be remembered that there are TWO laws that govern property transactions in Malaysia and they are:

  • The Income Tax Act 1967; and
  • The Real Property Gains Tax Act 1976.

Under certain situations, where the badges of trade test is fulfilled (refer to my earlier article on Taxation of Property Transactions: Income Tax or Real Property Gains Tax?’), a disposal of a property may be subject to Income Tax instead of RPGT.

So all I can say to the property speculators/flippers is this: you have to better plan your investment strategies now. You may have to own up to the fact that you are trading in properties and consider putting such properties in a Sdn Bhd or a LLP where the tax is lower, when assessed as a trading activity under income tax. By setting up a separate entity such as the Sdn Bhd or LLP, you will also shield the other properties legitimately held for long-term investments, from being exposed to income tax implications as well.u

Tax planning therefore starts even before you buy your property and not only when you decide to sell your property as you stand to save the most taxes when you develop a tax plan that best suits your investment strategies. With proper planning, property investors and speculators, can save themselves a considerable amount of money in taxes.

For my former students, you will soon have access to the graphical illustration of the income tax versus RPGT rates and the rationale on how to determine which properties should be included as a ‘trading activity’.

Do look out for my next article, which is strictly for members (ie. my students) only!

The information provided is without any representation or warranties either expressed or implied. While the author makes reasonable efforts to provide information which he believes to be reliable, the author makes no representations or warranties that the information provided is complete, accurate, up to date or non-misleading. The author expressly disclaim all and any liability to any person in respect of anything and of the consequences of anything done or omitted to be done by such person in reliance (whether whole or in part) upon any part of the contents of this publication. The information and views contained in this publication does not constitute professional advice and accordingly should not be relied upon as an alternative to such. You are advised to seek competent professional advice before acting on the views.

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’.

4 thoughts on “Budget 2014 And The Property Speculator

  1. Hi Richard,

    Your article is very informative! Thank you so much~

    I want to ask does individual need to fill form when purchase property? Does only acquirer of RPC need to fill CKHT 2A?


  2. Bro, well written. Many are confused with the working mechanics of RPGT and Income Tax . They come to conclusion that the 30% RPGT is very high and and therefore is not good for our economy. They failed to realise that if there is no control in the form of tax and/or levy then the property prices will keep moving up because property investors/flippers will buy and sell to make short-term gain (profit) and it will turn ‘hot propreties’ like trading stock in stock market.

    • Thanks, bro. The intention of my article was to show that although it’s unavoidable that we have to pay our taxes, but with a little planning, we can still mitigate our taxes somewhat.

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