Advantage, Rakyat!

Effect of 23 December 2009 Announcement

5% RPGT is only applicable to disposals of properties made within five years of purchase Companies and individuals are exempted from RPGT when disposals are made after the 5th year

Exemptions

If disposed properties are held for more than 5 years. First time disposal of private residence RM10,000 or 10% of chargeable gain, whichever is greater Gifts (No Gain No Loss Situation) Between husband and wife, parent and child, grandparent and grandchild Period held by donor is no longer limited to 5 years All other gifts are deemed disposed at market value

Forms

To submit within 60 days from date of transaction

Disposer to complete Form CKHT 3, CKHT 1A (for disposal of property) and/or CKHT 1B (for Real Property Company); a copy of CKHT 3 to be given to acquirer

Acquirer to submit CKHT 2A with CKHT 3 to IRB

Yes, it’s back! Before Malaysia could even catch its breath after rolling out the two financial stimulus packages, the reintroduction of the Real Property Gains Tax (RPGT) announced during the Budget 2010 came like a spat to the industry. While now it is only applicable to disposals within five years of purchase, Malaysia is broadening its tax base whether you like it or not.

The reinstatement came with several changes, said Ng Say Guat, Executive Director of Pricewaterhouse Coopers Taxation Services Sdn Bhd atthe Tea Talk organized by REHDA Institute. “Looking at the overall changes, it seemed that the government was trying to let the hit not be so hard.”

Upside

Not only disposals of property held more than five years are exempted from the RPGT, even the personal relief of RM5,000 previously has been increased to RM10,000 or 10% of the chargeable gain (see Exemptions).

In the latest RPGT calculation (see Table), although the interest cost up to Certificate of Completion and Compliance is no longer deductible, disposals of property, say, in the fourth year will only be taxed at 5 instead of 15% as slated in the previous scale rates. You only pay RM3,500 instead of RM9,450. If disposals are made after the fifth year, you can put your RM3,500 to a more productive use

“Not only that, for whatever reason that you have arrived at a loss, you can carry it forward and let it off against the property you’ve gained in the next year.”

And in the second Exemption Order gazetted on 31 December 2009, “Even your previous perpetual 5% applicable to companies has been removed. I think that’s quite excellent.”

Downside

However, one of the changes that fraught the minds of many is the withholding mechanism.

“Here, the change is significant in a sense that it places the entire obligation now, to remit the retention sum, to the acquirer (buyer).

“The acquirer would then have to withhold 2% of the sum and pay that to the income tax office within the 60 days, the same compliance period where the acquirer would have to file their own acquisition tax return.

”However, if the disposer (seller) is clearly exempted from the RPGT, be it disposals after five years or the first private residence, would the acquirer then still be obligated to remit the 2%?

The certificate of non-chargeability is something new that the Inland Revenue Board (IRB) has introduced to confirm whether one is chargeable for tax. “Now it puts people at ease that people has a right to appeal in the situation where there’s no tax to pay.”

She further explained that previously in the Income Tax Act, as well as the RPGT Act, there is only an avenue to appeal when there is an assessment. And when there is an assessment, it means there is tax to pay.

“If you’re confirmed that you’re in a loss position, or there’s no tax to be paid (there’s no gain), the revenue Board will actually issue you a confirmation. And for whatever reason that you have arrived at a loss, and the loss computed by them is lower than what you have computed, you can actually appeal against that.”

According to Ng, the IRB has come up with new RPGT forms (see Forms) that will absolve the acquirer from remitting the 2% if the disposer is clearly exempted.

Both the disposer and acquirer have to just fill up the necessary forms and submit along with the supporting documents like the Sale & Purchase Agreement or written agreement, she added.

Yet one of the many questions remained without an answer, where does the 2% come from?

It's Still There

Known for its flipping history, probably people may question if the scale rates would be back.

“The schedule for the scale rates weren’t removed in the Act. Therefore, it is easy to reinstate the rates back, which may also mean that the perpetual nil for companies may come back.

“All they needed to do is to revoke the previous exemption order; everything would then fall back to place.”

While there are still many issues unclear, Ng stated that whenever there’s an ambiguity in the drafting, if they want to tax you, they must be clear. If not, it will work to the advantage of the tax payer, as all other cases regarding tax.”

With the government’s endeavor to broaden its tax base, the soon-to-be implemented Goods and Services Tax (GST) too have raised quite a few questions. While residential properties are exempted from GST, its impact towards the real estate industry is still too early to be determined. But like Ng explained, “if they want to tax you, they must be clear,” we’ll just have to wait for the dust to settle and the clouds to clear then. HF