RPGT on Budget 2019
Real Property Gains Tax (RPGT) is charged on gains arising from the disposal / sale of real properties or shares in Real Properties Companies (RPC) which came into force on 7 November 1975 with the introduction of Real Property Gains Tax Act 1976.
Since 2007, we have seen a gradual increase in the RPGT rate, from as low as 0% to as high as 30% as announced in Budget 2014. There has not been any adjustment to the rate till the recent Budget 2019.
Budget 2019 proposed that RPGT rates for gains from the disposal of real properties and shares in real property companies, in the 6th and subsequent years, to be increased as follows, from 1 January 2019:
Meanwhile, the Government continues to provide RPGT exemptions for following:-
- RPGT exemption on gains from the disposal of one residential property once in a lifetime to all Malaysians and permanent residents
- Exemption of RM10,000 or 10% of the chargeable gain, whichever is greater, for each disposal of a property by an individual.
- Transfer as gifts between parent and child, husband and wife, grandparent and grandchild; (No exemption for transfer between sibling)
- A gain arising on disposal prior to 7 November 1975, the date of coming into force of the RPGT Act 1976.
- A gain accruing to the Government, a State Government or a local authority.
- A once in a lifetime exemption on a gain accruing to an individual who is a citizen or a permanent resident or to a husband and wife in respect of the disposal of two private residence (each for husband and wife as amended in Budget 2005).
- A gain equal to the amount of estate duty payable where the disposer is compelled to dispose the property in order to pay the estate duty.
- Disposal of assets to REIT and property funds
- Disposal of assets in connection with securitization of assets from 1 January 2001
- Gain accruing on the conveyance of chargeable asset upon conversion of a conventional partnership or private company to a limited liability partnership.
The Government also introduced new RPGT exemptions as follows, effective 1 January 2019:-
- Disposal of low cost, medium low and affordable residential homes of RM200,000 and below, in the 6th and subsequent years.
- Exempts any individual who is a citizen or a permanent resident from the application of Schedule 5 of the Act from the payment of tax on the chargeable gain accruing on the disposal of a chargeable asset, other than shares, on or after 1 January 2019, on the condition that: -
- The disposal of the chargeable asset is made in the sixth year after the date of acquisition of such chargeable asset or any year thereafter;
- The contract for the disposal of the chargeable asset is conditional whereby it requires the approval of the Government or a State Government as provided under paragraphs 16 (a) or (b) of Schedule 2 to the Act and is executed before 1 January 2019; and
- The approval by the Government or a State Government for the disposal of the chargeable asset is obtained in the year 2019 or any year thereafter.
- Exempts any individual, who acquires directly from the developer a whole building or a part of a building or a parcel of a building, for the purpose of residential or commercial or both, in the Node Medini, from the payment of RPGT in respect of the chargeable gains accruing on the disposal of the building or part of the building or a parcel of the building made on or after 1 January 2010 until 31 December 2020.
The developer referred to herein shall be a developer:-
- That is incorporated under the Companies Act 2016 (Act 777) and resides in Malaysia;
- That requires any rights over part or the whole of the land to undertake development in Node Medini in accordance with the master plan of the Node; and
- That is approved by the Minister.
- Exempts an IDR status company, which is a Iskandar Development Region status company, that acquires directly from the developer (as described above) a whole building or a part of a building or a parcel of a building, for the purpose of residential or commercial or both, in the Node Medini, from the payment of RPGT in respect of the chargeable gains accruing on the disposal of the building or part of the building or a parcel of the building made on or after 1 January 2010 until 31 December 2020.
The IDR status company referred to herein shall be a company:-
- That is incorporated under the Companies Act 2016 (Act 777) and resides in Malaysia;
- That undertakes qualified activity [as specified in the Schedule in Real property gains tax (exemption) (no. 2) order 2018 P.U. (A) 369], in Node Medini; and
- Approved by the Minister.
Several Transactions Where Disposal Price Is Deemed Equal To Acquisition Price:
- Transfer of assets (owned by a citizen) between spouses.
- Devolution of assets of a deceased individual.
- Gifts made to the Government, State Government, local authority or approved charity exempt from income tax.
- Disposal of an asset as a result of a compulsory acquisition under any law.
- Disposal of chargeable asset pursuant to a scheme of financing approved by the Central Bank of Malaysia, Labuan FSA, Malaysian Co-operation Societies Commission or the SC as a scheme which is in accordance with the principles of Syariah
The following is an example of transactions where the disposer is treated to have received no gain and suffered no loss from the transfer:
- Transfer of real property with prior approval of the DGIR by a resident company to companies in its same group to bring about greater efficiency in operation for a consideration consisting of not less than 75% in shares.
- Transfer by way of gift between husband and wife, parent and child, or grandparent and grandchild, provided the donor is a citizen.
Example to illustrate calculation of Real Property Gains Tax (RPGT) payable for individuals:
The following formulas are the same for Citizens, PRs, Non-Citizens & Foreigners. Their RPGT rates will vary depending on their holding period and residential status (refer to the table above).
RPGT is charged on Net Chargeable Gains.
Gross Chargeable Gain: Acquisition price – Disposal price
Net Chargeable Gain: Gross Chargeable Gain – Allowable Expense – RPGT Exemptions – Allowable Loss
TAX PAYABLE = RPGT Rate (based on the number of years of property ownership) X Net Chargeable Gains
Mr.X (Malaysian) purchased a property on year 2012 at RM300,000.00 and sold after or on Jan 15 2019 at RM500,000.00.
Gross Chargeable Gains): RM500,000 – RM300, 000 = RM200,000
*Assuming MR. X have Allowable Expense of RM 30,000 and an RM20,000 RPGT Exemption of 10% of profit (200,000 x 10%)
Net Chargeable Gain: RM 200,000 – RM 30,000 – RM 20,000 = RM 150,000
TAX PAYABLE = 5% RPGT x RM 150,000 = RM 7,500
1. RPGT rate is based on Budget 2019 for Individual Citizens disposal in 6th & subsequent years.
2. For the acquisition of assets before year 2000, the market price on Jan 1, 2000, would be used as
the acquisition price for the disposal of property by Malaysian citizens and permanent residents.
Withholding of RPGT
Where the purchase consideration consists wholly or partly of cash, the acquirer is required to withhold the lower of the entire cash consideration or 3% of the total acquisition price (7% where the disposer is not a citizen and not a permanent resident). That amount, whether or not withheld by the acquirer, is to be remitted to the Director General of Inland Revenue (DGIR) within 60 days from the date of disposal. The amount remitted to the DGIR is to be applied against RPGT payable by the disposer.
Basis Of Taxation
The chargeable gains arising from the disposal of any land situated in Malaysia and any interest, option or other right in or over such land or the disposal of shares in a 'real property company' is subject to Real Property Gains Tax.
The disposer of a real property has to submit the following to the IRB upon payment of the 3% retention sum within 60 days of the date of the sale and purchase agreement:
- Completed Form CKHT 1;
- Copies of stamped Sale and Purchase Agreement or Form 14A (memorandum of transfer) to prove the acquisition and disposal of the asset;
- Copy of grant/title deed (if any);
- Copies of bills and receipts for expenses claimed. (in case of companies or non-citizen and non-permanent resident individuals, details not required if asset is disposed in the sixth or subsequent year from the date of acquisition).
The disposer is required to settle the balance of RPGT payable within 30 days from the date of the notice of assessment.
An acquirer has to submit the following to the IRB upon payment of the 3% retention sum within 60 days of the date of the sale and purchase agreement:
- Completed CKHT 2A forms;
- Copy of stamped Sale and Purchase Agreement or Form 14A (memorandum of transfer) to prove the acquisition;
- Copy of grant/title deed (if any).