PROPERTY - REAL PROPERTY GAINS TAX
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Following is information regarding real property gains tax payable upon disposal of Property (or refer to our RPGT Highlights): (effective 1 January 2014)
Summary of changes in RPGT from 1 January 2014 compared with immediately prior to effective date:
(Applicable rates previously from 1 January 2013 until 31 December 2013)
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SUMMARY RPGT
RPGT (effective for agreements signed after 1 Jan 2013) Yrs 1-2: 15% Yr 3-5: 10% After Yr 5: Nil
Applicable to: Individual Citizen / PR Disposer Company Disposer Non Citizen / Non PR
TERMINOLOGY . Market Value Price between independent persons at arm's length at time of transaction Acquisition Price Consideration less: (a) compensation received for damage / injury to asset; (b) any sum received under insurance policy for damage, injury, loss, destruction or depreciation (c) sum forfeited as deposit in any intended transfer Disposal Price Consideration less: (a) expenditure wholly and exclusively incurred after acquisition to enhance or preserving value (b) expenditure wholly and exclusively incurred after acquisition in establishing, preserving and defending title and right over asset (c) incidental costs in making disposal Incidental Costs Fees and commission of surveyor, valuer, accountant, agent or legal adviser; Costs of Transfer (including stamp duty); Cost of advertising to find seller when acquiring; Cost of advertising to find buyer and valuation cost when disposing; Interest paid on capital employed to acquire; Excluded Expenditure Expenses which are allowable deductions for income tax purposes Gifts excluded from RPGT Husband and Wife Parent and Child Grandparent and Grandchild
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Section 4 of the Real Property Gains Tax Act provides for the Rate of tax as follows:
(1) The tax shall be charged at the appropriate rate specified in Schedule 5 in respect of each category of disposal stated therein.
Section 8 Private residence Subject to Schedule 3, a gain shall be exempt from the tax if it accrues to an individual who is a citizen or an individual who is not a citizen but is a permanent resident in respect of the disposal by him of his private residence.
Certificate of Clearance (Section 21A)
The Director General shall send to both the dispose and the acquirer a certificate of clearance in the prescribed form - (a) on payment being made in accordance with section 21; or (b) where he is satisfied that no chargeable gain has arisen, on being so satisfied.
Requisition to acquirer (Section 21B)
(1) Where on a disposal to which section 13 applies, the consideration consists wholly or partly of money - (a) the acquirer shall, until he receives the Director General's certificate of clearance under section 21A, retain the whole of that money or a sum not exceeding five per cent of the total value of the consideration, whichever is less: (b) the Director General may, at any time, before he sends the certificate of clearance, serve upon the acquirer a written requisition in the prescribed form calling upon him to pay the whole or any part of the sum retained under paragraph (a) (or, where the acquirer has failed to comply with that paragraph, the sum which should have been so retained) within a time specified in the requisition; (c) in a case where paragraph 1(b) applies the acquirer shall deliver the sum stated in the requisition to the Director General within the time specified in the requisition.
(2) A requisition issued under this section shall be deemed to be an assessment for the purposes of this Act.
Acquisition price (Schedule 2, Paragraph 4.)
(1) Subject to sub-paragraphs (2), (3) and (4) and the other provisions of this Schedule, the acquisition price of an asset is the amount or value of the consideration in money or money's worth given by or on behalf of the owner wholly and exclusively for the acquisition of the asset (together with the incidental costs to him of the acquisition) less- (a) any sum received by him by way of compensation for any kind of damage or injury to the asset or for the destruction or dissipation of the asset or for any depreciation or risk of depreciation of the asset; (b) any sum received by him under a policy of insurance for any kind of damage or injury to or the loss, destruction or depreciation of the asset; and (c) any sum forfeited to him as a deposit made in connection with an intended transfer of the asset.
(2) Subject to sub-paragraph (3). where any sum of the kind mentioned in sub-paragraph (1) (a), (b) or (c) which is received by the owner of an asset exceeds the consideration and incidental costs referred to in that sub-paragraph, the amount of the excess shall constitute a chargeable gain accruing to the owner at the time when he receives the sum.
(3) Where an asset, which is disposed of, was acquired by the disposer prior to 1st January, 1970, the market value of the asset as at the 1st January, 1970 shall be substituted for- (a) the consideration and incidental costs of the kind mentioned in subparagraph (1); (b) the market value of the asset as at the date of transfer of ownership of the asset mentioned in paragraph 19 (1) and (3A); (c) the amount of the legacy or the market value of the asset as at the date of transfer of ownership of the asset, whichever is the lower, mentioned in paragraph 19 (2); or (d) the value of the asset for estate duty purposes referred to in paragraph 19 (3), as the case may be, and the sum of the kind referred to in subparagraph (1) (a), (b) or (c) which relates to the period prior to the 1st January 1970 shall be disregarded.
(4) Where- (a) on the transfer of an asset the acquisition price paid for the asset by the transferor plus the permitted expenses incurred by him or, if the asset was acquired by that transferor prior to 1st January, 1970, the market value of that asset as at 1st January, 1970 plus the permitted expenses incurred by that transferor as from 1st January, 1970 less the sum of the kind referred to in paragraph 4 (1) (a), (b) or (c) received by or forfeited as the case may be to that transferor as from 1st January, 1970 are to be taken for the purposes of this Schedule as the acquisition price paid by the transferee; and (b) subsequently to the transfer, the transferee receives any sum of the kind mentioned in sub-paragraph (1) (a), (b) or (c), that sum shall be deducted from the acquisition price taken to have been paid by the transferee to the same extent as it would have been deducted from that transferor's acquisition price if it had been received by that transferor before the transfer: Provided that where that sum exceeds the acquisition price taken to have been paid by the transferee, the amount of the excess shall constitute a chargeable gain accruing to the transferee at the time when he receives that sum.
(5) Where by virtue of sub-paragraph (2) or the proviso to subparagraph (4) any sum constitutes a chargeable gain accruing to a person in respect of an asset, his acquisition price for that asset shall. in relation to any subsequent disposal of that asset by him, be taken as nil.
Disposal price (Schedule 2, Paragraph 5)
(1) Subject to sub-paragraph (2), the disposal price of an asset is the amount or value of the consideration in money or money's worth for the disposal of the asset less- (a) the amount of any expenditure wholly and exclusively incurred on the asset at any time after its acquisition by or on behalf of the disposer for the purpose of enhancing or preserving the value of the asset, being expenditure reflected in the state or nature of the asset at the time of the disposal; (b) the amount of any expenditure wholly and exclusively incurred at any time after his acquisition of the asset by the disposer in establishing, preserving or defending his title to, or to a right over, the asset; and (c) the incidental costs to the disposer of making the disposal.
(2) Where an asset which is disposed of was acquired by the disposer prior to 1st January, 1970, the amount of the expenditure of the kind mentioned in sub-paragraph (1) (a) and (b) which relates to the period prior to 1st January, 1970 shall be disregarded.
Incidental costs (Schedule 2, Paragraph 6)
(1) For the purposes of paragraphs 4 and 5 the incidental costs of the acquisition or disposal of an asset shall consist of expenditure wholly and exclusively incurred by the disposer for the purposes of the acquisition or (as the case may be) the disposal, being- (a) fees, commission or remuneration paid for the professional services of any surveyor, valuer, accountant, agent or legal adviser; (b) costs of transfer (including stamp duty); (c) in the case of an acquisition. the cost of advertising to find a seller and, subject to sub-paragraph (2), any interest paid on capital employed to acquire the asset; and (d) in the case of a disposal, the cost of advertising to find a buyer and costs reasonably incurred for the purposes of this Act in making any valuation or in ascertaining market value.
(2) Where the interest paid on capital employed to acquire an asset is expenditure of the kind mentioned in paragraph 7 (a), (b) or (c), it shall be disregarded for the purposes of sub-paragraph (1) (c).
Excluded expenditure (Schedule 2, Paragraph 7)
There shall not to be taken into account in computing the acquisition price or disposal price of an asset- (a) any outgoings and expenses allowable as a deduction in computing any adjusted income or adjusted loss for income tax purposes; (b) any outgoings and expenses which would have been allowable for income tax purposes, but for an exemption or insufficiency of gross income; and (c) without prejudice to the preceding provisions of this sub paragraph, any outgoings and expenses which, if the asset on or in respect of which they were incurred was and had at all times been held or used as part of the fixed capital of a business the profits or gains of which were chargeable with income tax, would be allowable as a deduction in computing the adjusted income or adjusted loss of the business for income tax purposes.
Certain transactions deemed to be at market value (Schedule 2, Paragraph 9)
The acquisition or disposal of an asset by a person shall be deemed to be for a consideration equal to the market value of the asset-
(a) where he acquires or disposes of the asset otherwise than by way of a bargain made at arm's length and, in particular, where he acquires or disposes of it by way of gift: or (b) where he acquires or disposes of the asset wholly or partly- (i) for a consideration that cannot be valued; or (ii) in connection with his own or another's loss of office or employment or diminution of emoluments; or (iii) in consideration for or recognition of his or another's services or past services in any office or employment or of any other service rendered or to be rendered by him or another; or (c) where he acquires an asset as trustee for the creditors of any person in full or part satisfaction of any debt due from that person or where he transfers an asset as trustee for the creditors of any person to the creditors in full or part satisfaction of any debt due to the creditors; or (d) where he acquires or disposes of an asset in a transaction for the transfer of a business for a lump sum consideration; or (e) where section 25(2) applies.
Definition of market value (Schedule 2, Paragraph 11)
(1) Subject to this paragraph, the market value of an asset, which is acquired or disposed of is the price which it would fetch if it were sold in a transaction between independent persons dealing at arm's length at the time of the acquisition or disposal.
(2) If- (a) the parties to the disposal of an asset are unable to agree on its market value; or (b) there is only one party to the disposal of an asset; or (c) the Director General is of the opinion that the market value of an asset as agreed on by the parties to its disposal is incorrect, the market value in question shall be determined by the Director General.
Gifts (Schedule 2, Paragraph 12)
Where an asset is disposed of by way of a gift, the disposal shall be deemed to be a disposal at the market value of the asset: Provided that, where the donor and recipient and husband and wife, parent and child or grandparent and grandchild, and the gift is made within five years after the date of acquisition of the asset by the donor, the donor shall be deemed to have received no gain and suffered no loss on the disposal and the recipient shall be deemed to have acquired the assets at an acquisition price equal to the acquisition price paid by the donor plus the permitted expenses incurred by the donor. Private Residences (Schedule 3) In this Schedule "the exemption" means the exemption provided by section 8. 2. Subject to paragraph 3, a building or a part of a building is not owned by any person for the purposes of this Schedule unless he is registered under the law relating to the registration of title to land as proprietor of the land on which it stands or as the holder of a lease of that land or he was the purchaser of that land under an agreement for the purchase and sale of that land. 3.(Deleted by Act 644) Prior text read "3.(1) (a) A private residence owned and occupied by an individual's wife or by an individual and his wife jointly shall, for the purposes of this Schedule only, be deemed to be owned and occupied by the individual." Prior text read "(b) A private residence owned and rented out by an individual's wife or by an individual and his wife jointly for occupation as a place of residence shall, for the purposes of this Schedule only, be deemed to be owned and rented out by the individual." Prior text read "Provided that where an individual is not a citizen and not a permanent resident but the wife is a citizen or a permanent resident this paragraph shall not apply. Prior text read "(2) Where an individual receives the benefit of the exemption on a gain accruing in respect of the disposal of a private residence to which sub-paragraph (1) applies, nothing in that sub-paragraph or in any other provision of this Act shall operate so as to render his wife chargeable with the tax on the same gain." 4. Subject to this Schedule, a private residence is a building or part of a building in Malaysia owned by an individual and occupied or certified fit for occupation as a place of residence. 5.-8. (Deleted by Act A431) 9. (1) Subject to this paragraph, an individual is entitled to the exemption under section 8 in respect of the disposal of one private residence only: Provided that- (a) the elects that such exemption shall apply to that private residence; (b) on such election being made, there shall be no further exemption in respect of the disposal of any of his other private residences; and (c) the election so made shall be in writing addressed to the Director General and shall be irrevocable. (2) No election under sub-paragraph (1) shall be made where an exemption has been granted to an individual under any repealed provisions of this Act or the repealed Land Speculation Tax Act 1974 in respect of the disposal of his private residence. 10.-11. (Deleted A 431) 12. Where a gain accrues or a loss is suffered in respect of the disposal of a building which is only partly occupied as a private residence, the portion of the gain which is not chargeable or, as the case may be, the portion of the loss which is not allowable shall be arrived at as follows- (a) where the building is divided into parcels each of which is capable of being occupied as a self-contained dwelling or self-contained business premises the gain or loss shall be divided by the total number of parcels and the resulting sum shall be deemed to be the gain or loss attributable to each parcel, including the parcel so occupied; (b) where the building is not so divided and not more than ten per cent of the building is occupied primarily as a private residence, then, unless the disposer can satisfy the Director General that some other method of computation is more equitable, the portion of the gain or loss attributable to the part so occupied shall be a portion having the same relation to the whole gain or loss as the floor area of the part so occupied has to the total floor area of the building. 13. (1) Subject to sub-paragraph (2), where a part of the land attaching to a private residence as its gardens or grounds is disposed of without the residence, then- (a) if the land on which the residence stands was acquired by the disposer without the residence, the acquisition price of the part disposed of shall be deemed to be a sum bearing the same proportion to the acquisition price of the total area of the land as the area of the part disposed of bears to that total area, and any gain or loss accruing or suffered in respect of the disposal shall be chargeable or allowable, as the case may be; (b) if the land on which the residence stands was acquired by the disposer with the residence and the total area of that land exceeds one acre- (i) the acquisition price of the land without the residence shall be deemed to be one-third of the acquisition price of the land with the residence; (ii) the acquisition price of the part disposed of shall be deemed to be a sum bearing the same proportion to the acquisition price of the land without the residence as the area of the part disposed of bears to that total area; and (iii) any gain or loss accruing or suffered in respect of the disposal shall be chargeable or allowable, as the case may be; (c) if the land on which the residence stands was acquired by the disposer with the residence and the total area of that land is one acre or less, there shall be deemed to accrue to the disposer a chargeable gain consisting of a sum bearing the same proportion to the disposal price as the area of the part disposed of bears to that total area. (2) Where the acquisition by the disposer referred to in sub-paragraph (1) (a) and (b) was made prior to 1st January, 1970, in applying the formula specified in sub-paragraph (1) (a) and (b) there shall be substituted for the acquisition price of the total area of the land referred to in sub-paragraph (1) (a) and the acquisition price of the land with the residence referred in sub-paragraph (1) (b) the market value of the land as at 1st January, 1970. Exemptions (Schedule 4) 1. A gain accruing in respect of the disposal of a chargeable asset before the date of coming into force of this Act. 2. An amount of five thousand ringgit or ten per cent of the chargeable gain, whichever is greater, in respect of a chargeable gain accruing to an individual on the disposal of a chargeable asset which is not or was not part of a larger chargeable asset at the time of the disposal: Provided that in the case of a disposal by a co-proprietor of his share of the chargeable asset, such disposal shall not be regarded as a disposal of part of a larger chargeable asset for purposes of this paragraph. 3. A gain accruing to the Government, a State Government or a local authority. 4. A gain equal to the amount of estate duty payable under any law relating to estate duty applicable in Malaysia on an estate of a deceased person accruing in respect of a disposal of a chargeable asset from that estate where the Director General is satisfied that the disposer is compelled to dispose the property in order to pay the estate duty.
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