All investors and owners who are looking into selling their property should be aware of the costs associated with real estate transactions, such as the Real Property Gains Tax (RPGT).
In Malaysia, RGPT is chargeable for the profit gained from selling real property or real property company (RPC) shares. Conversely, RGPT would not be charged for owners that sold their property at a loss.
Real property in Malaysia is defined as any land situated in Malaysia and any interest, option, or other rights in or over such land. Meanwhile, a real property company is essentially a controlled company where its total tangible assets comprise 75% or more in real property and/or shares in other RPC.
What Is Real Property Gain Tax (RGPT)?
Essentially, RGPT is a tax levied on chargeable gains from the disposal of chargeable assets such as houses, commercial buildings, farms and vacant lands. The gain is payable when the resale price (disposal cost) of the property is higher than its purchase price (acquisition cost).
RGPT was first introduced by the Malaysian Government under the Real Property Gains Tax Act 1976 to curb speculative activities in the property market. It was the first-ever form of capital gains tax and, to this day, remains the only form of capital gains tax in Malaysia. Nevertheless, it has also gone through several changes over the years and was even suspended temporarily between 2007 to 2009 to encourage the real estate market.
Once the economy improved, it was re-introduced in 2010.
Who Are Chargeable For RPGT?
In general, Real Property Gain Tax (RPGT) is applicable to all residents as long as a profit is made from selling their property within Malaysia, be it whether they are Malaysian citizens or foreigners. To prevent speculative investment, RPGT threshold is divided into years of ownership and type of entities.
For those who are unaware, the Malaysian government considers the period of ownership from the date stated in the Sales and Purchase Agreement to the date the property is disposed to a new buyer (date to be stated in the new Sales and Purchase Agreement).
Say, if you purchase a residential property in Mont Kiara and the SPA is dated to 11th November 2016, selling the property on the 11th November 2022 is still considered within 5 years. In contrast, selling the property on the 12th November 2022 is considered within the 6 years.
Hence, you want to be mindful if you’re relying on the RPGT to improve your profitability. The 1-day difference can save you a good 15% tax on your property sales.
With the 2022 budget announced, Malaysian citizens looking to sell property held after 5 years will enjoy a 0% capital gain tax. This is excellent news for all the long term property investors looking to consolidate or adjust their portfolio.
As for foreigners and companies, there will still be a 10% tax for properties sold after 5 years of ownership.
Tax reliefs are also provided by the government when there is no profit made from the disposal or when a person suffers a loss from the property sold, also known as an allowable loss.
Likewise, allowable expenses also enable a seller to offset their tax bill which will be discussed more in the next part.
What Are The RPGT Act Exemptions?
As mentioned, there are certain tax exemptions that can be applied to the profits on selling a property. However, do not get your hopes up too soon as it is mostly only applicable for Malaysian citizens and permanent residents.
As a whole, there are three (5) conditions that allow you for an exemption.
1. Exemption when there is no gain no loss.
A hundred percent (100%) exemption is given when there is no profit gain from the disposal of a property.
In short, you do not need to pay for RPGT when the disposal cost of your property equals its acquisition cost – no gain no loss.
2. Exemption for the disposal of property as a gift within the family.
A hundred percent (100%) exemption is given for the chargeable gain when a property is transferred within the family.
In such cases, the acquisition price is deemed to be equal to the disposal price. The transfer of property can be either between parent and child, grandparent and grandchild, or husband and wife.
If you are thinking about transferring between siblings, it will not be counted for this exemption clause.
3. Once-in-a-lifetime exemption for the disposal of a private residence.
The once-in-a-lifetime exemption allows a seller to have an exemption of RM10,000 or 10% of the chargeable gain (whichever is greater) from the disposal of their private residence.
Based on the RPGT Act, a private residence/residential property is defined as a building or part of a building that is owned by an individual, be it a house, a condominium unit, or even a small office home office, whereby is used solely as a place of residence.
Do take note that is particular exemption can only be used once. So, it’s best to consider your options wisely before applying it.
4. Exemption for the disposal of low cost residential homes.
A hundred percent (100%) exemption is given for the chargeable gain when a low-cost residential home of RM200,00 and below is disposed of in the 6th year of ownership or subsequently.
Nevertheless, this exemption clause is only applicable to Malaysian citizens only.
5. Exemption for the disposal of residential properties between 1st of June 2020 to 31st of December 2021.
A hundred percent (100%) exemption is given for the chargeable gain when a residential property is sold between the timeframe of 1 June 2020 to 31 December 2021.
It was announced as part of the National Economic Recovery Plan which allows only Malaysian citizens to be exempt from RGPT in respect of the gains on the disposal of up to three (3) residential properties within the allocated period. Hence, if you have more than three units to be disposed of during this period, then you may irrevocably select any three to be exempted.
Do take note that the Sale and Purchase Agreement (S&P) must be executed within the timeframe given and stamped by 31 January 2022.
Besides, there is no stipulation regarding the holding period. Meaning, the exemption applies regardless of whether the property is held for just six months or as long as 6 years. However, it is on the condition that the property is not acquired between 1 June 2020 to 31 December 2021 through the means of transfer within the family.
What Is Allowable Loss and Allowable Expenses?
Allowable Loss
You might often hear of the term ‘allowable loss’ in RPGT. Well,
A loss is deemed allowable (also known as an allowable loss) when the disposal price of a chargeable asset is less than the acquisition price. Simply put, any loss stipulated in the difference between the purchase price and selling price is considered an allowable loss.
How do you use this allowable loss?
If you are looking to sell more than 1 property in the same year of assessment (YA) / tax year, the allowable loss from one transaction can be used to offset another transaction that yields a chargeable gain. Regardless of whether the loss transaction occurred before or after the profitable transaction(s) during the same YA.
Nevertheless, an allowable loss can also be carried forward into coming YAs for future chargeable gain until it is fully absorbed.
Allowable expenses
Similar to allowable loss, allowable expenses can also be used to offset your RPGT.
Typically, allowable expenses refer to the expenditure spent on improvement or maintenance works on a property to retain or increase its value. This also includes the incidental cost incurred during the disposal of the property.
To make things simple, allowable expenses are essentially [Schedule 2, Subsection 5(1)(a,b,c)]:
- Expenditure incurred for the purpose of enhancing or preserving the value of the asset being reflected at the time of the disposal. For instance, refurbishments, approved extensions and improvement works, etc.
- Expenditure incurred at anytime after the acquisition of the asset by the disposer in establishing, preserving or defending his title to, or to a right cover, the asset. For example, legal fees paid to defend ownership of the acquired assets.
- The incidental cost to the disposer of making the disposal such as stamp duty fees, legal fees, commission or remuneration paid for professional services of any surveyor, valuer, agent, etc.
How To Calculate RPGT?
Before we can calculate the chargeable gain to be taxed under the RPGT guideline, we will need to do a quick calculation of the following items,
- Final acquisition price – after considering closing costs and compensations
- Net disposal price – after considering all the renovation costs laboured into the property
- Gross chargeable gain – the difference between the final acquisition price and net disposal price
- Exemptions – allowed under the Real Property Gain Tax Act 1976
1. Final Acquisition Price
The final acquisition price is calculated by taking into consideration the following expenditures into the gross acquisition price of your property.
I understand that the jargon can be confusing. Put simply, the final acquisition price is your buying price after taking into consideration of closing costs and compensations.
In order to determine the final acquisition price, you will need to consider additional closing costs and deduct compensations on top of your purchase price.
Minus:
- Compensations received for any kind of damages to the property
- Insurance receipts for losses or damages to the property.
- Deposit forfeited from an aborted purchase deal from a potential buyer.
Add:
- Incidental costs incurred when the property was first purchased by the disposer.
Below is a non-exhaustive list of incidental costs, also known as the closing cost involved when you first purchase the property from the seller/property developer,
- Legal fees
- Accounting fees
- Surveyor fees
- Stamp duties
2. Net Disposal Price
The net disposal price of your property is calculated by subtracting the agreed purchase price for the disposal of your property with the allowable expenses.
- Sales commission
- Administrative fee
- Advertising fee
- Cost of preserving or defending your title to, or to a right over the asset
- Repair or renovation cost
- Preservation cost
3. Exemptions
As a Malaysian, there is an advantage whereby you can opt to reduce your net chargeable gain for RPGT by applying any of the five exemption conditions (previously mentioned), if relevant.
To put simply for you, here are the main exemption conditions to consider,
- Exemption when there is no gain no loss
- Exemption for the disposal of property as gift to a family
- Once-in-a-lifetime for the disposal of a private residence
- Exemption for the disposal of a low cost residential unit
4. Net Chargeable Gain
The net chargeable gain is then calculated by subtracting the final acquisition price and exemptions from the disposal price of your property. Finally, the RPGT payable is generated by multiplying your net chargeable gain with the applicable rate of RGPT depending on the disposal period.
The calculation shown below is based on the assumption that the disposer has decided to apply for his/her once-in-a-lifetime exemption.
Assuming that the property was disposed of in the 4th year of ownership. Thus, the RPGT payable would be 20% of the net chargeable gain = RM52,560
How Can I Make A RPGT Payment?
For individuals, the disposer is required to submit RPGT Forms as follows:
- Form CKHT 1A – Disposal of Real Property, attached with the SPA and all relevant documents that support your application for RPGT.
- Form CKHT 3 – Notification of Disposal of Asset not Subject to Tac or Exempt from Payment of Tax, if the disposer wishes to apply for an exemption.
For companies, instead of filling in Form CKHT 1A, you are required to submit the following:
- Form CKHT 1B – Disposal of share in Real Property Companies (RPC)
Besides, the disposer must also ensure that the buyer submits:
- Form CKHT 2A – Acquisition of Real Property / Shares in RPC
Once all the forms are completed, they need to be submitted with the supporting documents to the nearest LHDN branch within 60 days. Do take note that an additional 10% penalty will be charged for submissions that are delayed for more than 60 days.
More information and/or the PDF version of the forms can be obtained from the LHDN website.
Final Words
Always go through the fine prints and understand which clause can be used to your advantage. For instance, try to make full use of the exemptions. Also, plan wisely in regards to the timing of selling your property for the longer you wait, the lower the rate of RPGT payable.
Until then, take care.
