Veerinder on

Malaysian Tax
Theory and Practice

Chapter 11
REAL PROPERTY
GAINS TAX
07/02/2021
11.0 Introduction to RPGT
 A form of CGT imposed on disposal of an interest in real
property.
 RPGT is only levied in a situation where the ITA is not
applicable.
 Real property transactions including those involving shares in
RPC were subject to RPGT at the applicable rate.

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11.1 Chargeable Asset
 “Real property”?
 Land:
a. the surface of the earth and all substances forming that surface;
b. the earth below the surface and substances therein;
c. building on land and anything attached to land;
d. standing timber, trees, crops and other vegetation growing on land;
e. land covered by water.
 The benefit of a contract to purchase and the benefit of an option?
 “asset”?
 “option”?
 “Acquire”?
 “Dispose”?
 The acquisition or disposal of a building includes the land on which the building
stands.
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11.1 Chargeable Gain/Allowable Loss
 RPGT is payable on any net increase in the value of a
chargeable asset between the time of its acquisition and the
time of its disposal.
 Chargeable gain = disposal price > acquisition price
 Allowable loss = disposal price < acquisition price
 Chargeable gain or allowable loss is deemed to accrue to or
suffered by the disposer at the time of disposal.
 See e.g. 11.1a

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11.1 Chargeable Persons
a. Body of persons and partnerships
b. Co-proprietorship
c. Incapacitated persons
d. Non-residents
e. Rulers and Ruling Chief
f. Companies
g. Hindu Joint Family
h. Estate of a deceased person/Trust
i. Limited Liability Partnership (LLP)

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11.2 Rates of Tax
 Graduated rate depending upon the length of time a
chargeable asset is held.
 Important to identify the acquisition and disposal date. .
 The rates of tax are set out in Sch. 5 of the RPGT Act (effective
from 1 January 2014).
• Part I: Disposer is any person other than Part II and III.
• Part II: Disposer is a company
• Part III: Disposer is an individual who is not a citizen and
not a permanent resident
 See e.g. 11.1b

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11.3 Disposal Price
 Consideration for the disposal of the asset.
 Less: “permitted expenses”
a. In enhancing or preserving the value of the asset;
b. In establishing, preserving or defending the title to, or to a right
over the asset;
c. “incidental costs”
• fees, commission or remuneration paid for professional
services of surveyor, valuer, accountant, agent, legal adviser;
• cost of transfer (e.g stamp duty);
• Cost of advertising and cost incurred in making any valuation
or in ascertaining market value.
 See e.g. 11.2a
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11.4 Acquisition Price
 Consideration paid by the acquirer
Add: Incidental costs of acquisition?
Less: Compensation received for damage, loss, destruction or
depreciation of the asset; deposit forfeited.
 Cost of advertising to find a seller?
 Interest paid to finance the acquisition of a chargeable asset?
 See e.g. 11.2b & 11.2c
 The acquisition price of the asset will be treated as nil?
 See e.g. 11.3
 Time of disposal is when the capital sum is received. [See e.g. 11.4]
 Market value? [See e.g. 11.5]

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11.5 Allowable Loss
1. Disposal Prior to 1 April 2007
 The relief was allowed for set off against the total RPGT
assessed in that YA. [See e.g. 11.6a]
2. Disposal Effective from 1 January 2010
 The relief was allowed for set off against chargeable gains
from subsequent disposals.
 Within 5 years from the date of acquisition.
 For disposals of real property by individual with exemption
under Schedule 4?
 See e.g. 11.6b, 11.6c, 11.6d & 11.7a
3. Relief for Allowable Loss from Disposal Prior to 1 April 2007?
 See e.g. 11.7b
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11.6 Date of Disposal and Acquisition
 “Dispose” means?
 Where there is a transfer of ownership of a chargeable asset?
 The RPGT Act is not concerned with legal or beneficial ownership.
 The disposal or acquisition of an asset is deemed to take place:
a. where there is a written agreement?
b. where there is no written agreement?
 The date of completion of a disposal is the date on which?
 A transfer of ownership of an asset is said to take place when?
 Conditional Contracts?
 Acquisition Made Before Coming into Force of RPGT Act?
 Co-proprietors?
 Acquirer’s Default in Payment?

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11.7 Disposal Price Deemed Equal to
Acquisition Price
a. The devolution of the assets of a deceased person;
b. Transfer of assets between spouses;
c. Transfer of assets owned by an individual, his wife or jointly by them
or with a connected person to a company;
d. Acquisitions from or disposals to a nominee or trustee;
e. Assets transferred by way of security;
f. Gifts made to the Government, a State Government, a local authority
or a charity exempt from income tax;
g. The disposal of an asset as a result of a compulsory acquisition;
h. Approved disposal of an asset pursuant to a scheme of financing.
i. A disposal by way of a gift between husband and wife, parent and
child or grandparent and grandchild,
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11.8 Inter-Company Transfers within a Group

 The transfer is treated as no gain and suffers no loss:

• To bring about greater efficiency in operation;
• In a scheme of reorganisation, reconstruction or amalgamation;
• Asset is distributed by a liquidator under a scheme of
reorganisation, reconstruction or amalgamation.
 “Consideration consisting substantially of shares”?
 The asset is deemed to be acquired at the original cost of the disposer.
 The date of acquisition is normally the date of transfer.
 Where an asset which is subsequently disposed of? [See e.g. 11.8]
• If the asset is taken into trading stock in 2011 at RM350,000?
• If the asset is disposed of it to a third party?

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11.9 Real Property Companies
1. Shares in Real Property Companies [See e.g. 11.9, 11.10 &
11.11 & Chart 11.1]
2. Acquisition Price of Shares [See e.g. 11.12 & 11.13]
3. Disposal Price
4. Date of Acquisition [See e.g. 11.14 & 11.15]
5. Chargeable Gain
6. Administrative Requirements

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11.10 Special Cases
1. Disposals at Market Value
2. Exchanges
3. Deceased Person’s Estate [See e.g. 11.16, 11.17 & 11.18]
4. Transfer to a Controlled Company [See e.g. 11.19]
5. Partnerships (Para. 22 and Para. 35
6. Leases [See e.g. 11.20]
7. Option
8. Part Disposals
9. Transactions with an Islamic Bank

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11.11 Private Residence Exemptions
 Individual who is a citizen or permanent resident is granted once in a
life time exemption.
 Election made is irrevocable and no further exemption.
 If disposal of a building which is only partly occupied as a private
residence?
 Part of the land attaching to a private residence is disposed of without
the residence:
a.If the land was originally acquired without the residence? [See e.g.
11.21]
b.If the land was acquired with the residence and the total area of
that land exceeds one acre. [See e.g. 11.22]
c.If the land was acquired with the residence and the total area is one
acre or less? [See e.g. 11.23]
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11.11 Schedule 4 Exemptions
a. A gain accruing to the Government, a State Government or a
local authority.
b. A gain accruing in respect of the disposal of a chargeable
asset before the date of coming into force of the RPGT Act.
c. An amount of RM10,000 or 10% of the chargeable gain,
whichever is the greater for a disposal by an individual.
 See e.g. 11.24
 Chargeable asset which is partly disposed?

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11.11 Ministerial Exemptions
 The Minister of Finance exemption will be in the form of a
statutory order.
 For example, any gain arising from disposal of any chargeable
asset between 1 April 2007 and 31 December 2009 was
exempted from RPGT.

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11.12 Returns and Administrative Provisions

 An acquirer is required to withhold the is lower of:

• whole amount of the consideration; or
• 3% of the total value of the consideration.
 If the acquirer fails to do so?
 The return is to be furnished to the IRB within?
 Certificate of non-chargeability will be sent to the disposer if?
 The disposer is to serve the notification to the acquirer within?
 The time period to raise assessments by the DG is?
 The time period for a taxpayer to apply for relief on grounds of
error is?
 The time frame to claim a refund of overpayment?
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11.12 Returns and Administrative Provision

 Sources of information on real property transactions :

a. Income Tax Files
b. Stamp Duty Office
 Is it allowed to utilise any RPGT refund against the IT or PIT due?
 The anti-avoidance provision:
1. A disposal of a chargeable asset previously acquired by the disposer by
a connected person as a disposal made by the latter. [See e.g. 11.25]
2. DG is empowered to disregard a transaction if :
• altering the incidence of RPGT;
• relieving any person from any liability;
• evading or avoiding any duty or liability; or
• hindering or preventing the operation of the RPGT Act.

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11.13 Examples

 See e.g. 11.26 – 11.36

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Questions?