What You Should Know About Real Property Gain Tax (RPGT) on Real Estate?

What is Real Property Gain Tax?

Real Property Gain Tax, or commonly known in short as "RPGT", is a tax imposed by the Inland Revenue Board (IRB/ LHDN) on chargeable gains derived from the disposal of real property and is governed by the Real Property Gain Tax Act 1976 (Act 169) ("RPGT Act").

Whether you are a property investor or an individual merely selling your property, it is important to be aware of all costs associated with a real estate transaction as you will not be getting the full profit from selling a property.

What are chargeable gains?

Chargeable gains is the difference between the disposal price (current selling price) and acquisition price (the Seller's purchase price).

Example:

Selling Price : RM800,000.00

Acquisition price : RM600,000.00

Chargeable gains : RM200,000.00

Calculation of RPGT will be = RM200,000 x rate of RPGT based on the years of ownership by the Seller.

What if there are no chargeable gains?

There will not be an RPGT imposed for the following situations:-

(a) If the disposal price is less than the acquisition price, then there will not be any chargeable gains.

Example:

Selling price : RM750,000.00

Acquisition price : RM800,000.00

Loss : RM 50,000.00

(b) If the disposal price is equal to the acquisition price, then there will neither be a chargeable gain or a loss.

As a Seller, what can you do to reduce your chargeable gains?

In determining your chargeable gains, you should take into the incidental cost incurred during the disposal or acquisition of the property.

According to Paragraph 6 Schedule 2 of the RPGT Act, among those that should be taken into account as incidental costs are:

1. fees, commission or remuneration paid for the service of any surveyor, valuer, accountant, agent or lawyer;

2. costs or transfer (including stamp duty);

3. in the case of acquisition, the cost of advertising to find a seller; and

4. in the case of disposal, the cost of advertising to find a buyer and costs reasonably incurred in making any valuation or in ascertaining market value.

Cost of renovations, refurbishment and the upkeeping of the property can also be considered as an incidental cost. However, we should also note that the deduction for such costs shall be subjected to the discretion of the IRB.

All the above incidental costs must be proven in relevant bills together with payment receipts and be submitted to the IRB together with relevant forms during the filing of RPGT. Hence, it is important to keep ALL receipts regarding the property.

What if you are selling the Property acquired before year 2013?

For example, if a Seller acquired the property in year 2000 for RM100,00.00 but sold the property for RM500,000 in year 2020. It would seem unfair to the Seller to be taxed on the chargeable gains of RM400,000.00 as there would be factors like the appreciation of the property value and the depreciation of our Ringgit Malaysia.

According to the Finance Act 2019, in determining the chargeable gains, IRB will not consider the acquisition price in year 2000, but IRB will consider the market value in year 2013 in their records.

However, we should note that the above shall only apply to Malaysia citizens and permanent residents.

As for foreigners, local or foreign incorporated companies, the full chargeable gains from the year of acquisition will be subjected for the RPGT calculations.

Exemption of RPGT (as at November 2020):

There are a few situations where RPGT can be exempted.

1. Private Residence:

According to Paragraph 9 Schedule 3 of the RPGT Act, Malaysian citizens and permanent residents are allowed a once-in-a-lifetime exemption on any chargeable gain from the disposal of a private residence.

It is advisable to utilise this exemption on a higher priced properties to maximise the amount of tax savings as there is no time limit for you to exercise this exemption but do take note that you will only be able to use this exemption ONCE!

2. RM10,000 or 10% of chargeable gain

According to Paragraph 2 Schedule 4 of the RPGT Act, an individual will be entitled to an exemption of equal to RM10,000.00 or 10% of the chargeable gain, whichever is greater, on the disposal of property.

3. Gift to family members

According to Paragraph 12 of Schedule 2 of the RPGT Act, you will be entitled for the RPGT exemption if the transfer of property is between husband and wife, parent and child, or grandparent and grandchild.

However, transfer of properties between siblings does not fall under this exemption.

Do take note that in order to be entitled for this exemption, you will have to show proof of birth certificate to the IRB when filing the RPGT Forms.

4. PUA 218, selling of 3 residential house from MCO

In aiding the economy in this COVID-19 pandemic period, with effect from 1st June 2020, our government has announced that all Malaysian citizens will be entitled to the RPGT exemption up to 3 residential properties.

Pursuant to Federal Government Gazette P.U. (A) 218, conditions must be fulfilled in order to apply the exemption:

i) the Seller has not sold more than 3 units of residential property;

ii) the residential property is not acquired within the period from 1 June 2020 until 21 December 2021 by way of transfer between spouses or by way of gift between spouses, parent and child, or grandparent and grandchild; and

iii) the sale and purchase agreement for the disposal of the residential property is executed on or after 1 June 2020 but not later than 31 December 2021 and is duly stamped not later than 31 January 2022.

Filling of the RPGT?

The following forms are required to be submitted to IRB within 60 days from the date of disposal:

1. For Seller: CKHT 1A [& CKHT 3 (if seeking for exemption or selling at loss)]

2. For Purchaser: CKHT 2A

All the forms can be obtained from IRB website and the filing of all of the CKHT forms (including Purchaser’s portion) shall be at the Seller’s Income Tax filing branch.

During the filing of forms to IRB, you will also need to enclose a copy of the principal Sale and Purchase Agreement, copy of title, proof of receipts and all relevant documents like birth certificate if you are applying for exemption.

Any delay shall be subject to a penalty which can be charged up to 3 times the amount of the tax charged.

How will you know how much is payable for the chargeable gains?

Upon filing of the relevant forms to the IRB, the IRB will calculate and value the chargeable gains (if any). They will then send a letter stating the calculation by post to the Seller informing on the outstanding( if any) to be settled.

If additional payment has been made to IRB, but chargeable gains are lesser than the additional payment, then you can contact IRB to seek refund from IRB.

Last but not least, we hope you find this article helpful! Please do not hesitate to contact us if there is anything that we could assist you with!