Real Property Gains Tax (RPGT)

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  • Under budget 2012, the proposed rate is 10% for the disposal made within 2years, 5% for the 3rd, 4th and 5th year. Thereafter disposal is not levied with tax.
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Real Property Gains Tax (RPGT)

  1. 1. REAL PROPERTY GAINS TAX (RPGT)Preface Real Property Gains Tax (RPGT) is a tax levied by the Inland Revenue Board (IRB) onchargeable gains derived from the disposal of real property. RPGT is introduced to provideimposition, assessment and collection of tax on gain deriving from the disposal of real property.The tax is levied on the gains made from the difference between the disposal price andacquisition price. 7/11/1975 is the effective date of RPGT act 1976. This tax is provided in theReal Property Gains Tax Act 1976 replaced the Land Speculation Tax Act 1974. Real property being disposed is known as chargeable asset. Chargeable asset may varyinto two, the real property and Real Property Company. Real property is defined as any land in Malaysia and any option, interest or other rightover that piece of land. (i.e. land, houses such as bungalows, semi-d, double storey houses,apartments, condominiums, etc.)A real property company (RPC) is a controlled company which owns real property or shares orboth whereby the defined value of real property or shares or both owned is at least 75% of thevalue of the companies’ total tangible assets.RPGT Basis (Section 3) The basis of taxation for RPGT is the chargeable gain arising from the disposal of anyproperty situated in Malaysia is subject to Real Property Gains Tax. Section 3(1) provided in RPGT act, the tax is levied on the chargeable gain accruing fromdisposal of chargeable asset.
  2. 2. Section 3(2) mentioned that every ringgit of the chargeable gain amount will be chargedto a chargeable person in a year of assessment.RPGT Rate of Tax (Section 4) The rate of tax is different according to the chargeable person status. Section 4(1)provides that tax rate will be charged to each category of disposal appropriately specified inSchedule 5 of RPGT act. The rate of tax on the latest announcement by the Prime Minister, as confirmed by theMinistry of Finance in its website on 28 December 2009, a fixed rate of 5% gains tax is payableon disposal of any real property within 5 years of purchase only. No gains tax is payable for anydisposal after 5 years of purchase. RPGT RATESAfter 1 January 2010 Effective rate 5% to all categories Schedule 5
  3. 3. RPGT Chargeable Person (Section 6) The chargeable person is specified under section 6 of RPGT act 1976 that states everyresident or non-resident in Malaysia shall be chargeable with the tax for the assessment yearsubject to chargeable gain accrued from the disposal of chargeable asset. The chargeableperson is specified under schedule 1 of RPGT act 1976, as the following: 1. Body of persons, partnership and co-proprietorship. 2. Incapacitated persons. - Trustee, guardian who is having control or management on behalf of incapacitated person appointed by court. 3. Non-residents. - A person who is absent in Malaysia. 4. Rulers and Ruling Chiefs. 5. Companies. 6. Hindu Joint Family. 7. Executor. - In the case of estate of deceased persons. 8. Trustees. - Other than the trustees of incapacitated person. 9. Joint and several liability of trustees and executors. - In the case of having two or more trustees of a trust or executor of the estate can be jointly to liability for the tax payable on any chargeable gain accruing to the trust or estate. 10. Responsibility of specified persons.
  4. 4. RPGT Measurement (Section 7) How to measure the gains from disposal of chargeable asset? Under section 7 of RPGTact 1976, there are three situations that may arise from the disposal of chargeable asset. 1. There is a chargeable gain when the disposal (sale) price exceeds the acquisition (purchase) price. DP > AP; gain 2. When disposal price is less than the acquisition price, then there is an allowable loss. DP < AP; loss 3. There is no chargeable gain or allowable loss if the disposal price is equal to the acquisition price. DP = AP; no gain or lossUnder Schedule 2 of RPGT: 1. The disposal price is the amount of money or the value of the consideration in monetary terms obtained from the disposal of any asset, less: the cost or expenditure incurred in upgrading or preserving the value of the asset; the cost or expenditure incurred at any time after the acquisition of the asset by the purchaser to determine, maintain or defend his right over the asset; and the cost incurred by the vendor in selling the asset. 2. The acquisition price of an asset is the amount or the value of the consideration in money or moneys worth paid or given for the acquisition of the asset: i) add the cost incurred by the vendor in purchasing the asset;
  5. 5. ii) less any sum received by way of compensation for any kind of damage or injury to the asset; any sum received under a policy of insurance for any kind of damage or injury to or the loss, destruction or depreciation of the asset; any sum forfeited as a deposit made in connection with an intended transfer of the asset.3. Allowable loss is the loss suffered on disposal of chargeable asset which, if it had been a gain, would have been chargeable with the tax. Amount of allowable loss can be used as deduction from total tax assessed for the year of assessment in which the disposal was made, and can be carried forward to subsequent year(s) of assessment, until the whole amount of the tax relief to be allowed has been allowed.4. Transactions in which DP is equal to AP i) Devolution of a deceased persons assets to his trustee or legatee. ii) Transfer between spouse iii) Transfer between an individual or his wife and the company controlled by the individual or his wife, for a consideration consisting substantially (more than 75%) of shares in that company. iv) Transfer between an individual and a nominee who has no vested interest in the assets. v) Transfer by way of securities vi) Gifts to Government of Malaysia, local authority or charity vii) Disposal of an asset by a person to an Islamic Bank under Syariah principal of Al-Murabahah.
  6. 6. RPGT Exemption (Section 8 and Section 9)Under Real Property Gains Tax Act 1976, exemptions are available in following circumstancesfor your benefits: a) An individual who is a citizen or permanent resident will be given an once-in-a-lifetime exemption on any chargeable gain of private residence if he/she elects in writing for the exemption. (Sec 8) b) Chargeable gain before the date of coming into force c) A gain accruing to the Government, State or Local Authority d) An individual will be given an exemption equal to RM 10,000 or 10% of chargeable gain whichever is greater e) Transaction in which disposal price is deemed equal to acquisition price as stipulated as "No gain No Loss" transaction as per Schedule 2 Paragraph 3 of the RPGT Act 1976.RPGT Administration
  7. 7. RPGT ComputationExample of RPGT computation RM RMDisposal consideration XLess:Expenditure on enhancing or preserving value of chargeable asset (X)Expenditure on establishing, preserving or defending title or right (X)Incidental costs on disposal (e.g. legal fees, commission, etc) __(X) __DISPOSAL PRICE XLESS:Acquisition Price XLess: Compensation, insurance proceed received (X)Deposit forfeited on intended sale (X)Incidental costs on acquisition (e.g. legal fees, stamp duty, etc) __X__ __(X) __ XLess: Sch 4 Exemption for individual (10% of gain or RM10, 000) (X)Less: Allowable loss __(X) __ __G__Effective RPGT payable = (rate of tax) % x G X

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