REAL PROPERTY GAIN TAX CHAPTER 6 IMPORTANCE NOTE OF CHARGEABLE ASSETS

1. Land include a. The surface of the earth and all substances forming that surface. b. The earth below the surface and substances therein. c. Building or structures attached to land. d. Standing timber, crops and other vegetation growing on land e. Land covered by water. 2. Who is chargeable: a. Every person whether resident or non-resident in Malaysia. b. Partnership c. Incapacitated person d. Non resident e. Rulers and ruling chiefs f. Companies g. A Hindu Joint Family h. Executors i. Trustees 3. Computation of RPGT CALCULATION DISPOSAL PRICE Receive from disposal Less: Paragraph 5(1)(a) Expenses wholly and inclusively incurred, in enhancing or preserving the value of the assets, such as alterations, improvements and extensions. Paragraph 5(1)(b) Expenses incurred in defending the title of the asset. Paragraph 5(1)(c) Incidental expenses such as fees, commissions, professional fees to accountants, lawyers, surveyors architect and cost of transfer (including stamp duties), advertising costs to find purchasers and cost of any valuation or market value. DISPOSAL PRICE

xx

xx

xx

xx

xxx

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REAL PROPERTY GAIN TAX CHAPTER 6

CALCULATION ACQUISITION PRICE Payment for acquisition Plus: Incident Expenses Lawyers fees, commission, remuneration for professional service of accounting, surveyors, valuer architects Expenses of transfer (including stamp duty) Cost of advertising Interest paid on capital employed to acquire the assets [cannot reduce y/a 2010 Less: Paragraph 4(1)(a) Compensation or receipts for any damage or injury, destruction, dissipation, depreciation or risk of depreciation of the chargeable asset. Paragraph 4(1)(b) Insurance policy receipt for any damage or injury Paragraph 4(1)(c) Deposits forfeited, if any in respect of an aborted sale of an asset ACQUISITION PRICE

xx

xx xx xx -

(xx)

(xx) (xx) xxx

CALCULATION CHARGEABLE GAIN CHARGEABLE GAINS (Disposal price Accumulated price) (-) Exemption RM10,000 @ 10% -- choose higher CHARGEABLE GAIN CALCULATION EXEMPTION Companies ( 5%) () ( ) Individual ( 5%) () ( ) CALCULATION NET CHARGEABLE GAIN Chargeable Gain (net) = Chargeable Gain (A or B) Exemption (C) CALCULATION RPGT RPGT = Chargeable gain (net) x RPGT Tax Rate @ = Chargeable gain x 5%

A (xx) B

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REAL PROPERTY GAIN TAX CHAPTER 6

4. Disposal price The disposal price of an asset is the consideration receives less any of the following expenses: a. Expenses wholly and exclusively incurred in enhancing or preserving the value of the asset such as alterations, improvement or extensions. b. Expenses incurred, after acquiring the asset, in respect of preserving or defending the title to the asset c. Incidental expenses relating to the disposal of the asset (fees, commissions, lawyers, surveyors, etc). d. Advertising cost to find buyer 5. Acquisition price The acquisition price of an asset is the consideration paid plus any incidental cost of expenses that are relevant such as: a. Fees, commissions, remuneration paid for professional service e.g. accountants, lawyers, surveyors, architects b. Cost of transfer e.g. stamp duty c. Cost of advertising to find sellers Any revenue expenses that can be claimed under ITA 1967 will not rank for deduction in arriving at the acquisition price, such as interest on money borrowed to buy the property. The following must be deducted: a. Compensation or similar receipts for any damage, injury or destruction to the asset b. Receipts under an insurance policy for any damage, injury to the asset c. Any deposits forfeited in respect of the asset

6. Chargeable gain Chargeable gains disposal price > acquisition price Real property gains tax is computed on a scale rate depending on the length of ownership of the chargeable asset.

7. Allowable loss and loss relief Allowable loss disposal price < acquisition price No chargeable gain and no RPGT payable from the disposal. An allowable loss in respect of a disposal, a tax relief shall be allowed. The relief given as a deduction from the total tax assessed on the chargeable gains of a taxpayer for y/a in which of the loss arises if disposal in 5 years.

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REAL PROPERTY GAIN TAX CHAPTER 6

8. Exemption to individual Every individual (included non-resident) will given exemption on RPGT Exemption RM10,000 @ 10% of the chargeable gain 1/4/2007 31/12/2009 all disposal of landed properties are is exemption tax

9. Date of disposal and date of acquisition The disposal of an asset shall be deemed to take place: a. Where there is an agreement for disposal or acquisition, on the date of such agreement b. Where there is no agreement on the date of completion of the disposal of the asset c. In the case of conditioned contracts, the disposal date is the date of the contract. In the case where are a contract is revoked but subsequently renewed, the date of the disposal is the date when the contract was renewed. d. The acquisition of an asset by an acquisition

10. Tax rate Category of Disposal Company (starting from 27/10/95) 30% 20% 15% 5% 5% Other excluded company (starting from 1/1/2010) 30% 20% 15% 5% 5% (w.e.f y/a 2010) Non Resident or non citizen (disposal since 17/10/97) 30% 30% 30% 30% 5%

Where the chargeable is disposed of within 2 years of acquisition If disposed of in the 3rd year after acquisition date If disposed of in the 4th year after acquisition date If disposed of in the 5th year after acquisition date If disposal of in the 6th year after acquisition and there after

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REAL PROPERTY GAIN TAX CHAPTER 6 EXAMPLE AND SOLUTION

1. DISPOSAL PRICE Example 6-1 Hello sdn. Bhd. Disposed of a chargeable asset on 3.3.2010 for a consideration of RM1,250,000. The disposal price is arrived at as follows : RM Consideration received (3.3.2010) (-) Para 5(1)(a) Alterations and extensions Para 5(1)(b) Legal expenses for protection of title of asset Para 5(1)(c) Incidental expense Disposal price of asset 90,000 35,000 16,000 RM 1,250,000

(141,000) 1,109,000

When a transaction is not at arms length (related parties), for example a sale from a husband to his wife, the disposal value of the land will be taken to be its market value and not the actual consideration paid.

2. ACQUISITION PRICE Example 6-2 Al Quyum Sdn. Bhd. Acquired a chargeable asset in 2010 for a consideration of RM600,000. The acquisition price, taking into consideration incidental costs and deductions, is computed as follow: RM Total consideration paid (+) Incidental Costs : Professional fees (valuer, lawyer) Stamp duty Other costs-advertising (-) Capital Receipts : Compensation for damage to asset by third property Insurance recovery Deposits forfeited by potential buyer Acquisition price of asset RM 600,000 44,000 34,000 35,000 713,000 82,500 243,000 60,000

(385,500) 327,500

Where land is held more than one owner and one of the co-owner diposes of his share in the land (which was vested in him as a result of portioning), he is deemed to have acquired the land at the acquisition price paid by him for this undivided share.

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REAL PROPERTY GAIN TAX CHAPTER 6

3. CHARGEABLE GAINS Example 6-3 Encik Jay and Encik Why jointly acquired a three-arce piece of agricultural land on 7.8.2007 for RM90,000. The payment made by them were RM50,000 and RM40,000 respectively. The title to the land was jointly held by them. On 13.1.2010, the land was sub-dividend and the title for a two-acre piece was given to Encik Jay and the balance one acre was given to Encik Why. On 15.3.2010, Encik Jay sold the two-acre piece of land held in his name for RM70,000. Comment on the events that took place. Solution : The sub-division of the land on 13.1.2010 would not be considered a disposal and acquisition of land by Encik Jay and Encik Why. Encik Jay is deemed to have acquired the two-acre of land on 7.8.2007 for RM50,000. RPGT payable by Encik Jay (on the disposal of the land on 15.3.2010) will be calculated as follows : 7.8.2007 - 6.8.2008 7.8.2008 - 6.8.2009 7.8.2009 - 15.3.2010 (considered 3 years) RM 70,000 (50,000) 20,000 (10,000) 5,000

Disposal price (15.3.2010) Acquisition price (7.8.2007) Chargeable gain (-) Exemption Sch 4 : 10,000 or (10% x 20,000 = 2,000) Net chargeable gain

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REAL PROPERTY GAIN TAX CHAPTER 6

4. ALLOWABLE LOSS AND LOSS RELIEF Example 6-4 (disposed within 5th years) In 15.4.2007, Puan ABA had purchased a piece of land in Seremban for RM1,000,000 with transferred cost amounted to RM 24,000. She disposed a land in 10.2.2010 for RM1,000,000. Cost of renovation RM250,000 and incidental cost during disposal is RM11,400. Apart from that she also obtained fire insurance fund amounted to RM62,600. y/a 2010 Received amount (+) renovation cost Disposal price Paid amount (+) transferred cost (-) Fire insurance Acquisition price Allowable loss RM 1,000,000 250,000 750,000 1,000,000 24,000 1,024,000 (62,600) 961,400 (211,400)

Puan ABA disposed a land at Jitra for RM200,000 in year 2011. She bought a land on year 2008 for RM150,000. y/a 2011 Disposal price (-) acquisition price Chargeable gain (-) exemption (10%x50,000=5000@10,000) higher Chargeable gain (-) allowable loss for y/a 2010 (disposed in 5th years) RM 200,000 (150,000) 50,000 (10,000) 40,000 (40,000) *(211,400-40,000=171,400 transfer to y/a 2012 NIL

Chargeable gain

*any unabsorbed tax relief for losses may be carried forward to future year indefinitely. (disposed asset within 5th years)

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REAL PROPERTY GAIN TAX CHAPTER 6

5. TAX RATE Example 6-5 (Disposal within 5th years) ZZ Sdn BHd membeli rumah kedai pad a24.02.2007 dengan harga RM240,000 dan menjual rumah kedai tersebut pada 04.02.2010 pada harga RM300,000. Tempoh pegangan harta tanah adalah 3 tahun, maka pelupusan tersebut tertakluk kepada kadar cukai 20%.

NIlai balasan Tolak: Harga perolehan Keuntungan daripada pelupusan Keuntungan yang dikecualikan (60,000 x 20%) (60,000 x 5%) x 60,000 = 45,000 (60,000 x 20%) Keuntungan yang diperoleh dikenakan cukai: (60,000 45,000) = 15,000 Cukai yang dikenakan: 15,000 x 20% = 3,000

RM 300,000 (240,000) 60,000

Example 6.6 (Disposed after 5 years) Zz Sdn Bhd to buy houses with shops on 24.02.2005 at RM 240,000 and sold the shop on 04.02.2010 at RM 300,000. The real estate holdings is 5 years, the sale was subject to a tax rate of 5%. The income is taxed using the following formula: Value of Consideration Less: Cost Gain on disposal Tax charged: 60.000 x 5% = 3,000 300,000 (240,000) 60,000

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REAL PROPERTY GAIN TAX CHAPTER 6

Example 6.7 (disposed within 5 years) Mr.Ahmad acquired a piece of land amounted RM 250,000 on 3.1.2007.He sold the land to Mr.Salih for RM 450,000 on 16.3.2010 What were Mr.Ahmad chargeable gain on the disposal of the land? Disposal price RM450,000 Acquisition Price (RM250,000) Chargeable Gain RM200,000 Solution: Date of disposal : 16.3.2010 Date of acquisition : 3.1.2007 Period of ownership is more than 3 years (considered 4 year) 3.1.2007-2.1.2008 (1 yr) 3.1.2008-2.1.2009 (1 yr) 3.1.2009-2.1.2010 (1 yr) 3.1.2010-16.3.2010 (2+month)

Disposal took place in the 4 year thus the rate applicable is 15%.Since Mr.Ahmad is an individual he is entitled to claim excemption under sch 4 the higher of 100% of chargeable gains or RM10,000.

Chargeable gain (-)sch 4 excemption (RM 10,000 or 10% x 200,000= 20,000) higher Net Chargeable Gain Excemption =(180,000x 15%) (180,000 x 5 %) x 180,000 180,000 x 15 % =RM120,000 Chargeable Gain (net) = 180,000 -120,000 = RM 60,000 RPGT payable= RM 60,000 x 15% = RM9,000 @ RM 180,000 x 5% = RM 9,000

RM200,000 (RM20,000) RM180,000

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REAL PROPERTY GAIN TAX CHAPTER 6

EXAMPLE 6-8 (Disposal after 5th years) Mr Ahmad acquired a piece of land amounted RM250,000 on 3.1.2004. He sold the land to Mr Salih for RM450,000 on 16.3.2010. What were Mr Ahmads chargeable gains on the disposal of the land? SOLUTION Disposal Price Acquisition Price Chargeable Gain RM450,000 (RM250,000) RM200,000 RM 200,000 (RM20,000) RM180,000

Chargeable Gain (-) Sch 4 exemption (RM10,000 or 10% x 200,000 = 20,000) higher Net Chargeable Gain RPGT = 180,000 x 5% = RM9,000

6. TREATMENT OF GIFTS Example 6-9 On 4.3.2010, Encik Halim gave his daughter, Cik Amy one his houses which he purchased on 1.8.2007 for RM190,000. The permitted expenses amounted to RM4,000. The market value of the house on 4.3.2010 was RM210,000. 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. SOLUTION RM Disposal price deemed to be (RM190,000 + RM4,000) Less : Acquisition price Add : Permitted expenses CHARGEABLE GAIN/ALLOWANCES LOSS 190,000 4,000 RM 194,000 (194,000) Nil

The acquisition price to Cik Amy is therefore RM194,000, which is the disposal price to Encik Halim. If Cik Amy obtained the property as a gift to the death for her father, the acquisition price to her would be the market value on the date transfer of ownership of the property to her, that is RM 210,000.

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REAL PROPERTY GAIN TAX CHAPTER 6

Example 6-10 On the occasion of her daughters ACCA graduation on 31.3.2010, Mr Kim gave her a flat which the purchased on 2.8.1998 for RM215,000. The market value on 31.3.2010 was RM430,000. For the weeding on 2.4.2010, Mr Kim gave her an apartment which he purchased in 2006 for RM380,000. Explain the RPGT treatment of the above transaction from the positions of both the parties, i.e Mr. Kim and his daughter. SOLUTION The graduation gift (i.e the flat) is deemed to be a disposal (after 5 years) and Mr Kim is deemed to have disposed of the flat at market value. Mr. Kim would not be liable for RPGT as the rate of RPGT after 5 years is nil. Hia daughter is deemed to have acquired the flat at market value (i.e RM430,000). The weeding gift (i.e the apartment) falls within the proviso as it was a gift from parent to child made within 5 years after acquisition. Therefore, Mr Kim is deemed to be in a no gain no loss situation in respect of the apartment. She is deemed to have acquired the apartment at the acquisition price paid by her father (RM380,000).

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REAL PROPERTY GAIN TAX CHAPTER 6

ASSIGNMENT AND SOLUTION ASSIGNMENT 6-1 Al Qawi Sdn Bhd sold the following properties over the years:\ House This properties was sold for RM150,000 on 4.7.2004. it was purchase for RM43,000 on 9.3.1985. Legal fees of RM500 were incurred in connection with the purchase. Stamp duty on purchase was RM4,000. In 1969 an extension to the house was built at a cost of RM15,000. On 5.4.2003 the company received the sum of RM80,000 as compensation for damages caused to the house. The market value of the house as at 1.1.1995 was RM60,000. Shophouse This properties was sold for RM340,000 on 14.8.2010. The company incurred expenses as follows: Cost of purchase on 7.8.2005 Stamp duty on purchase Advertising for buyer Quit rent and assessment 2006 and 2007 RM400,800 RM6,000 RM200 RM2,500

Land This properties was sold for RM200,000 on 10.3.2010. it was purchase for RM130,000 on 5.6.2007 and the construction of building cost RM38,000 was incurred on 5.10.2007 REQUIRED a. b.

Compute the RPGT by Al Qawi Sdn Bhd for all the relavant y/as. State the situation that loss relief can be carried forward to future y/as.

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REAL PROPERTY GAIN TAX CHAPTER 6

ASSIGNMENT 6-4 Encik Al Salam had been informed that he would be transferred overseas for five years commencing from 1.4.2010. in sorting out his affairs, he was considering disposing of his real properties, details of which are as follow: a. Land in Gurun, Kedah This has been acquired on 12.3.2006 for RM230,000. He received a firms offer of RM280,000 for the land. b. House in Kelana Jaya, Selangor The house was acquired on 5.5.2002 at a cost of RM370,000 and co-owned with his wife; this had been and was still the family residence. The current market value was RM520,000. c. 5-acre agriculture land in Segamat, Johor This was an oil palm smallholding which Encik Al Salam acquired on 15.8.2007 at a cost of RM310,000. Other acquisition expenses were: Legal fees Stamp duty Estate agents commission RM1,800 RM4,200 RM5,200 RM11,200

Encik Al Salam had incurred a further RM60,000 on improvement to the land, e.g. roads and drains since it was purchase. In December 2007, a prospective buyer, Encik Al Malik placed RM20,000 with Enncik Al Salam as a non-refundable deposit but subsequently failed to raise the funds to complete the acquisition. Encik Al Salam has forfeited the said deposit. Recently, the owner of the neighboring lot offered RM400,000 to take over the land from Encik Al Salam. He was thinking of signing the sale and purchase agreement on 10.2.2010. REQUIRED For each transaction, state, giving reason, whether RPGT would be payable on the disposal of the properties.

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REAL PROPERTY GAIN TAX CHAPTER 6

ASSIGNMENT 6-8 Marini is the owner of four private residences. Due to final problems, she sold three of the house in 2010. The information relating to the disposal made in 2010 as follow: House 1 7.3.2005 RM195,000 30.10.2010 RM274,000 House 2 10.5.2006 RM195,500 25.11.2010 RM172,000

Acquisition Date Acquisition Price Disposal Date Disposal Price

On 15.3.2010, a house in Puchong was disposal of for RM301,000. 20% of the consideration amount was received on 1.2.2010. Other expenses incurred in respect of the disposal are as follow: Legal fee and stamp duty Valuation fee RM 9,000 RM 3,500

The house was bought on 1.8.2006 with the cash consideration of RM199,500 and the legal transferred was completed on 15.9.2006. The relevant information of the house is as follows: Year 2006 2007 2008 2009 Item Legal fee House repair Deposit forfeited Compensation received on fire insurance RM 4,900 14,700 7,410 21,000

On the acquisition date, Marini paid stamp duty on the acquisition price amounting to 1% on the first RM100,000 and 2% on the balance. REQUIRED Compute the RPGT for Marini

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REAL PROPERTY GAIN TAX CHAPTER 6

ASSIGNMENT 6-9 Afnan is the owner for two bungalows in Jitra. He disposal for his assets in 2010 and provides you with the following information: Bungalows 1 1.1.2006 1.10,2010 RM200,000 RM10,000 RM20,000 RM15,000 RM360,000 Bungalow 2 1.3.2007 1.9.2010 RM300,000

Date of acuisition Date of disposal Cost Deposit by buyer forfeited in 2005 Incidential costs: - On acquisition - On disposal Selling price

RM30,000 RM20,000 RM450,000

REQUIRED a. Compute the RPGT by Afnan. b. Outline the tax consequences of the above transactions if the bungalows are by a company.

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REAL PROPERTY GAIN TAX CHAPTER 6

ANSWER ASSIGNMENT 6-1 House Shophouse Disposal price (-) Advertising Quit rent (-) Acquisition Stamp duty RM400,800 RM6,000 (RM406800) RM69,500

RM340,000 (RM200) (RM2,500) RM337,000

Chargeable loss :. No tax is imposed for losses

Land Selling price (-) Construction of building Disposal price (-) Acquisition price Chargeable gain Exemption =
RM 32,000 x 20% (RM 32,000 x 5%) (RM 32,000 x 20%)

RM200,000 (RM38,000) RM162,000 (RM130,000) RM32,000

x RM32,000

= RM24,000 Chargeable gain = RM32,000 RM24,000 = RM8,000 RPGT payable = RM8,000 x 20% = RM1,600 @ = RM2,000 x 5% = RM1,600

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REAL PROPERTY GAIN TAX CHAPTER 6

ANSWER ASSIGNMENT 6-4 a. Land in Gurun Disposal (-) Acquisition (-) Exemption Net Chargeable Gain RPGT = RM40,000 x 5% = RM2,000 b. House in Kelana Jaya Disposal (-) Acquisition (-) Exemption

RM280,000 (RM230,000) RM50,000 (RM10,000) (10,000 @ 50,000 x 10% = 5,000) RM40,000

RM520,000 (RM370,000) RM150,000 (RM15,000) (10,000 @ 150,000 x 10% = 15,000) RM135,000

RPGT = RM135,000 x 5% = RM6,750 c. 5-acre agriculture land Disposal (-) Paragraph 5(1)(a)

RM400,000 (RM60,000) RM340,000

Chargeable gain (net) = RM28,800 RM21,600 = RM7,200 RPGT = RM7,200 x 20% = RM1,440 @ = RM28,800 x 5% = RM1,440

Acquisition RM310,000 (-) Paragraph 4(1)(c) (RM29,000) (+) Legal fee RM1,800 Stamp duty RM4,200 Estate agents commission RM5,200 RM301,200 Disposal (-) Acquisition (-) Exemption RM340,000 (RM301,200) RM38,800 (RM10,000) RM28,800

Exemption Individual =
RM 28,800 x 20% RM 28,800 x 5% RM 28,800 x 20%

X RM28,800

= RM21,600

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REAL PROPERTY GAIN TAX CHAPTER 6

ANSWER ASSIGNMENT 6.8 House 1 Disposal price (-) Acquisition price Chargeable gain (-) Exemption Net Chargeable Gain House 2 Disposal price RM172,000 (-) Acquisition price (RM195,500) Net Chargeable Gain (RM23,500)

RM274,000 (RM195,000) RM79,000 (RM10,000) RM69,000

House in Puchong Selling price RM301,000 (-) Legal fee & stamp duty (RM9,000) Valuation fee (RM3,500) RM288,500 (-) Paragraph 5(1) (RM14,700) Disposal price RM273,800

Acquisition price (+) Legal fee Stamp duty (-) Paragraph 4(1)(a) Paragraph 4(1)(c) Acquisition price

RM199,500 RM4,900 RM2,990 (RM21,000) (RM7,410) RM178,980

Disposal price (-) Acquisition price (-) Exemption (-) Loss on house 2 Net Chargeable Gain Exemption Individual =

RM273,800 (RM178,980) RM94,820 (RM10,000) (10,000 @ 94,820 x 10% = 9482) RM84,820 (RM23,500) RM61,320

RM61,320 x15% (RM 61,320 x 5%) (RM 61,320 x 15%)

xRM61,320

= RM40,880

Chargeable gain (net) = Chargeable gain Exemption = RM61,320 RM40,880 = RM20,440 RPGT = RM20,440 x 15% = RM3,066 @ = RM61,320 x 5% = RM3,066

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REAL PROPERTY GAIN TAX CHAPTER 6

ANSWER ASSIGNMENT 6-9 BUNGLOWS 1 BUNGLOWS 2

Selling price (-) Paragraph 5(1)(c) Disposal price

RM360,000 (RM150,000) RM245,000

Selling price (-) Paragraph 5(1)(c) Disposal price

RM450,000 (RM20,000) RM430,000

Acquisition price (+) Incidental cost (-) Paragraph 4(1)(c) Acquisition price

RM200,000 RM20,000 (RM10,000) RM210,000

Acquisition price (+) Incidental cost Acquisition price

RM300,000 RM30,000 RM330,000

Disposal price (-) Acquisition price Chargeable gain (-)Exemption Net Chargeable Gain

RM345,000 (RM210,000) RM135,000 (RM13,500) RM121,500

Disposal price (-) Acquisition price Chargeable gain (-)Exemption Net Chargeable Gain

RM430,000 (RM330,000) RM100,000 (RM10,000) RM90,000

Exemption individual Exemption individual

=
RM 121 ,500 x 5% (RM 121 ,500 x 5%) (RM 121 ,500 x 5%)

= x RM121,500

90,000 15% (90,000 5%) (90,000 15%)

90,000

= RM60,000

= RM0 Chargeable gain = RM90,000 RM60,000 = RM30,000

Chargeable gain =RM121,500 x 0 = RM121,500

RPGT = RM121,500 x 5% = RM6,075 @ = RM121,000 x 5% = RM6,075

RPGT = RM30,000 x 15% = RM4,500 @ = RM90,000 x 5% =RM4,500

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