Is there tax relief for the commercial and industrial property? This article intends to give you some insights into how RPGT affects commercial and industrial properties. Let us take a look at what is RPGT and some of the significant changes. The real property gain tax imposed by the Inland Revenue Board (LHDN) is a capital gain tax. RPGT comes from the disposal of real properties such as land and buildings situated in Malaysia or shares in real property companies (RPC). The capital gain tax affects every single person in Malaysia.
Purpose and significant changes on the RGPT Act
The Act, introduced in 1976, was to curb property speculation & a sudden surge in property price. It has undergone several amendments. The more notable and significant changes were the amendments introduced in the budget 2019, where there is an increase in tax
- Increase of percentage gain tax of 10% from 5% percent for companies disposing properties on the 6th year.
- Increase of percentage gain tax 5% from 0% for citizens and permanent residents. ( death and taxes are intertwined)
- Increase to 10% of percentage gain from 5% for non-citizens and non-permanent residents.
How is RPGT Calculated in the year 2021
The real property gain tax calculated when the disposal price (sale price) exceeds the acquisition (purchase) price, and there is a chargeable gain;
Disposal Price = Consideration received – Permitted Expenses – Incidental Costs.
The "disposal price "is arrived at deducting permitted expenses and incidental costs from the consideration amount.
What is the deduction of the allowable expense?
Some of the expenses include property renovation and upgrading or preserving the chargeable asset's value after its acquisition. All these renovation works must have the proper council approvals, receipts, and documentation.
Professional fees from the real estate agents, property valuers, stamp duty, and legal fees are costs to be deducted as well. In the case of disposal, the cost of advertising to find a buyer or find a seller.
Anti-avoidance measure for RPGT and counter measures.
A real property company (RPC) is a controlled company that owns real property, where the defined value of assets is more than 75% of the companies value tangible assets. When a RPC disposes RPC shares, and if the percentage falls below 75%, it will cease to be an RPC; however, it will still be subject to RPGT provisions.
Effective 1988, chargeable assets subject to Real Property Gains Tax include shares in real property companies. The Act ensures that individuals could not avoid total property gain tax by using companies to acquire land and then disposing of shares in those companies.
Real Property gain Tax is imposed on RPC shares' sale because shares are considered to be a sale of any interest of real property itself. It exists to cover the tax loophole that was exploited to avoid paying RPGT on sale of real property. Most Companies would avoid being RPC because it is challenging to sell its shares because of the RPGT.
Hence, determining whether a company is an RPC is especially important during a corporate exercise or merger & acquisition operation as “once an RPC share, always an RPC share.” Thus both the seller and buyer have to file RPGT returns within 60 days from the transaction date.
Is there tax relief for the commercial and industrial property?
Under Malaysia's National Economic Recovery Plan ( PENJANA). The reliefs are given to residential properties, as they form significant country property transactions. The reliefs include no RPGT for the disposal of 3 residential properties from 1st June 2020 till 31st December 2021.
In fact, in an article by the edge markets, quoting from IRB CEO Datuk Sabin Samitah has urged the Government to introduce a capital gain tax to the wealthy. According to the article, this should broaden the tax base and increase the revenue for the Government. Capital gain tax will be a good measure in ensuring fairness and equity. Under the RPGT Acts, some exceptions are provided to companies, which are found in paragraph 17, schedule 2 of the RPGT Act.
- Transfers between companies for reorganization, reconstruction or amalgamation where the transferee company is being restructured to comply with the Government policy on capital participation in the industry.
- Sales of properties to Real Estate Investment Trusts (REITs) .
- Disposal of chargeable assets to the SUKUK Bank Begara Malaysia-Ijarah issued or published by BNM Sukuk Berhad.
- Disposal of chargeable assets to the issuance of private debt securities under Islamic principles
- Land co-owned by two or more persons is partitioned to vest in each of them a portion of the land under separate titles, the partition of land is not regarded as disposable, and tax will not be imposed.
- Assets distributed by a liquidator under a reorganization scheme, reconstruction, or amalgamation where the transferee company is being restructured to comply with the Government's policy.
- Sale of assets in connection with the repurchase of the chargeable assets for securitization transaction.
Ac contract is conditional for RPGT if the agreement requires the Government's approval or a committee appointed. The date given would constitute the date of disposal. Similarly, companies need the securities commission for the transfer of assets.
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