In Malaysia, real property gains tax (RPGT) is administered by the Inland Revenue Board (LHDN) on the chargeable gain or profit through the disposal of real property. In other words, it is payable by the disposer of real property when the disposal price is higher than that of the acquisition. After the sale is made, the disposers are required to submit the RPGT documentation (CKHT 1A) within 60-days of the sale to avoid an additional 10% penalty.
The RPGT Act was first introduced in 1976 under Real Property Gains Tax Act 1976 as a channel to impose government intervention to limit real property-related speculation. As an outcome, it prevented compromising Malaysia’s economic stability as a result of the real estate bubble. Beyond this, RPGT also serves a significant role in contributing towards the Malaysian government’s revenue as a source of national infrastructure development thereby stimulating economic growth.
RPGT Evolution: From 1976 to 2019
Since then, the RPGT Act has gone through several changes, to the extent of suspension between 1st April 2007 to 31st December 2009 (due the Global Financial Crisis’ impact on the property market), and reimplementation again on 1 Jan 2010.
Another wave of amendments on RPGT was introduced in the Budget 2019, whereby the tax rate for corporations and foreigners on selling a property after the 5-years holding period was increased from 5% to 10%. Similarly, the rate for Malaysian citizens or permanent residents was revised to 5% (before this it was zero-rated), with the aim of restricting property speculation and increasing government’s tax revenue.
On top of that, effective from 1st January 2019, the RPGT rate on the disposal of real property for Malaysian corporations and individuals, with the holding period of 3, 4 and 5-years, was revised to 30%, 20%, and 15% respectively. Whereas the RPGT rate for non-residents or foreigners would be taxed at 30% if the transactions were conducted within the holding period of 5-years.
RPGT Exemptions for Malaysian Citizens and Property Owners
On a positive note, Malaysian citizens or permanent residents are entitled to the once-in-a-lifetime exemption to any chargeable gain from the disposal of a private residence. The policy is implemented with the aim to promote house ownership amongst citizens and PRs without the expense of RPGT at the disposal of their earlier homes.
Furthermore, all individuals (except for companies, LLPs, etc.), including non-residents , are entitled to the exemption of RM10,000 or 10% of chargeable gain under Paragraph 2 of Schedule 4 RPGT Act, whichever is greater. It’s worth noting that the government introduced a citizens-specific tax exemption in Budget 2019 on the gain from disposal of vacant land and affordable housing, or so-called budget homes, valued below RM200,000, with the transaction performed after the 5-years holding period, to provide ample liquidity amongst this property segment and help out low-income group sellers.
Government Initiatives in Response to Covid-19
When the Covid-19 pandemic hit Malaysia’s property market, it resulted in a decrease of 9.9% in volume and 15.8% in value of property transaction as compared to 2019. In response, the government moved to implement several measures aimed at mitigating the impact of prolonged lockdown on property market activities, which is PRIHATIN and PENJANA.
PENJANA is conceived as a short-term economic recovery plan, focusing on the exemption of RPGT for the disposal of residential housing from 1st June 2020 to 31st December 2021, which limited to the disposal of three units of housing per individual. In addition to this, Budget 2020 introduced a revision of the base year of RPGT to 1st January 2013 (from 1st January 2000) for any valuation of property acquired prior to the date, applicable for Malaysia citizens and permanent residents only. In other words, the tax that a seller pays is likely to be lower since home prices rose significantly between 2000 and 2013 (based on performance from MHPI).
Even so, when there is written agreement, the disposal date would be the date of agreement regardless of whether consideration has been received. Generally, the date of written sale and purchase agreement (SPA) signed by both parties of acquirer and disposer, is to be taken as the date of disposal and acquisition of real property. However, if there is no written agreement for the transfer of real property, the date of completion of sale should be earlier than the date of ownership being transferred by the seller or the date the seller received the full consideration for the sale.
Offsetting Loss in RGPT
On top of that, there is also the loss and expenses which are allowable to be offset against the gain from the disposal. The loss is deemed allowable when the disposal price is less than the acquisition price. If there is more than one transaction during the YA (calendar year), the allowable loss from one transaction can be used to offset against total chargeable gain in the same YA. An allowable loss as well can be carried forward into coming YAs until the loss is fully absorbed. Furthermore, disposal price of real property under Schedule 2, is defined as sale consideration subtract the allowable expenditure incurred on the asset after its acquisition, with which nature is of enhancing or preserving the value of real property.
At the end of the day, RPGT is a capital gains tax, that is mutually exclusive with Income Tax Act. Therefore, a gain in disposal of RPGT must not be a gain or profit that is taxable to or under provisions from Income Tax Act. In short, if a gain is ‘income’ or ‘revenue’ in terms of underlying nature, RPGT can’t be imposed.
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