What Is Real Property Gains Tax (RPGT)?
In Malaysia, Real Property Gains Tax (RPGT) is one of the most important property-related taxes and is chargeable on the profit gained from selling a property.
Whether you’re a property investor or an owner just simply looking to sell your current home to purchase your dream home, it’s important to be aware of all costs associated with a real estate transaction.
It’s not always easy though! Our Government likes to keep things relevant and current.
RPGT rates in Malaysia were most recently adjusted in Budget 2019, with new changes announced as part of Budget 2020.
Earlier this year, the government once again revised RPGT rates, giving tax exemptions to low-cost and budget homes below RM200,000, while increasing the tax rate to 5% for properties held by Malaysian citizens for more than five years.
Budget 2019 also increased the rate for foreigners and companies selling a property after more than 5 years of ownership from 5% to 10%.
Changes To RPGT In Budget 2020
Budget 2020 introduced an interesting new change to RPGT by shifting the ‘base year’ which RPGT is assessed against from 1 January 2000 to 1 January 2013.
Confused? Don’t be.
What that means is if you bought a property before 1 January 2013, the value of that property is now assessed against the estimated value on 1 January 2013, and not the actual date of purchase for your property.
That means the tax you pay is likely to be lower, since the house price rise between January 2013 and the current date is likely to be lower than it was if it was assessed against the value in 2001.
Who Pays RPGT?
Whether you’re a Malaysian citizen or foreign resident, RPGT applies to you as long as you’ve made profit gain from selling your properties in Malaysia.
However, it’s important to note that the government provides a tax relief when there's no profit made at all (selling price is equal to the original purchase price), or when a person suffers a loss from the property sold (selling price is lower than the original purchase price).
1) Malaysian Citizens & Permanent Residents
Malaysian citizens and/or permanent residents who sell their property within the first five years of acquiring it will be subject to RPGT.
On top of that, Malaysians will also be charged 5% in property taxes after the fifth year as according to the Budget 2019 RPGT updates.
Period Of Ownership | RPGT Rate |
0-3 years
|
30%
|
3-4 years
|
20%
|
4-5 years
|
15%
|
5+ years
|
5%
|
2) Foreigners & Non-Citizens
Foreigners will be charged a rate of 10% RPGT when they sell their property, five years or more after purchasing it.
Before that? Things get pricey! It’s 30% RPGT within the first five years.
Period Of Ownership | RPGT Rate |
0-5 years
|
30%
|
5+ years
|
10%
|
3) Companies
RPGT is also imposed on the disposal of shares in companies when 75% of its tangible assets involves real estate.
Here’s a look at the rates:
Period Of Ownership | RPGT Rate |
0-3 years
|
30%
|
3-4 years
|
20%
|
4-5 years
|
15%
|
5+ years
|
10%
|
What Are The RPGT Act Exemptions?
According to the RPGT Act, certain tax exemptions apply to profits on selling property:
- Malaysian citizens or permanent residents are allowed a once-in-a-lifetime exemption on any chargeable gain from the disposal of a private residence. The RPGT Act defines a private residence as a building or part of a building owned by an individual or occupied as a place of residence.
- An individual will be given an exemption equal to RM10,000 or 10% of the chargeable gain, whichever is greater.
- There’s an exemption on gains when a property is transferred within the family, either between husband and wife, parent and child, or even grandparents
What Is Allowable Loss?
You might also hear the term ‘allowable loss’ when it comes to RPGT. It’s important to understand what this is in relation to your potential tax bill.
Allowable loss can apply in circumstances where more than one property is sold by the same owner in the same tax year.
If you lose money on one sale by selling for lower than when you bought the property, you can then use that loss to offset any profit on another sale made.
So if you sell a property at RM20,000 loss, but then sell another at RM100,000 gain, your total taxable amount is RM80,000.
Good news, you made a profit though!
An allowable loss can be rolled over into coming tax years, meaning you can offset that poor sales performance against any profits you make on future property sales.
It’s not all bad news when it comes to tax!
What’s Allowable Expenses Then?
It’s not just loss of profit from the sale that you can offset your tax bill, you’ll be delighted to know you’re also allowed some expenses.
Allowable expenses basically means the money you’ve spent improving or maintaining a property to retain/increase its value. That’s things like:
- Enhancement: Money you’ve spent on refurbishments, extensions, improvements work, etc. can all be offset against your sales profit. So if you spend RM20,000 adding an extension onto your landed property, that payment can be used to offset the taxable profit of your sale by RM20,000.
- Preservation: The same goes for preservation! Say your landed property is a heritage building for example, and you want to keep it looking good. You spend RM40,000 on specialist wood treatment to stop it from decaying, so that RM40,000 can be offset against the taxable profit from your sale.
One thing worth noting - the tax people really like to see receipts. If you can’t prove with clear evidence that you spent the money, they’re not going to let you offset it.
How To Calculate RPGT?
Calculating RPGT is a fairly simple process. To know the taxable amount, first calculate your chargeable gain, which is the difference between the purchase price and the sale price.
RPGT would then be calculated by multiplying your chargeable gain with the relevant RPGT rate.
Let’s bring this to life with an example:
- Miss A purchased a property for RM500,000 three and a half years ago, and sold it for RM800,000.
- Miss A’s chargeable gain would be RM300,000.
- Miss A’s RPGT = RM300,000 X RPGT Rate (which is determined by the number of years she’s owned the property, as well as her citizenship status within Malaysia).
- In this case that’s a 20% RPGT rate, so the tax is RM60,000
Don’t forget that allowable expenses and allowable losses can offset some of the taxable gain from your sale! You don’t want to pay more than you have to.
How To File Your RPGT?
Most people typically file their RPGT through lawyers, but if you’d like to handle the process yourself, this is what you need to know:
- Fill out the Disposal of Real Property (CKHT 1A) form, the Sale and Purchase Agreement (SPA) form, and other documents supporting the deductions you plan to make from RPGT.
- If you plan to apply for exemptions under the RPGT Act, then make sure to fill out the Notification under Section 27 in the RPGTA 1976 (CKHT 3) form.
- Don’t forget to have your buyer to fill out the Acquisition of Real Property (CKHT 4) form that comes along with a copy of the Sale and Purchase Agreement.
- Finally, submit all forms and supporting documents to the nearest IRB (LHDN) branch within 60 days of the sale.
After the submission of all documentation, the only thing left to do is to conduct the sale.
As part of the process, your lawyers will retain 3% of the selling price, which is sent to the IRB within 60 days of the sale. Any excess funds will automatically be refunded to you by the IRB.
Finally, ensure you don’t take longer than 60 days to file your RPGT or you are likely to end up with an additional 10% penalty on top of everything else!
Pros And Cons Of RPGT Changes
Nobody loves paying tax, but it is an important part of a functioning country. And we all like that at least!
So what are the pros and cons of the recent RPGT changes in Budget 2019 and Budget 2020?
Budget 2019 RPGT Change - 5% tax after 5 years for Malaysians and Permanent Residents
- Raises more money for national spending from tax
- May help reduce speculation (although property speculation is usually a short-term gain)
- More tax! It means you have to pay 5% tax on profits of your sale
- May slow down the housing market long-term
- Can result in transfer of costs from seller to buyer with adjusted house prices
Budget 2019 RPGT Change - increase from 5% to 10% for companies and foreigners selling after 5 years
- Increases tax intake
- Can help tackle property speculation
- May reduce foreign investment in the property market
- Could have long-term impact of slowing down property market
Budget 2019 RPGT Change - no RPGT on properties below RM200,000 sold after 5 years
- Helps out low-income sellers
- Provides a benefit to the important affordable homes area of the market
- Reduces tax intake
Budget 2020 RPGT Change - change of base year to 1 January 2013
- Reduces potential taxable profit for homeowners who purchased a home before this date
- Reduces tax
***Source Propertyguru.com.my 23/09/2019
Comments
Post a Comment