Salient points of RPGT 2010 Guidelines
Yang Pei Keng 25-2-2010
In January 2010, the Inland Revenue Board (IRB issued a set of new Guidelines on the latest amendments to the Real Property Gains Tax Act 1976. The Guidelines are known as the Garis Panduan Cukai Keuntungan Harta Tanah [referred to as the “RPGT 2010 Guidelines” in this article].
The Guidelines begin with the brief history of the RPGT Act. To facilitate comprehension of the recent amendments to the RPGT Act 1976, numerous examples are given, showing how the gains tax is to be calculated in accordance with the latest amendments.
A cumbersome formula is used to calculate the “amount of gain exempt from tax”. After deducting the “amount of gains exempt from tax”, the “amount of gain taxable” is arrived at in order to work out the 5% gains tax payable. It is a roundabout way of finding out first the “amount of gain exempt from tax” based on the Schedule 5 (Rates of Tax) of the RPGT Act 1976, before working out the taxable gain and the amount of 5% gains tax payable.
For practical purposes, the flat rate 5% gains tax payable can easily be arrived at by way of using a simple formula of “multiplying the chargeable gain by 5%”. Just work out the chargeable gain [less incidental expenses,10% exemption, etc.] and the amount of 5% gains tax can be arrived at with little effort.
The cumbersome formula of A/B x C is of no practical significance to members of the Bar having conveyancing practice, because they are not concerned with the so-called “amount of gain exempt from tax” calculated according to Schedule 5 (Rates of Tax). The sliding scale of rates of gains tax payable ranges from 30% to 5% for any disposal. [Note: the original Schedule of Rates of Tax has been slightly amended.]
Below is a summary of the salient points of RPGT 2010 Guidelines:
- Introduction â€“ Brief history of RPGT Act 1976
The Speculation Tax Act 1974 was introduced on 6 December 1973 to restrain speculative activities. It was replaced by the RPGT Act 1976 on 7 November 1975. From 21 October 1988, the RPGT was extended to cover real property companies.
On 1-4-2007, by RPGT (Exemption) Order 2007 [PU(A) 146/2007], the Minister of Finance granted full exemption of any disposal of real property from payment of gains tax. The full exemption was revoked by 31-12-2009. For about 2 years, no gains tax was payable [from 1-4-2007 to 31-12-2009].
RPGT(Exemption) Order 2009 [PU(A) 376/2009] revoked the full exemption of gains tax effective from 1 January 2010.
The latest RPGT (Exemption) (No.2) Order 2009 [PU(A) 486] provides that, any disposal after 5 years of purchase/acquisition is exempt from payment of RPGT. The Order takes effect this year, that is, from 1 January 2010.
- Purpose of the 2010 Guidelines
Much confusion has been created by the recent amendments to the RPGT Act 1976. The purpose of the 2010 Guidelines is to clarify the effect of the various amendments made to the RPGT Act 1976. The most significant change is that a flat rate of 5% gains tax is payable on the chargeable gain for any disposal within 5 years of purchase/acquisition. A further development is that no gains tax is payable after 5 years of purchase.
It is now clear that, commencing from 1 January 2010, a fixed rate of 5% gains tax is payable for any disposal within the first 5 years of purchase/acquisition. The latest amendment exempts payment of gains tax for any disposal after 5 years of purchase as a result of an appeal by civil society.
The latest amendments to RPGT Act 1976
The Prime Minister has announced full exemption of any disposal after 5 years of purchase/acquisition from payment of gains tax.
Any disposal within 5 years of purchase/ acquisition is also exempt from gains tax payable according to Schedule 5 of the RPGT Act. As a result of the exemption, with effect from 1-1-2010, a special formula is used to calculate the “amount of chargeable gains exempt from tax”. The formula is : A/B x C.
“A“ stands for the “full amount of gains tax payable on the chargeable gain” calculated according to Schedule 5 of the RPGT Act 1976, reduced by the “amount of 5% gains tax payable on the chargeable gain”.
For example, if the rate of tax payable is 30%, “A” stands for “chargeable gain x 30% less: chargeable gain x 5%”].
“B” stands for the “full amount of gains tax payable on the chargeable gain according to Schedule 5” [e.g. chargeable gain x 30% if the rate of tax is 30%].
“C” stands for the “full amount of chargeable gain” [e.g. chargeable gain RM300,000]
Example: If the chargeable gain is RM300,000, and the rate of tax is 15%, the formula is as follows:
If the rate of tax is 15%, to arrive at the “chargeable gain exempt from tax”, the formula A/B x C works out in the following manner:
chargeable gain x 15% â€“ chargeable gain x 5% x chargeable gain
chargeable gain x 15%
After working out the “chargeable gain exempt from tax” by using the cumbersome formula, the “total chargeable gain” less “chargeable gain exempt from tax” is arrived at, e.g.:
Total chargeable gain 300,000 â€“ chargeable gain exempt from tax 200,000
= “chargeable gain NOT exempt from tax” 100,000.
“Chargeable gain NOT exempt from tax” 100,000 is then multiplied by the rate of tax according to the Schedule 5 in order to arrive at the actual 5% gains tax payable.
Instead of the cumbersome process given above, a simple formula: “chargeable gain x 5% gains tax” will give you the same result.
- Various examples of tax calculation are given
Example 1 [para 3]: Disposal after 3 years of purchase
ZZ Sdn Bhd bought a shophouse on 24.2.2007 at RM240,000. It was sold on 4.2.2010 at RM300,000 (that is, after 3 years of purchase: 2010 – 2007 ).
For a disposal after 3 years of purchase, the gains tax payable under the previous “Schedule of Payment” of gains tax is 20%. Calculation of chargeable gains exempt from payment is as follows:
Disposal price RM300,000 – Acquisition price 240,000
= chargeable gain 60,000
Amount of chargeable gain exempt from tax:
= (60,000 gain x 20%) – (60,000 x 5%) x 60,000
(60,000 x 20%)
= 20 â€“ 5 x 60,000 = 15 x 60,000
= 3/4 x 60,000
= amount of chargeable gain exempt from tax = 45,000
gain not exempt from tax = 60,000 â€“ 45,000 = 15,000
gains tax payable = 15,000 x 20% = 3,000
[The same result can be arrived at by using the simple formula:
= chargeable gain 60,000 x 5% = 3,000]
Suggestion: Simple formula of “chargeable gains x 5%” should be used.
A simple formula for arriving at the 5% gains tax is “chargeable gain x 5%”
The 5% gains tax payable in the example given above can be arrived at as follows:
(disposal price 300,000 â€“ acquisition price 240,000) x 5%
=chargeable gain 60,000 x 5% = 3,000 gains tax
One may be puzzled why the cumbersome formula is adopted, and why go about the circuitous way of arriving at the flat rate of 5% gains tax on the chargeable gain.
Example 2 [para 3]: Disposal after 5 years of purchase
The Owner bought a shophouse on 24.2.2007 and sold it on 1-6-2013, after 6 years of acquisition (2013 – 2007), that is, after at least 5 years of purchase. The amount of chargeable gains is arrived at as follows:
Sale price 300,000 â€“ purchase price 240,000 = chargeable gain 60,000
Chargeable gain exempt from tax: 60,000 x 5% = RM3,000.
Comment: This is a disposal after 5 years [2013-2007], no gains is payable. But in the eyes of IRB, there is a loss in revenue of RM3,000, which is the 5% gain exempt from tax. [Note: the minimum rate of gains tax payable by a company for any disposal is 5% according to Schedule 5.]
in actual practice, the amount of gains tax (RM3,000) exempt from payment does not concern conveyancing practitioners or the seller/disposer at all. For all practical purposes, the seller/ disposer is only concerned with the amount of gains tax payable. In the present case, no gains tax is payable since the disposal is after at least 5 years of purchase.
This latest RPGT (Exemption)(No.2) Order 2009 [PU(A) 486] provides that no gains tax is payable after 5 years of purchase/acquisition. Paragraph 2(1) says: “The Minister exempts any person from the application of Schedule 5 of the Act on the payment of tax on the chargeable gain in respect of any disposal of a chargeable asset on or after 1 January 2010 where the disposal is made after five years from the date of the acquisition of such chargeable asset.”
Example 3a [para 3] : Joint venture agreement
The Owner bought some property on 20-6-2008 at RM1million. After the purchase, he entered into a joint venture agreement with a developer on 2-8-2011. The consideration for transferring the property to the developer is that the Owner will get 8 terraced houses, and 2 corner terraced houses.
Selling price for 8 terraced houses: 300,000 each.
Selling price for 2 corner terraced houses: 450,000 each
Market of value of the vacant land as at 2-8-2011 is RM 3 million.
The joint venture agreement (2-8-2011) is deemed to be the disposal date.
Calculation of chargeable gain:
Disposal price 3 million – acquisition price 1 million:
= chargeable gain 2 million â€“ 10% exemption 200,000 = 1,800,000
1,800,000 x 5% gains tax = 90,000 gains tax payable
[Note: The cumbersome formula will arrive at the same result.]
Note: 1. Disposal date = the date of joint venture agreement.
2. Disposal price = the market value of vacant land at date of agreement
3. If part of consideration is cash payment, then remit to IRB either â€“
(a) 2% of the purchase price; or
(b) total amount of cash paid (if less than 2% of the purchase price).
4. In the present case, the purchaser need not remit 2% of the purchase price to IRB since the sale does not involve cash.
Example 3b[para 3]: Disposal of a terraced house by owner in example 3a
on 5-9-2014 at RM350,000
Calculation of gains tax payable is as follows:
Disposal price 350,000 – Acquisition price 272,727*
Chargeable gain 77,273 â€“ minimum exemption 10,000 = 67,273
Gains tax payable = chargeable gain 67,273 x 5% = 3,363.65
1. * Formula for working out acquisition price:
market value of units sold x Market value of vacant land
Market value of all units received (on 2-8-2011)
= 300,000 x 3,000,000 = 3/33 x 3,000,000 = 272,727 ]
2. Total market value of 8 terraced houses at 300,000 each
+ 2 corner lots at 450,000 each = 2,400,000 + 900,000 = 3,300,000]
3. Using the cumbersome formula, the gain arrived at is 3,364.05. The answer arrived at by using the simple formula is 3,363.65. Only a minor difference (40 sen) appears between the two because of the fraction caused by the cumbersome formula.]
Example 3c [para 3] : Based on similar facts in Example 3a under the joint venture agreement, the owner received 10 terraced houses and RM50,000 in cash.
Disposal price on 3 million – Acquisition price 1 million
= chargeable gain 2 million â€“ 10% exemption 200,000 = 1,800,000
Gains tax payable: 1,800,000 x 5% = 90,000
[Using the cumbersome formula, “chargeable gain exempt from tax” is arrived at as follows:
1,8 million x 15% – 1.8 million x 5% x 1.8million
1.8million x 15%
= 10 x 1.8 million = 2/3 x 1.8 million
= 1.2 million (gain exempt from tax)
Total chargeable gain 1.8 million – gain exempt from tax 1.2million
= taxable gain 600,000
Gains tax payable: 600,000 x 15% = 90,000
1. Part of consideration is cash. The developer must remit to IRB 2% of the total consideration , or total cash paid if it is less than 2% of total consideration.
2% of total consideration = 3 million x 2% = RM60,000.
The total cash of 50,000 is less than 2% of total consideration. Therefore, only the amount of cash paid is to be remitted to IRB.
2. Gains tax payable is still RM90,000 as shown in example 3a, though the consideration is in cash and kind.
Example 3d [para 3]: Disposal of 1 terraced house only
On 5-9-2014, the owner is to dispose of 1 terraced house at RM350,000. Gains tax payable is as follows:
Disposal price 350,000 – acquisition price 295,000
= chargeable gain 55,000 – minimum exemption 10,000 = 45,000
Gains tax payable: 45,000 x 5% = 2,250
How to arrive at the acquisition price in the case of a joint venture agreement ?
The acquisition date = the agreement date (2-8-2011). It is calculated in the following manner:
market value of 1 unit sold x market value of vacant land
market value of all units as at 2-8-2011 [less cash received]
= 300,000 x (3million â€“ 50,000)
= 1/10 x 2.95 million
Using the cumbersome formula to arrive at the gains tax payable after 3 years of purchase (2014 â€“ 2011) –
45,000 x 15% – 45,000 x 5% x 45,000
45,000 x 15%
= 15 – 5 x 45,000
= 10 /15 x 45,000
= 30,000 [gain exempt from tax]
Total chargeable gain â€“ gain exempt from tax : 45,000 â€“ 30,000 = 15,000
Gains tax payable = 15,000 x 15% = 2,250
3.2 Rates of gains tax
The Guidelines seem to have reproduced the original Schedule of Rates of gains tax payable with a slight amendment. That is, after 5 years of purchase, 5% gains tax is still payable by citizens and permanent residents. (Note: under the original Schedule 5, no gains tax is payable by citizens and permanent residents after 5 years of purchase.)
For individuals: citizens and permanent residents
When disposed of rate of tax
Within the lst and 2nd years 30%
Within the 3rd year 20%
Within the 4th year 15%
Within the 5th year and thereafter 5%
Within the 1st and 2nd years 30%
Within the 3rd year 20%
Within the 4th year 15%
Within the 5th year and thereafter 5%
For individuals who are non-citizens and not permanent residents
Within 5 years 30%
After 5 years 5%
Comment: Shown above is the amended Schedule 5 in the RPGT 1976. It is slightly different from the original Schedule 5.
According to the amended Schedule 5 in the Guidelines, with effect from 1 January 2010, any disposal after 5 years by a citizen or permanent resident still attracts 5% gains tax.
This is at variance with the original Schedule 5 re rates of tax. In the original Schedule 5, no gains tax is payable for any disposal after 5 years of purchase/acquisition by a citizen or permanent resident, but under the amended Schedule 5, any disposal within 5 years or thereafter is still subject to 5% gains tax.
All disposals without exception attract gains tax regardless of the withholding period. This is the result of the amendments by the Finance Act 2010. But this amended Schedule 5 was finally amended by the latest Real Property Gains Tax (Exemption) (No.2) Order 2009 [PU(A) 486].
Under the latest RPGT (Exemption) (No.2) Order 2009 [PU(A) 486],
a flat rate of 5% gains tax is payable for the first 5 years, but no gains tax is payable after 5 years of purchase/acquisition. This Order is applicable to all disposers. There is no distinction between individuals whether citizens or non-citizens, companies whether local or foreign, or permanent residents.
No one is liable to pay gains tax after 5 years of purchase/ acquisition. The most recent Exemption Order [PU(A) 486] supersedes the relevant item in the amended Schedule 5.
3.3 Purchaser to remit 2% of purchase price – s 21B amended
The amended s21B provides: the 2% of the purchase price is to be withheld by the purchaser, and must be remitted to the IRB within 60 days of the date of disposal. But IRB may grant extension of time for remitting the sum.
If the sum is not remitted in time, a penalty of 10% will be imposed. But IRB may use its discretion to grant remission of the increased amount, and refund the amount if it has already been paid.
Under the previous provision of the RPGT 1976, 5% of the purchase price was to be retained by the purchaser until the issuance of Certificate of Clearance by IRB. This practice of retaining 5% is no longer applicable. It is replaced by new s21B.
Example 4 – 10% increase in tax for failure to remit in time
A simple example is given showing how the penalty of 10% is to be imposed for failure to remit in time the retention sum of 2% of the purchase price.
If the disposal price is RM100,000, 2% of the purchase price to be remitted will be: 100,000 x2% = 2,000.
If the sum of 2,000 is not remitted in time, 10% penalty will be imposed:
2% of purchase price 2,000 x 10% = RM200.
Example 5 – where consideration includes cash + shares
If the disposal price of RM100,000 comprises both cash and kind, e.g. RM1,000 cash + RM99,000 shares, the disposer need not remit 2% of the purchase price; just remit the total cash received, if the amount of cash received is less than 2% of the purchase price.
For instance, if 2% of the purchase price is 2,000 [i.e. 100,000 x 2% = 2000], and the total cash received is 1,000 only, the amount to be remitted is just the cash amount of RM1,000 only, since it is less than 2% of the purchase price.
3.4 Allowable loss â€“ ss7,14,17,20, para 31 Schedule 2
Example 6 [p.13]
a. Disposal 1 – Aishah bought a piece of land in Alor Star on 2-1-2008 at RM350,000, to be sold subsequently on 21-3-2011 for RM300,000. (sale after 3 years: 2011 â€“ 2008)
Selling price RM300,000 – Incidental costs (legal fees and advertisement) 2,000 = disposal price 298,000.
Disposal price 298,000 – acquisition price 354,000* = Loss (56,500)
*(acquisition price = purchase price 350,000 + costs of transfer 4,500
b. Disposal 2 – On 29-4-2002, Aishah bought another piece of land in Kulim for RM255,000, to be sold on 1-3-2012 for RM500,000. (i.e. sale after 5 years of purchase (2012 – 2007) that is, on or after 1-1-2010)
Selling price RM500,000 – Incidental costs 3,000 [i.e. legal fee and advertisement] = disposal price 497,000.
Acquisition price = purchase price 255,000 + costs of transfer 5000
Disposal price 487,000 â€“ acquisition price 300,000 = gain 197,000.
gain 197,000 â€“ 10% exemption 19,700 = gain 177,300.
Gain 177,300 – allowable loss (56,500) = Chargeable gain 120,800
Tax exempt : 120,800 x 5% = RM6,040
1. Though disposal 2 was after 5 years [in fact nearly 10 years] of purchase, the amount of loss in the disposal 1 is deductible from gain from disposal 2.
2. The gain from disposal 2 is regarded as the gain in disposal 1. Since the disposal 1 was within 5 years, 5% tax is payable under the Exemption Order 2009. But there was a loss in disposal 1 and 5% tax is deemed exempt from the gain in disposal 2.]
Example 7: Loss incurred after 5 years of purchase not deductible
7(a). On 15,4.2002, Nabil bought a piece of land in Seremban for
RM1 million, to be sold on 10.2.2010 at the same price of RM1,000,000.
Disposal price = selling price 1,000,000 â€“ incidental costs 261,400
(Note: incidental costs 261,400 = renovation expenses 250,000 + legal fees etc.11,400)
Acquisition price = purchase price 1,000,000 + costs of transfer 24,000
– fire insurance compensation 52,600 = 961,400
Acquisition price 961,400 – disposal price 738,600
= loss (22,800)
[Note : The loss of RM22,800 cannot be carried forward, because the loss is incurred after 5 years from the purchase, and is not deductible from the gain in the subsequent year.]
7(b). If loss was incurred in the earlier disposal1 of property held for more than 5 years, it is not deductible from the gain from the subsequent disposal2 of another property.
For example, on 15.4.2006, Nabil bought a piece of land in Port Dickson at RM585,000, and sold it on 10.8.2010 for RM800,000.
Disposal price = Selling price 800,000 – legal fee etc 10,000 = 790,000
Acquisition price = purchase price 585,000 + expenditure 15,000 = 600,000
Chargeable gain = 790,000 â€“ 600,000 = 190,000
The disposal1 in example 7(a) above was after nearly 8 years of purchase (2010 – 2002). The sale was at a loss of say, 200,000. This loss is not deductible from the subsequent disposal2 in example 7(b), because the loss in disposal1 was incurred after more than 5 years of purchase.
Example 8: Whether allowable loss is allowed to be deducted from the gain in disposal2.
8(a). Asmah bought one house on 1-3-2008 at RM78,000, and sold it on 2-5-2011 for RM101,000.
Disposal price = selling price 101,000 â€“ legal fee etc 1,000 = 100,000
Acquisition price = purchase price 78,000 + costs of transfer 2,000 = 80,000
Gain = 100,000 â€“ 80,000 = 20,000 – minimum exemption 10,000
= chargeable gain 10,000
Standard Formula for calculating gain exempt from tax:
10,000 x 15% – 10,000 x 5% x 10,000
10,000 x 15%
= 10/15 x10,000
= 2/3 x 10,000
= 6,667 [amount exempt from tax]
Chargeable gain 10,000 – amount exempt from tax 6,667
= taxable gain 3,333
Gains tax payable = 3,333 x 15% = 499.95
Simple formula: chargeable gain x 5% = 10,000 x 5% = RM 500
Example 8(b): Loss in disposal1 is deductible from the gain in disposal2.
Asmah bought one house on 16.7.2009 at RM150,000, and sold it on 12.8.2011 at a loss for RM125,000. [That is, disposal after 2 years (2011-2009) – liable to tax if there is gain.]
Disposal price = selling price125,000 â€“ legal fee etc. 5000 = 120,000
Acquisition price = purchase price 150,000 + cost of transfer 10,000 = 160,000
Disposal price 120,000 â€“ acquisition price 160,00
= Loss (40,000)
Note: The loss in disposal2 is deductible from the gain in disposal1 in the same year 2011.
Calculation of amended assessment for disposal 1 is as follows:
Chargeable gain in disposal1 10,000 – loss in disposal2 (10,000)
= chargeable gain “0”
[Note: The loss in disposal2 is in fact 40,000, but deduction is only limited to the loss of 10,000. Loss carried forward: 40,000 â€“ 10,000 = 30,000. The amended assessment [for reduced amount] will be issued. The seller may claim refund if he has paid under the original assessment.]
9(a). DEF Sdn Bhd sold a piece of land on 1.11.2010 at RM1,300,000. It was bought on 1.9.2009 at RM800,000. (Disposal within 2 years = 30% gains tax)
Disposal price = selling price 1,300,000 â€“ legal fees etc. 50,000 = 1,250,000
Acquisition price = purchase price 800,000 + costs of transfer 20,000 = 820,000
Chargeable gain = disposal price 1,250,000 â€“ acquisition price 820,000
= Taxable gain 430,000
Standard formula: for calculating amount of gain exempt from tax:
430,000 x 30% – 430,000 x 5% x 430,000
430,000 x 30%
= 25/30 x 430,000
= 5/6 x 430,000
= gain exempt from tax 358,333
Chargeable gain 430,000 – gain exempt from tax 358,333
= taxable gain 71,667
Tax payable = taxable gain 71,667 x 30% = 21,500.10
(Simple formula for 5% gains tax = 430,000 x 5% = 21,500)
Example 9(b): Loss in disposal2 in the same year is not deductible from the gain in disposal1, because disposal2 is after 5 years of purchase. (That is to say, any loss in the disposal after 5 years is not deductible)
DEF Sdn Bhd bought a factory on 14.9.2003 at 1,000,000, and subsequently sold it at a loss on 10.12.2010 at RM700,000. [Note: loss after 5 years of disposal (2010 -2003)).
Disposal price = selling price 700,000 â€“ legal fees etc. 25,000 = 675,000
Acquisition price = purchase price 1,000,000 + costs of transfer 50,000
Disposal price 675,000 â€“ acquisition price 1,050,000
= Loss (375,000)
Note: The loss in disposal2 (375,000) is not deductible from the gain in disposal1 [430,000] because disposal2 is after more than 5 years [2010 â€“ 2003] of purchase.
3.5 Bank loan interest paid in acquiring the property is no longer a deductible item.
3.6 Minimum Exemption of 10,000 or 10% of the gain: Schedule 4, para 2
An individual enjoys minimum exemption of RM10,000 of the gain, or 10% of the gain. It applies to any disposal of real property (but not real property company shares). Exemption does not apply to any disposal of real property company shares.
Shamsul bought 10 acres of land at RM600,000. He sold 4 acres on 1.8.2007 at RM800,000. He then sold 6 acres on 1.9.2009.
Disposal price = selling price RM800,000 â€“ purchase price 240,000*
= gain 560,000
(*Purchase price of 4 acres = 4/10 x 600,000 = 240,000)
Chargeable gain = gross gain 560,000 – 10% exemption 56,000 = 504,000
Note : Exemption is not deductible from the gain in disposal1 [disposing of only part of the land] , but deductible from disposal2 when all 10 pieces of land have been sold.
3.7 Transitional provision â€“ s.7
Tax relief for loss incurred before 1-4-2007 (i.e. loss incurred under the old provision) is allowed to be carried forward. The loss is deductible from the amount of gains tax payable for disposal in the year of assessment 2010 or thereafter, until the total amount of loss is covered.
Example 11: Loss incurred before 1-4-2007 under the old provision of RPGT Act is deductible from the gain on or after 1.1.2010
Latif bought a double-storey terraced house on 1.6.2004 at RM120,000. On 1.5.2006, he sold it at a loss, at RM100,000. [Note: disposal within 2 years (2006 – 2004), attracts 30% gains tax]
Sale price RM100,000 â€“ purchase price 120,000
= loss (20,000) .
Tax relief carried forward = 20,000 x 30% = 6,000
On 1.8.2010, Latif sold a piece of land at RM200,000. He bought it on 2.9.2007 at RM150,000. (Disposal within 3 years: 2010 â€“ 2007, 20% gains tax)
Disposal price 200,000 â€“ acquisition price 150,000 = chargeable gain 50,000
Chargeable gain 50,000 – minimum exemption 10,000 = gain 40,000
Calculation of amount of gain exempt from tax:
40,000 x 20% – 40,000 x 5% x 40,000
40,000 x 20%
= 15/20 x 40,000
= 3/4 x 40,000
= 30,000 (gain exempt from tax)
taxable gain = gain 40,000 â€“ gain exempt from tax 30,000 = 10,000
Gains tax payable = 10,000 x 20% = 2,000
(Simple formula for 5% gains tax: 40,000 x 5% = 2,000)
Gains tax payable 2,000 â€“ tax relief from Y/A 2006 (limited to 2000 only)
= gains tax payable: NIL
The balance of 4,000 tax relief (i.e. 6,000 â€“ 2,000) will be carried forward for deduction from chargeable gain from any disposal of real property in the ensuing years until the total amount of loss is covered.
3.8 Certificate of non-chargeability
Certificate of non-chargeability [Perakuan tidak dikenakan cuka ] will be issued to the disposer if there is no chargeable gain.
4. Ascertaining “Real Property Company”
A real property company (RPC) [Syarikat Harta Tanah â€“ SHT] is a controlled company where nilai tertentu (NT) is at least 75% of the total asset [Jumlah Aset Ketara (JAK)]
Nilai Tertentu (NT) is: the market value of the real property; or the acquisition price of shares in the real property company; or the market value of the property plus thf e acquisition price of shares in the RPC.
Jumlah Aset Ketara (JAK) is the aggregate of both –
(a) the nilai tertentu of real property and shares in the RPC; and
(b) other value of land [ketara] like factory and machinery, business stocks, shares (other than shares in RPC), cash, banks and debtors. All this is based upon book value for the purpose of ascertaining whether or not a controlled company is an RPC.
Example 12: real property company
An example of a real property company – where a limited company acquired real property worth RM350,000 whereas the total asset amounts to RM430,000. The NT of the company is 81% , that is, more than 75% of the total asset JAK.
Example 13: not a real property company
Company H acquired 100,000 shares in the real property company X at RM1 per share. The total asset JAK is 200,000. The ratio is therefore 100,000 : 200,000 = 1:2 [50%]. This is not a real property company, because NT is less than 75% of the total asset JAK.
If Company H bought additional 150,000 shares in the real property company X, making a total of 250,000 shares in company X. The total asset JAK is 300,000.
250,000 RPC shares : 300,000 total asset = 5:6.
250,000 shares in RPC shares = 83% of the total asset JAK 300,000 in company H. Therefore, company H has become a real property company.
Example 14: Sale of shares in a real property company
Company XYZ is a controlled company formed on 1-1-2005 with paid up capital of 100,000 ordinary shares at RM1 per share. Shareholder M owns 20,000 shares.
On 1-1-2007, Company XYZ acquired real property worth RM350,000. The total asset JAK of the company was RM430,000. (350,000 : 430,000 = 35 : 43) That is, NT was more than 75% of the total asset JAK. It was a real property company.
On 1-9-2008, shareholder M acquired additional 10,000 shares from shareholder T at RM19,000.
Company XYZ re-valued its real property because it was near the new business centre. Its paid up capital was increased to 150,000 shares, out of which 50,000 shares were issued in the form of bonus shares from the excess reserve by reason of re-valuation, and distributed to the existing shareholders. M is to be given 10,000 bonus shares by a director’s resolution on 1.1.2012.
On 1.11.2010, M sold 20,000 shares at RM86,000 followed by selling 5,000 shares on 1-1-2016 at RM21,500. Subsequently he sold 10,000 shares at RM45,000 on 1-5-2016. He will have only 5,000 shares left as at 1-5-2016.
Shareholder M owns 20,000 + 10,000 + 10,000 = 40,000 shares
M sold – 35,000 shares
Balance 5,000 shares
[from 1-1-2007 to 1-11-2010]
re disposal1 of 20,000 shares
M was deemed to have acquired 20,000 shares [chargeable asset] on 1-1-2007, that is, as at the date when Company XYZ became a real property company [see para 34(A)(2)(a)]. The acquisition price is to be determined according to the formula: A/B xC.
A = the number of shares deemed to be chargeable asset.
B = the number of shares raised in the company concerned on the acquisition date of shares deemed to be chargeable asset.
C = NT of the real property or shares or both owned by the company concerned on the acquisition date of chargeable asset.
Calculation of acquisition price of 20,000 shares is as follows:
20,000 x RM350,000
= 1/5 x 350,000
Calculaton of gains tax is as follows:
Disposal price 86,000 – acquisition price 70,000 = chargeable gain 16,000.
Gain exempt from tax:
16,000 x 15% – 16,000 x 5% x 16,000
16,000 x 15%
= 10/15 x 16,000 = 2/3 x 16,000
Chargeable gain 16,000 – gain exempt from tax 10,667 = 5,333 (taxable gain)
Gains tax payable 5,333 x 15% = 799.95
[Simple formula: Chargeable gain 16,000 x 5% = 8,000]
re disposal2 of 5,000 shares [2nd acquisition]
M is deemed to have acquired 5,000 shares on 1-9-2014, that is, on the date
M acquired them from T under para 34A(2)(b).
The acquisition price of shares is determined according to para 4 or 9, Schedule 2, that is, the value in the form of cash, or cash value for acquiring, or at market value as provided under para 34A(3)(b).
Therefore, the acquisition of 5,000 shares is RM9,500 [19,000/2], that is, the total or value in the form of cash paid by M to T [M is deemed not to have made any incidental expenses].
Chargeable gain: disposal price 21,500 â€“ acquisition price 9,500 = 12,000
The disposal is not subject to gains tax because it was more than 5 years after acquisition. [1-9-2008 to 1-1-2016]
re disposal3 of 10,000 bonus shares
The 10,000 bonus shares are deemed to have been acquired on 1-1-2012, that is, on the date of acquisition as provided under para 34(9)(b).
The acquisition price for the additional shares in the real property company is ascertained pursuant to para 4 or 9, Schedule 2, that is, the total of cash value or market value for acquiring the shares as provided under para 34(9)(b).
The acquisition price of bonus shares is deemed “0” because M did not make any payment for acquiring the additional shares.
Disposal price 45,000 â€“ acquisition price 0
= chargeable gain 45,000
Gain exempt from tax:
45,000 x 5% – 45,000 x 5% x 45,000
45,000 x 5%
= 0 x 45,000 = 0
Chargeable gain 45,000 â€“ gain exempt from tax 0 = taxable gain 45,000
Gains tax payable: 45,000 x 5% = RM2,250
4.1 Loss in the disposal of real property company shares
Loss in the disposal of real property company shares is not deductible from the chargeable gain from the disposal of RPC shares and real property in that year. It cannot be carried forward for deduction from the chargeable gain from the disposal of RPC shares and real property in the ensuing years [see para 33(d), Schedule 2, RPGT Act 1976]
Example 15(a): disposal1 within 2 years
On 15.6.2009, Abu bought 30,000 shares in ABC company (a real property company) at RM60,000. On 1-1-2010, he is to sell all his shares at RM50,000.
Disposal price 50,000 â€“ acquisition price 60,000 = loss (10,000).
[For the acquisition price of 60,000, see para 34A(3)(b)]
Example 15(b): disposal2 after 5 years
On 15.6.2003, Abu bought 30,000 shares in XYZ Company (a real property company) at RM30,000. On 1-11-2011 he is to sell all his shares at RM70,000.
Disposal price 70,000 â€“ acquisition price 30,000
= chargeable gain 40,000 – minimum exemption 10,000 = 30,000
Gain exempt from tax: 30,000 x 5% = RM1,500
Note: The loss in disposal1 of ABC company shares is not deductible from the gain from the disposal of XYZ company shares.
5. Procedure for submitting gains tax forms
Old forms: CKHT1 (for seller) and CKHT2 (for buyer)
New CKHT forms:
CKHT 1A [seller/ disposer ] – for selling real property only
CKHT 1B [seller /disposer] – for selling Real Property Company shares
CKHT 2A [buyer/ acquirer] – for buying real property or RPC shares – use
5.2 CKHT Forms
Available from IRB Branch; or may download and print from IRB website â€“
The use of PDF form is allowed. What about photocopies of CKHT forms?
5.3 Submitting CKHT forms
i. Every disposer or acquirer has to complete the CKHT form, and submit together with relevant documents to the nearest IRB office.
ii. To expedite the processing of CKHT forms, it is advisable to submit forms to the IRB Branch handling the disposer’s income tax file.
iii. If the disposal comes under Income Tax Act 1967, do not file CKHT forms.
6. Seller’s obligations
6.1 For any disposal before 1-4-2007 [that is, before the full exemption of gains tax ] â€“
i. Submit old CKHT 1.
ii. Enclose copy of evidence of disposal and acquisition. For sale of real property â€“ attach stamped SPA/ stamped Transfer form 14A/ stamped memo of transfer.
iii. Enclose documents in support of allowable expenditure incurred.
iii. Submit CKHT within 1 month [old law] from the disposal date.
iv. Complete Election for Exemption Form for the disposal of private residential house [RPGT Act 1976, para 9, schedule 3]
6.2 Disposal on or after 1-1-2010 [new forms to be used]
i. Submit new CKHT 1A [for sale of real property]; or
CKHT 1B [for sale of real property company shares].
ii. Attach evidence of sale and purchase.
For sale of real property â€“ attach stamped SPA,stamped Form 14A (Transfer form)/ stamped memo of transfer.
For sale of real property company shares â€“ attach stamped SPA, stamped Form 32A, Directors’ resolution/ Form 24 or share certificates.
iii. Attach documents in support of allowable expenditure incurred.
iv. Submit CKHT 1A [or CKHT 1B] within 60 days from the date of disposal.
v. Submit Election for Exemption Form re private residence â€“ if disposer intends to apply for exemption.
[Comment: The original RPGT Act does not stipulate the time for submitting the Election for Exemption. The seller may submit it at any time, i.e. before or after receiving the assessment of gains tax payable. But now, IRB requires the seller to submit CKHT 3 together with CKHT 1A or CKHT 1B within 60 days.]
vi. Complete CKHT 3 [Notice calling for information by Director General of IRB: s27 of the RPGT Act] if the purchaser/acquirer does not withhold and remit 2% of the purchase price, if disposal does not attract gains tax, as in the following cases:
a. Disposal after 5 years of purchase; or
b. Election for Exemption re private residence.
c. Gifts (with no consideration) [RPGT Act 1976, para 12, schedule 12]
vii. Must attach CKHT 3 to CKHT 1A or CKHT 1B. CKHT 3 will not be processed if not submitted within 60 days of disposal.
[Comment: This is a new requirement. Before 1-4-2007, under the original RPGT Act, the Election for Exemption could be submitted any time, before or after the assessment of gains tax payable.]
viii. To furnish the buyer with a copy of CKHT 3.
7 Buyer’s obligations
7.1 For acquisition of property before 1-4-2007, the buyer’s obligations are similar to those of the seller.
7.2 Buyer is to submit new CKHT 2A [for buyer] within 60 days if the purchase is on or after 1.1.2010.
8 How does IRB handle CKHT forms?
8.1 Forms CKHT 1, CKHT 1A or CKHT 1B (for sale of real property company shares) may be rejected under certain circumstances, if e.g. forms are not signed, supporting documents not furnished, etc.
8.2 Penalty will be imposed for late submission of the forms.
8.3 Notice or Certificate of Acknowledgement will be issued â€“
a. Form K – Notice of Assessment
b. CKHT 5A (or old CKHT 5) – Certificate to the effect that no gains tax is payable
c. For disposal before 1-4-2007, Certificate to the effect that gains tax has been paid in full.
9 Parties’ obligations
9.1 Buyer’s obligations
i. Disposal before 1-4-2007 â€“ to retain 5% of the purchase price.
Disposal on or after 1-1-2010 â€“ to retain 2% of the purchase price only.
ii(a). to remit within 60 days of disposal
If the buyer receives CKHT 3 [form for non-retention of 2% because of exemption, etc.] from the seller within 60 days of disposal together with CKHT 2A, the buyer need not withhold and remit the 2%.
But if the seller does not submit CKHT 3 within 60 days of disposal, the buyer must remit the 2% to IRB.
ii(b). Attach payment slip [CKHT 502] together with payment.
CKHT502 is available from IRB; or download from IRB website.
9.2 Seller’s obligations
i. The seller must submit CKHT 3 (for non-retention of 2%) for any case which is not liable to gains tax. If the information furnished is found to be false, seller can be charged under s30 of the RPGT Act. If convicted â€“ liable to a maximum fine of RM5,000.
CKHT 3 can be downloaded.
ii. The seller is to pay tax within 30 days of the notice of assessment (if the amount payable exceeds the sum retained, even if an appeal has been filed). The 2% retention sum will be deemed part payment of the gains tax payable. Payment may be made by using CKHT 501 (issued together with the Notice of Assessment). CKHT 501 may also be downloaded.
9.3 How to pay gains tax?
The buyer – can only pay at the IRB counter or IRB Branch by way of crossed cheque, money order or bankdraft, issued in the name of Ketua Pengarah Hasil Dalam Negeri together with payment slip CKHT 502 [for the buyer].
The seller – can pay at IRB counter or pay by post, accompanied by payment slip CKHT 501.
The seller may also pay by way of e-payment through FPX [Financial Process Exchange]. See website http://www.hasil,gov.my/.
FPX member banks are: CIMB, PBB, MBB, RHB, BIMB and Hong Leong Bank.
Internet banking may be done at : CIMB, PBB, MBB and EON bank.
(Citibank – for companies only).
For MBB â€“ payment may be made at the counter by ATM, Cash deposit Machine, internet banking or telephone banking.
Instead of adopting a simple procedure for taxpayers to pay tax, the authorities concerned have caused unnecessary inconvenience to the taxpayers. The new CKHT forms used are more detailed and complex than the old ones. They are akin to income tax returns.
A cumbersome formula is imposed on the taxpayers to work out the amount of “chargeable gains exempt from tax” under Schedule 5 of the RPGT 1976 for any disposal on or after 1-1-2010. It is a roundabout way of finding out the 5% gains tax payable.
This is contrary to the modern trend of simplifying the process for taxpayers to pay tax in many other countries (e.g. Australia, Singapore, etc.).
The authorities concerned do not seem to have the interests of taxpayers at heart, and they do not seem to be bothered about the inconvenience caused to the taxpayers. By introducing the cumbersome formula for calculating the gains tax payable for any disposal, they seem to have their own interests in mind.
They have devised a cumbersome formula for working out the amount of “chargeable gain exempt from tax”, which does not concern the parties involved in any disposal at all. It is more to the benefit of the authorities concerned, but causing unnecessary inconvenience to the taxpayers.
Such user-unfriendly approach (which is akin to hostile approach) adopted by the authorities concerned towards taxpayers imposes unnecessary obligations on the taxpayers, instead of adopting a simple process to facilitate easy payment of tax.
Their unfriendly attitude runs counter to the taxpayer-friendly policy adopted by most of the countries subscribing to democracy. It is therefore incumbent on the authorities concerned to change their unpopular attitude towards taxpayers, who are making an invaluable contribution to the well-being of the national economy.
Instead of the cumbersome formula for arriving at the amount of “chargeable gain exempt from tax” for any disposal of real property, one is puzzled why a much simpler formula is not recommended for calculating the flat rate of 5% gains tax payable.
The cumbersome formula is a circuitous way of arriving at the 5% gains tax payable. One will note that it starts with the calculation of the amount of “chargeable gain exempt from tax” under Schedule 5 of the RPGT
Act. Then the formula works out the “taxable gain” other than the chargeable gain exempt from tax“, before sorting out the 5% gains tax payable.
In fact, one could easily arrive at the flat rate of 5% gains tax payable by way of “multiplying the chargeable gain by 5%” [after deducting the minimum exemption of RM10,000 or 10% of the gains, whichever is higher].
The “chargeable gain exempt from tax” is not the concern of any seller. He is only concerned with the flat rate of 5% gains tax payable by him on the disposal of the property. The authorities concerned should resort to other channel for ascertaining the “chargeable gain exempt from tax” if they require such information.
The authorities concerned ought to allow taxpayers to use the simple formula for calculating the gains tax payable for any disposal, in place of the cumbersome formula, which should be discarded in its entirety. This is because it does not serve the purpose of facilitating easy payment of gains tax. Instead, it creates unnecessary difficulty to taxpayers and their solicitors. It is a real waste of time and expense for taxpayers and their solicitors to engage in such futile exercise.
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