When it comes to investments to build wealth in Malaysia, no other method is as popular as property investing, be it residential or commercial land/buildings or lots. However, properties are also an integral part of people’s lives, as places of living & places of work.
Therefore, although property investment is allowed, the government is also required to keep the property speculators in check to let people have the chance to own their own property (usually their 1st house). Hence, the introduction of Real Property Gains Tax (RPGT), or Cukai Keuntungan Harta Tanah (CKHT) in Malay, a capital tax governed by LHDN to curb property speculation.
In this series of blogs, we will introduce to you the basic aspects of RPGT. This blog will cover the definitions & calculations to arrive at a chargeable gain.
We must 1st determine what is considered “real property” and chargeable to RPGT. As mentioned above, LHDN considers all land & building (even parts of a larger building) as real property and chargeable to RPGT, regardless of their use as residential or commercial. This means landed properties, office spaces, shop lots, farmland etc.
LHDN also considers real property companies (RPC) as real property and chargeable to RPGT. RPCs are companies whose total tangible asset is mostly (≥75%) made up of real property or shares in another RPC.
Any disposals of these assets will be chargeable, and an RPGT assessment has to be filed with LHDN within 60 days of the disposal date. The gains will be assessed in the year of the disposal. The date of disposal is clearly defined by LHDN, as it affects the tax rate applied by the disposer.
“Date of disposal” is the date of agreement if a written agreement of disposal is made. In case no written agreement is made, the disposal date will be the earlier of:
- the date on which ownership of the asset is transferred by the disposer; or - the date on which all consideration for the transfer has been received by the disposer.
“Date of acquisition” meanwhile, is simply the date of disposal of the disposer who transferred the asset to the acquirer.
To allow for a fairer assessment, LHDN allow some expenses to be deductible when arriving at the chargeable gains of which the RPGT rate will be applied to.
On the disposal side, the consideration received in money/money’s worth for the disposal of the asset can be reduced by:
- incidental costs of disposal such as fees & commissions for professional services; and
- expenditure incurred to preserve or enhance the value of the asset; and
- expenditure incurred to preserve or defend the disposer’s title/right over the asset.
The final figure arrived from this calculation is the disposal price.
On the acquisition side, consideration paid in money/money’s worth for the acquisition of the asset will be increased by the incidental cost of acquisition such as fees & commissions for professional services, but will be reduced by:
- a depreciation of an asset (that is already charged to income tax); and
- compensation received for damage to the asset (including insurance payouts); and - deposit forfeited by previously cancelled disposal.
The final figure arrived from this calculation is the acquisition price.
The difference between the disposal price & acquisition price is the chargeable gain, which will then be applied to the associated RPGT rate. In case the acquisition price is larger than the disposal price, an allowable loss will arise.
Such allowable loss shall be allowed as a reduction to reduce the total chargeable gain of a person for a year of assessment in which the disposal was made.
The loss will be absorbed by any chargeable gains within the year in priority, with the remainder of losses carried forward until fully absorbed.
RPGT is a massive consideration when purchasing property, either for use or merely as an investment. The consequences of not submitting RPGT returns or submitting incorrect returns can be severe, as the penalties charged are scaled to the transaction amount. When dealing with properties, which often value in the ten/hundred thousand or even millions, the penalties will quickly rack up. Therefore, it is imperative that you are well aware of the RPGT filing and the associated rates.
With that, ends this blog! Look for the 2nd blog in this series to learn more about RPGT exemptions & RPGT rates.
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RPGT Guidelines 2023 (Translated by EY): https://www.ey.com/en_my/tax-alerts/updated-real-property-gains-tax-rpgt-guidelines