BBFT3024/BBFT3025 ADVANCED TAXATION

T. 3; Ans. 4

(a) A real property company (RPC) can cease to be a RPC where -

(i) It ceases to be a controlled company which means it has more than 50 members
(shareholders) or it is controlled by more than 5 members or both.

(ii) When a RPC company disposes of real property or shares (held in RPC) or both
whereby the defined value of the remaining real property or shares or both owned at that
date is less than 75% of the value of its total tangible assets, that company shall cease
to be a RPC from that date.

When a RPC ceases to be one, the shares held by the existing shareholders remain as
RPC shares up to the (future) date(s) they are disposed of. However, to a new acquirer
(shareholder), the shares acquired by him are not RPC shares on the date of acquisition by him.

(b) It is more tax-efficient to invest in real properties as an individual and not as a company on
reasons as follows:

i. There is an exemption of RM10,000 or 10% of the chargeable gains, whichever is

the higher, given to an individual. A company is not given such an exemption under
Paragraph 2 of Schedule 4 of the RPGT Act 1976.

ii. An individual who is citizen is entitled to an exemption (once only in his life time) on
gains from disposal of a private residence under Section 8 of RPGT Act 1976.
A company is not given such an exemption.

iii. For an individual (who is a citizen), the chargeable gains in respect of a disposal after
5 years from the date of acquisition is subject to tax at 5%. In the case of a company,
the tax rate is 10% on the chargeable gains for a similar disposal.

iv. There is ‘double taxation’ for one who invests in real properties through a company.
There is real property gains tax on the gains when a company disposes a real property.
There is real property gains tax again (on any gains) when an individual disposes (within
5 years from the date of acquisition) the shares of that company (RPC company) used as
a vehicle to invest in real property.

v. In case of an allowable loss suffered upon disposal of houses, the loss can be carried
forward and can be allowed against the chargeable gains from the subsequent disposal of
a real property. However, there is no such a tax deduction on loss from disposal of RPC
shares (that is: not an allowable loss).

vi. In the case of a company (RPC company), the actual acquisition price of its shares can be
disregarded if the shares become RPC shares after the date of acquisition.
The acquisition price based on the formula (A/B) x C is to be applied instead.
BBFT3024/BBFT3025 ADVANCED TAXATION

T. 3; Ans. 4(c)

I. The similarities in the tax treatments under Para. 3(b) Sch. 2 and Para. 17(1)(a) Sch. 2:

1. The consideration for the transfer must be in shares or substantially (at least 75% of
consideration) in terms of shares of the transferee company.

2. The deemed acquisition price (of the transferred property) for the transferee company is:

The acquisition price plus permitted expenses incurred by the transferor.

3. The tax treatment ‘disposal price is deemed equal to the acquisition price’ and ‘ no gains
and no loss treatment’ are similar.

II. The differences in the tax treatments under Para. 3(b) Sch. 2 and Para. 17(1)(a) Sch. 2:

Para. 3(b) Sch. 2 Para. 17(1)(a) Sch. 2

1. The transferor is an individual or his spouse
or he and a connected person(s), and
the transferee is a company controlled by
him/his spouse/him and a connected
person(s).
2. The shares obtained as the full or substantial
part of the consideration is a chargeable
asset.
The transferor and the transferee are
companies and they are companies in
the same group.
The shares obtained as the full or
substantial part of the consideration is
not a chargeable asset. (other than due to
status as real property company shares).

3. The transferee company needs not be The transferee company must be resident
resident in Malaysia. in Malaysia.

4. The ‘disposal price deemed equal to the The ‘no gains and no loss’ treatment is
acquisition price’ treatment is mandatory and not mandatory and it is subject to getting
there is no such a requirement of getting prior approval from the DGIR.
prior approval from the Director General of
Inland Revenue (DGIR) for such a tax
treatment.

5. There is no requirement pertaining to The purpose of the transfer is for

the purpose of the transfer as in the case of a achieving greater efficiency of the group
‘no gains and no loss’ treatment under operation.
Para.17(1)(a) Sch. 2.

6. There is no provision for the withdrawal of The ‘no gains and no loss’ treatment may
the ‘disposal price deemed equal to be withdrawn within three years from
the acquisition price’ treatment. the date of approval for ‘no gains and no
loss’ treatment under any one of the
three specified circumstances under Para.
17(3) Sch.2