TOPIC 4 RPGT

June 1, 2020 DPA5033 MALAYSIAN TAXATION 2

CHAPTER 4: REAL PROPERTY GAIN TAX

At the end of this chapter, you should be able to:

4.1 Understand the meaning of RPGT
4.2 Understand chargeability of RPGT
4.3 Understand the treatment of gift
4.4 Explain date of disposal and date of acquisition

4.0 INTRODUCTION
This chapter focuses on the taxation of real property transaction in Malaysia. It
concentrates on the two aspects of property taxation, namely:-

i. Taxation of capital gains from disposal of real property, and
ii. Taxation of property developers

4.1 UNDERSTAND THE MEANING OF RPGT

4.1.1 Rephrase the administrative of RPGT

The Real Property Gains Tax (RPGT) Act 1976 came into force on 7th November 1975 to
replace the repealed land Speculation Act 1974. The RPGT is the only capital gains tax on
disposal of real property situated in Malaysia.

Disposal of chargeable assets from 1 April 2007 to 31 December 2009 was exempted from
RPGT under the Real Property Gains Tax (Exemption)(No 2)Order 2007. It was revoked
by the Real Property Gains Tax (Exemption)(No 2)Order 2009-PU(A)486/2009.

Disposal of chargeable assets from 1 January 2010 would be chargeable to RPGT, subject
to exemptions provided under PU (A) 486/2009 and effective 1 January 2012 revoked by
PU (A) 434/2011.

4.1.2 Definition

“Real Property” is defined as any land situated in Malaysia and any interest option or other
right in or over such land.

Section 2 of the RPGTA defined land as:-

a) surface of the earth and all substances forming that surface;
b) the earth below the surface and substance therein;

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c) buildings on land and anything attached to land or permanently fastened to
anything attached to land whether on or below the surface;

d) Standing timber, trees, crops and other vegetation growing on land; and
e) Land covered by water.

“Option” includes an option in a case where:

a) the grantor binds himself to sell what he does not own and, because the option
is abandoned never has occasion to own;

b) the grantor binds himself to buy what , because the option is abandoned he
does not acquire

“Dispose” means sell, convey, transfer, assign, settle or alienate whether by agreement or
by force of law.

“Acquire” is defined to include acquire by way of purchase, grant, exchange, gift,
settlement or otherwise.

4.1.3 Chargeable Person

Every person whether or not resident in Malaysia for the year of assessment shall be
chargeable to RPGT in respect of a chargeable gain on the disposal of any chargeable asset
in that year.

a. Partnership or body or person
b. Co-proprietorship
c. Incapacitated persons
d. Non resident
e. Rulers and ruling chief
f. Companies
g. Hindu Joint Family
h. Executor
i. Trustees
j. Acquirer

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4.2UNDERSTAND THE CHARGEABILITY OF RPGT RM
xx
4.2.1 Prepare the computation acquisition price and disposal price (xx)
(xx)
DISPOSAL PRICE (xx)
Received from disposal xxx

Less:
Paragraph 5(1)(a) :
Expenses wholly and exclusively incurred in enhancing or preserving
the value of the assets, such as alterations, improvement and extensions.
Paragraph 5(1)(b) :
Expenses incurred in defending the title to the assets
Paragraph 5(1)(c) :
Incidental expenses such as fees, commissions, professional fees to
accountants, lawyers, surveyors architect and cost of transfers
(including stamps duties) advertising, costs to find purchasers and costs
of any valuation or market value.
*** DISPOSAL PRICE

ACQUISITION PRICE RM
Payment for acquisition xx

Plus : Incidental Expenses xx
-Lawyer’s fees, commissions, remuneration for professional services of xx
accountants, surveyors, valuer architects xx
-Expenses of transfers (including stamp duties) xx
- Costs of advertising xxx
- Interest paid on capital employed to acquire the assets (xx)
- Any amount paid or to be paid in respect of Goods and Services Tax
(GST) by the disposer if he is not liable to be registered OR if he is a (xx)
registered and is not entitled under the GST Act 2014 to credit that (xx)
amount as input tax xxx

Less:
Paragraph 4(1)(a) :
Compensations or receipts for any damage or injury, destruction,
dissipation, depreciation or risks of depreciation of the chargeable
assets
Paragraph 4(1)(b) :
Insurance policy receipts for any damage or injury
Paragraph 4(1)(c) :
Deposits forfeited , if any respects of an aborted sale of an assets
***ACQUISITION PRICE

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RPGT XX
(XX)
Disposal Price XX
Less: Acquisitions Price (10000) ##only for individual
XX
Gain/Loss from disposal X%
(-) exemptions Sec 4: 10% or RM10 000 (higher) XX
Gains subject to RPGT
RPGT Tax Rate
***RPGT Payable

4.2.2 Disposal Price

The disposal price of assets is the consideration received less any of the following
expenses:-

1) Expenses wholly and exclusively incurred in enhancing or preserving the value
of the assets such as alterations , improvements and extensions

2) Expenses incurred after acquiring the assets , in respect of preserving or
defending the title to the assets

3) Incidental expenses relating to the disposal of the assets which consists of :-
a) fees, commissions or remuneration paid for the professional services of
any surveyor, value, accountant, agent or legal adviser
b) costs of transfer including stamp duty
c) Costs of advertising to find buyers, and costs reasonably incurred for the
purposes of the RPGT Act in making any valuation or in ascertaining
market value.

4.2.3 Acquisition Price

1. The acquisitions price of assets is the considerations paid plus any incidental costs or
expenses that are relevant such as :-
a) Fees, commissions, remunerations paid for professional service, e.g accountants,
lawyers, surveyor’s architect
b) Costs of transfers e.g stamp duty
c) Costs of advertising to find sellers.
d) Any amount paid or to be paid in respect of Goods and Services Tax (GST) by the
disposer if he is not liable to be registered OR if he is a registered and is not entitled
under the GST Act 2014 to credit that amount as input tax

2. Any revenue expenses that can be claimed under ITA 1967 will not rank for deduction
in arriving at the acquisitions price such as interest on money borrowed to buy the

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property. SCH 2, Paragraph 4 also provides that in computing the acquisitions price ,
the following receipts must be deducted :-
a) Compensation or similar receipts for any damage, injury or destruction to the

assets
b) Receipts under an insurance policy for any damage, injury to the assets , and
c) Any deposits forfeited in respect of the assets.
3. Incidental Cost consists of :-
a) Fees, commissions or remuneration paid for the professional services of a

surveyor, value, accountant, agent or legal adviser.
b) costs of transfer including stamp duty
c) cost of advertising to find a seller
d) Interests paid on capital employed to acquire the assets is excluded from incidental

cost effective from 1st January 2010.

4.2.4 Chargeable Gain

Chargeable gains will arise when the disposal price of the chargeable asset is higher than
the acquisition price. On the other hand if the disposal price is lower than the acquisition
price, an allowable loss will arise.

RPGT is computed on a scale rate depending on the length of ownership of the chargeable
asset. The relief for allowable losses is given as a deduction from the total tax assessed on
the chargeable gains of a taxpayer for the year assessment in which the lost arise.

Any amount of unabsorbed tax relief for losses may be carried forward to future years.
The tax relief for losses is computed at the rate of tax applicable to the category of disposal
giving rise to the loss.

4.2.5 Allowable Loss

Prior to 1 January 2010

In cases where a loss arises (that is the acquisition price exceeds the disposal price)
then the allowable loss qualifies for relief as a set-off against future gains, The tax loss
relief is given a special treatment, that is, it is allowed as a deduction from the total tax
assessed on the chargeable gain of a taxpayer for the taxpayer for the year assessment
in which the loss arises.

From 1 January 2010

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A relief is given to an allowable loss by deducting it from the total chargeable gains for
the year of the loss. Any amount that cannot be off-set due to an insufficiency of
chargeable gain can be carried forward and offset in future years. This treatment
differs from the previous loss relief which required the allowable loss to be multiplied
by the rate that would have applied for that year if it had been a chargeable gain. Relief
for the losses was given against tax on chargeable gains in the same or a future year.

Exercise 1:

Mr Blacky is a businessman that runs business in land and property. The disposal of
property that belongs to him in the year 2017 are as below:

a) Asset : Oil Palm at Sg Boh, Serkat Pontian Johor. 30th May 2014
Date of acquisition

Date of disposal 29th February 2017

Purchase Price RM 320,000

Incidental Costs On Acquisition : RM 62,000
Incidental Costs On Disposal RM 30,000

Selling Price RM 270,000

b) Asset : Oil Palm at Merlimau Estate Melaka. 1st October 2012
Date of acquisition

Date of disposal 30th September 2017

Purchase Price RM 290,000

Cost Incurred:

Legal fees and stamp duty RM 35,000
- On acquisition RM 25,000
- On disposal RM 40,000
Compensation for damage
Improve the farm RM 100,000
Deposits by buyer forfeited in 2012 RM 70,000

Legal Expenses for protection of title of oil palm RM 15,000

Selling Price RM 550,000

You are required to:

Calculate the Real Property Gain Tax for each property for the year of assessment

2017.

4.3 UNDERSTAND THE TREATMENT OF GIFT

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4.3.1 Treatment of Gift

The treatments of gifts of assets are covered under Para 12 Schedule 2 RPGTA.
According to Para 12, disposals shall be deemed to be at the market value of the
assets except for gifts between husband and wife, parent and child or grandparent
and grandchild.

Exercise:( Gift within 5 years)

a) On 4.3.2016, Mr Salim gave his daughter, Cik Maria one of his houses which he
purchase on 1.8.2011 for RM 190,000. The permitted expenses amounted to RM
4,000. The market value of the house on 4.3.2013 was RM 210,000. Since it was
a gift from the parent to his child, there is no chargeable gain or allowable loss
from the transfer of the above property.

b) On the occasion of her daughter’s UUM graduation on 14.3.2016. Mr. Kam gave
a flat which he purchased on 2.8.2007 for RM 215000. The market value on
31.3.2016 was RM 430,000.

c) For the wedding on 2.4.2016, Mr.Kam gave her an apartment which he
purchased in 2012 for RM 380,000. Explain the RPGT treatment of the above
transaction from the positions of both the parties. i.e Mr Kam and his daughter.

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Disposal price Deemed at Market Value.

Sch 2, Paragraph 5 provides the rules for the determining the disposal price. However there
are certain circumstances where the disposal price shall be deemed at market value.
Under Sch 2, Paragraph 9, the consideration in the following is equal to market price:

 Where the assets are disposed of other than at bargain made at arm’s length or by way of
gift

 The disposal of the asset for a consideration that cannot be valued
 The disposal of the asset for a consideration with loss of employment or for recognition of

past services,
 Transfer of real property for satisfaction of debt
 Lump sum disposal of chargeable assets or

 Where the transaction has the direct or indirect effect of altering the incidence of
tax, relieving any person from any liability, evading or avoiding any duty or liability
and hindering the operation of the RPGT Act.

4.3.2 Exemption to Individuals/ Exemptions of RPGT

Certain gains on disposal of chargeable assets are exempted from RPGT which are
specifically provided under Schedule 4. The exemptions are:-

a. An amount of RM10 000 or 10% of the chargeable gains , whichever is
greater in respect of a chargeable gain accruing to an individual on the disposal
of a chargeable assets which is not or was not part of a larger chargeable assets
at the time of the disposal.

b. It is provided that chargeable asset disposed by a co-proprietor would qualify
for this exemption

c. A gain accrued in respect of the disposal of a chargeable asset before the date
of coming into force of the RPGT Act

d. A gain accrued to the government , a State Government or a local authority
e. A gain equal to the amount of estate duty payable on the disposal of a

chargeable assets belonging to deceased for the purpose of paying the estate
duty. It is provided that the Director General must be satisfied that the disposer
is compelled to dispose the asset in order to pay the estate duty.
f. Transfer of assets between spouses

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4.4 DATE OF DISPOSAL AND DATE OF ACQUISITION
A disposal of an asset shall be deemed to have taken place:-

a) Where there is an agreement for the disposal of the asset, on the date of such
agreement, or

b) Where there is no agreement, on the date of completion of the disposal of the
asset.

The date of acquisition of the asset by the acquirer shall be deemed to coincide with
the date of disposal of that asset by the disposer to that acquirer.

The date of completion of a disposal means:-

a) The date on which the ownership of the asset disposed of is transferred by the
disposer, or

b) The date on which the whole of the amount or value of the consideration in
money or money’s worth for the transfer has been received by the disposer; or
whichever is the earlier.

The transfer of ownership of an asset is deemed to take place on the date when the last
of all such things shall have been done under any written law as are necessary for the
transfer of ownership of the asset.

4.4.1 Private Residence exemption

A gain shall be exempt from RPGT if it accrues to an individual who is a citizen or an
individual who is not a citizen but is a permanent resident in respect of the disposal by
him of his private residence.

A private residence is defined in paragraph 4 of Schedule 3 as a building or part of a
building in Malaysia owned by an individual and occupied or certified fit for occupied
as a place of residence.

To qualify for the exemption for private residence, the following must be satisfied:-

a. The individual must elect for such exemption
b. The election must be in writing and is irrevocable
c. No further exemption once the election is made, and
d. No exemption has been elected by that individual under the Land

Speculation Act 1974

Effective year 01-10-2005 exemption on residential property will be given to both
husband and wife, on one residential property each.

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4.4.2 Transaction of No Gain No Loss

The following are the cases where the disposal price of an asset shall be deemed to be
equal of the acquisition price:-

a. The devolution of the assets of a deceased person on his executor or legatee under a
will or intestacy or on the trustees of a trust created under this will

b. Transfer between spouses
c. Transfer of assets owned by individual and/or wife to a company controlled by the

transferor and a connected person for a consideration consisting substantially of
shares (at least 75%) and the balance in cash.
d. Transfer to/from nominee/trustee
e. Transfer by way of security
f. Gift made to the Government, a State Government, a local authority or a charity exempt
from income tax
g. Disposal of an asset as a result of a compulsory acquisition
h. Disposal of an asset by a person to an Islamic Bank under a scheme where that person
is financed by such bank in accordance with the Syariah.
i. Gift between husband and wife, parent and child or grandparent and grandchild.

4.5 RATES OF TAX (SCHEDULE 5)

Holding Citizen or Permanent Non-Citizen or Non-
Period Company Permanent Resident

Resident 30%
30%
within 1 year 30% 30% 30%
30%
within 2 years 30% 30% 30%
5%
within 3 years 30% 30%

within 4 years 20% 20%

within 5 years 15% 15%
Beyond 5 years 0% 5%

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TUTORIAL EXERCISE

QUESTION 1

a. Indicate FIVE (5) exemptions of Real Property Gains Tax.
b. Daniel, a Malaysian citizen, acquired a bungalow on 1st October 2012 for RM 550,000

in Melaka. The legal fee incurred for the acquisition was RM 50,000. On 30th June 2013,
the bungalow was cracked and Daniel managed to claim damaged from the developer
for RM120,000. The bungalow was put on sale on 1st December 2015 and received RM
80,000 deposit, but the sales was not successful and the deposit was forfeited.
On 30th January 2016, Daniel sold the bungalow to Maria for RM 800,000. Daniel also
incurred RM 12,300 for valuation fee, RM 3,000 for advertising cost, and RM 15,000
for brokerage fee.
Based on the above statement, calculate the Real Property Gains Tax for Daniel.

QUESTION 2

(a) State THREE (3) types of ‘no gain no loss’ transactions under paragraph 3 of Schedule

2, Real Property Gains Tax Act 1976. (3 marks)

(b) Mr. Tan is a director of a company located in Johor Bahru. He is a Malaysian citizen who
is a resident in Malaysia in the basis year 2017. In 2014, Mr. Tan bought a completed
unit of commercial property in Johor Bahru from a developer. On 3rd January 2014, he
paid a deposit of RM50, 000 and signed the sale & purchase agreement on that date.
The balance of the purchase price was paid through a bank loan of RM450, 000.

Mr. Tan also incurred the following expenditures in respect of the commercial

property:

i. Stamp duty and lawyer’s fee on the sale and

Purchase agreement RM 05, 500

ii. Repainting of front office RM 01, 200

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iii. Purchase of furniture and fittings RM 10, 000
iv. Expansion of office area RM 19, 000

The commercial property was let out to business operator in that area for RM1, 500
per month. In May 2015, Mr. Tan received RM23, 000 from a house and property
developer as compensation for damages to his property caused by construction work
on a nearby housing area.
Mr. Tan tenure as a director of the company expired on 30th June 2016 and he did not
seek re-appointment due to family matters. In July 2016, he returned to his home town
in Penang, in order to spend more time with his family. After giving serious thoughts
to sell the property, he finally, forked out an amount of RM2, 000 to advertise the
property in a newspaper. On 20th November 2016, he received a deposit of RM7, 000
from a potential buyer who eventually call off the deal. Hence, Mr. Tan forfeited the
potential buyer’s deposit.
On 2nd January 2017, Mr. Tan successfully sold the property (evidenced by the sale and
purchase agreement). As a consideration for disposal of the commercial property, he
received the following payments from the buyer:

15th December 2016 Deposit of RM18, 000

02nd January 2017 Partial payment of RM242, 000

23rd March 2017 Final payment of RM440, 000

Mr. Tan paid a sum of RM7, 500 as the legal cost and stamp duty in relation to the

disposal of his property in Johor Bahru.

You are required to:

Compute the real property gains tax payable, if any, by Mr. Tan for the year of

assessment 2017

(22 marks)

QUESTION 3

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Firdhaus Sdn Bhd (FSB) has been involved in furniture trading since 1995. The accounts are
prepared up to 31 st December annually. Due to financial difficulties, the company disposed
some of its property through 2016.

On 15th August 2017, FSB sold its property in Selayang (property 1) for RM250 000.

Incidental costs incurred in respect of these disposal were legal fees (including stamp duty)

and valuation fee RM4 500 and RM2 500 respectively. The property was initially bought on

1st. August 2013 for consideration of RM195 000. However, due to certain technicalities, the

legal transfer was completed on 15th September 2013. Other expenses incurred from date of

purchase to 15th August 2076 are as follows.

Date Item RM

15/9/2013 Legal fees and stamp duty (on 5 000

acquisition)

3/3/2015 Repair and renovation 15 000

4/4/2015 Legal fees (on defending title) 8 000

5/5/2015 Compensation received 15 000

Meanwhile, the relevant information relating to disposal made in 2017 are as follows:-

Property II Property III Property IV

Date of acquisition 7/3/2013 1/8/2014 10/5/2015

Date of disposal 30/10/2017 31/7/2017 25/11/2017

Acquisition price RM200 000 RM150 000 RM250 000

Disposal price RM250 000 RM130 000 RM280 000

REQUIRED :-
Compute the real property gains tax payable(if any) by Firdhaus Sdn Bhd. ,for the year
asessment 2017.

(25 Marks)

QUESTION 4

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(a) List TWO (2) situations where transfer is treated as gift according to Real Property Gain

Tax Act 1976. (4 marks)

(b) List TWO (2) exemption received by an individual who disposes chargeable assets

according to Real Property Gains Tax Act 1976. (4 marks)

(c) Puan Wani bought a double-storey house with purchase price of RM 450,000 on 20 May
2014. The process completed on 1 May 2014 with professional fees of RM 12,000 and
advertisement expenses of RM 2,600.

In 2015, she received a RM 22,500 compensation for flood from the insurance company.
After that, she made some renovation to the house that cost RM 27,000. Besides that she
also paid for the legal fee in defending the title to the house amounted RM 4,000.

She decided to sell the house due to financial problem for a consideration price of RM

500,000. The disposal complete on 15 July 2017 with incidental costs of RM 7,500. Based

on the above statement, you are required to calculate the real property gains tax payable

by Puan Wani for year of assessment 2017. (17 marks)

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