REAL property gains tax (RPGT) is a tax charged on gains arising from the disposal or sale of real property or shares in a real property company (RPC).
In simple terms, a real property includes land or immovable property, with or without title. An RPC is a company holding real property or shares in another RPC which value is not less than 75% of the value of the company’s total tangible assets.
Hence, when someone disposes of or sells a property or shares in an RPC, he will be subjected to tax on the chargeable gains made from the disposal of the property or shares. Obviously, if there is a loss on the disposal, no RPGT is payable.
This article will discuss the RPGT currently imposed on the sale of real property only.
How much RPGT is payable?
A simple formula of the RPGT payable is as follows:
Tax payable = RPGT rate x net chargeable gain
The RPGT rate imposed depends on the entity of the disposer (whether a permanent resident, individual citizen or company) and the period of ownership of the property.
Effective Jan 1, 2019, the RPGT has been increased for disposal of a property from the sixth year onwards. The table is a summary of the RPGT rates applicable to various entities, at the date of writing.
Net chargeable gain is the disposal price less the purchase price (that is the original price at which the seller bought the property) less permitted expenses such as certain renovation costs and incidental costs of acquisition and disposal including fees, commission or remuneration paid for the professional services of any surveyor, valuer, accountant, agent or solicitor.
When is RPGT payable?
The acquirer (buyer) is required to remit an amount equivalent to 3% (or 7%, if the disposer is a foreigner who is not a permanent resident) of the purchase price within 60 days of the date of disposal.
In this regard, the buyer’s solicitor usually retains 3% of the selling price from the deposit and pays it to the Inland Revenue Board no later than 60 days from the date of disposal but, often much earlier, as the seller will require the payment receipt to file his own returns.
The Inland Revenue Board will refund any excess paid or require the disposer to pay any shortfall.
The remittance of 3% or 7% need not be made if the disposal is not liable to RPGT.
Both the disposer and the acquirer are required to complete and file RPGT returns within 60 days from the date of disposal (often, this is the date of the sale and purchase agreement or, if the state authority’s consent is required for transfer of the property, then it is the date of the letter of consent from the government).
The disposer is required to complete and submit form CKHT 1A and the acquirer, form CKHT 2A to the Inland Revenue Board’s branch where the disposer’s tax file is maintained, together with the relevant supporting documents.
If the disposer is not liable for RPGT, he will also have to submit form CKHT 3 and forward a copy to the acquirer so that the acquirer can submit it together with his returns.
If a disposer or acquirer, without reasonable excuse, fails to complete and submit the relevant CKHT form, he will be subjected to a fine not exceeding RM5,000 or to imprisonment for a term not exceeding 12 months or to both.
If no prosecution has been instituted in relation to the failure to file the CKHT form, the director-general may require that person to pay penalty of three times the amount of the tax which is payable for that year.
The disposer or acquirer may complete and file the forms with the Inland Revenue Board individually or seek assistance from solicitors at a fee prescribed by the Solicitors’ Remuneration Order 2005 or from tax consultants.
Are there any reliefs or exemptions?
A Malaysian citizen who disposes of a property after five years of ownership for a consideration sum of RM200,000 or below is exempted from RPGT.
For disposal of a property acquired before Jan 1, 2000, the market value as at Jan 1, 2000 will be taken as the acquisition price for purposes of calculating the RPGT, if any.
However, a Malaysian citizen or permanent resident is given a one-time exemption on gains from the disposal of one residential property in his lifetime.
Further, the disposal of property between husband and wife, parents and children, grandparents and grandchildren by way of gift will not attract RPGT if the disposer (including a personal representative) is a Malaysian citizen, as the disposer shall be deemed to have received no gain and suffered no loss on the disposal.
Last but not least, relief equivalent to RM10,000 or 10% of the net chargeable gain (whichever is greater) is also given to an individual.
Chai Sim Ann, a lawyer practising at Messrs Chai & Co, is a member of the Conveyancing Practice Committee, Bar Council, Malaysia. This column is brought to you by the Malaysian Bar Council for your information only. It does not constitute legal advice.