QUESTION 89 DISPOSAL OF LAND

Ting, a grocer cum licensed money lender, signed an agreement with Thong in February 2000 to purchase a piece of rubber land for RM 250,000. The land, situated 7 kilometers away from Sungai Petani, was surrounded by a newly developed housing area. Under the terms of the agreement, the vendor, Thong agreed to:
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i. Demolish all existing building on the land; ii. Apply for conversion of land use from agriculture to residential; and iii. Obtain the local authoritys approval for the construction of residential houses on the land. Thong failed to fulfill term ii and iii and the agreement was terminated
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 In June 2002, Ting purchased the land from Thong for the same price. In the following year, Ting ,made two applications, one to the State Government for the conversion of rubber land into residential land and another to the Sungai Petani Town Council for approval to build residential land and another to build residential houses on the land. Both applications were approved in 2010. in 2011, Ting sold the vacant land to Hi-Lo Sdn Bhd for RM1.5 million payable by way of shares in the company. The shares were later transferred to his children.

Required:
State, with reasons, whether the profit on the sale of the land is subject to income tax.

Answer 89
Mr Ting had no intention to hold the property as a long term investment. He had expected that the land, being near the township of Sungai Petani, was surrounded by a newly developed housing area, would appreciate in value especially after conversion. The fact he took the loan to buy the land was acquired for resale to get profit and not as an investment
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Answer 89
In the case of land, when Ting converts the land from rubber land into residential land , such move would be viewed by the tax authorities as a step towards an adventure in the nature trade. because once he got approved by State Government about the agreement on 2010, after a year Ting sold the vacant land to Hi-Lo Sdn Bhd So, we determine an adventure in the nature trade and acquired land for resale to get profit is subject to income tax.
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