Real Property Gains Tax (RPGT) is a tax that Malaysian individuals and companies must pay on the sale of their real estate property.
While the tax number used for RPGT is the same as the one used for filing income tax returns, there are specific forms and regulations that need to be followed for RPGT.
This article aims to provide a comprehensive guide to Real Property Gains Tax (RPGT) in Malaysia.
Table of Contents
Introduction to Real Property Gains Tax
The Importance of Tax Numbers for RPGT
Procedures for submission of real property gains tax form
The Timeline for Submitting RPGT Forms
The 3% Retention Sum for RPGT by the acquirer
Assessment of Real Property Gain Tax
Determination Of Chargeable Gain / Allowable Loss
RPGT Tax Exemptions
Tax Reliefs for RPGT
Disposal Price Deemed To Be Equal To Acquisition Price
Record-Keeping for RPGT Forms
Penalties
RPGT for Real Property Companies
Conclusion
FAQs
Introduction to Real Property Gains Tax
Real Property Gains Tax (RPGT) is a tax charged on the gains obtained by individuals and companies on the disposal of real estate property.
The tax is calculated based on the chargeable gain, which is the difference between the disposal price and the acquisition price of the property.
RPGT was first introduced in Malaysia in 1975 and revised several times, with the latest amendment made in 2021.
[Under the Finance Bill 2023, pending approval and gazetting, there is an amendment to Schedule 2]
The Importance of Tax Numbers for RPGT
The tax number used for RPGT is the same as the one used for filing income tax returns.
A registered tax number is required when filing your RPGT returns and submitting any relevant RPGT forms.
Your RPGT form will be rejected if you fail to include the tax number in the RPGT form.
RPGT Forms
1. Disposer
Form CKHT 1A - Disposal of Real Property
Form CKHT 1B - Disposal of Share in Real Property Companies (RPC)
Form CKHT 3 - Notification of Disposal of Asset not Subject to Tax or Exempt from the Payment of Tax
2. Acquirer
Form CKHT 2A - Acquisition of Real Property / Shares in RPC
The Timeline for Submitting RPGT Forms
All RPGT return forms, including CKHT 1A and/or CKHT 3 (including the acquirer's (purchaser's) Form 2A), must be submitted within 60 days from
the date of the sale and purchase agreement; or
the date of the letter of approval/consent from the State Authority regarding the sale of the property
to the disposer's (vendor's) tax branch.
The 3% Retention Sum for RPGT by the Acquirer
Starting 1.1.2015, the acquirer must hold all payments or 3% of the amount of consideration, whichever is lower.
The amount held shall be paid to IRB within 60 days after the date of disposal.
The payment of the 3% retention sum is only applicable to the disposal of properties owned less than 5 years by an individual or the disposal of properties by companies and societies.
The retention sum for foreigners is 7%.
(Note: The rate of 7% does not apply to foreign companies.)
However, from 1 Jan 2022 onwards, the 3% rate was increased to 5% for the disposal of properties by companies and societies within three years from the date of acquisition.
The submission of form CKHT 502 and the payment of the 3% retention sum under section 21B of the RPGT Act 1976 can be made at the Inland Revenue Board of Malaysia's (IRBM) payment counters (where receipt of payment would be issued on the spot), or the vendor's IRBM home branch, or any nearest IRBM's branch.
If payment is made via cheque, money order or bank draft, payment shall be made in the name of KPHDN and accompanied by a CKHT 502 payment slip.
Assessment of Real Property Gain Tax
Completed RPGT Forms will be processed, and the following notice or certificate will be issued :
Taxable cases: Assessment Notice (Form K / KA); or
Non-taxable cases: Certificate of Non-Chargeability (CKHT 5A).
Provision under paragraph 14(1)(b) of the RPGT Act 1976 authorised the DGIR to make necessary adjustments to the RPGT Forms submitted in case of errors when filling the form or incomplete information.
Provision under subsection 14(2) of the RPGT Act 1976 authorised the DGIR to raise estimates assessment on the failure of the disposer or acquirer to submit the RPGT Forms under subsection 13(1) of the RPGT Act 1976.
Determination Of Chargeable Gain / Allowable Loss
If the disposal price of the asset exceeds the acquisition price, there is a chargeable gain. on the other hand, if the disposal price of the asset is less than the acquisition price, there is an allowable loss.
The computation of chargeable gain or allowable loss is as follows:
= Disposal Price – Acquisition Price – Miscellaneous Costs
Determination Of Disposal Price
The disposal price is the amount or value of the consideration in money or money's worth for the disposal of the asset, less the allowable expenses as follows:
Expenditure incurred to enhance or preserve the asset's value being reflected at the time of the disposal. For example, additional works on a building that has been acquired and the construction cost of the building on vacant land that has been acquired [paragraph 5(1)(a) of Schedule 2].
The amount of any expenditure incurred at any time after the acquisition of the asset by the disposer in establishing, preserving or defending his title to, or to a right cover, the asset. E.g. Legal fees paid to defend ownership of the assets acquired [paragraph 5(1)(b) of Schedule 2].
The incidental cost to the disposer of making the disposal such as fees, commission or remuneration paid for the professional services of any surveyor, valuer, agent and legal adviser [paragraph 5(1)(c) of Schedule 2].
Determination Of Acquisition Price
The acquisition price of an asset is the purchase consideration plus any incidental costs (often referred to as “permitted expenses”).
Paragraph 6 of Sch 26 sets out the categories of incidental expenses that are relevant, and these are:
fees, commissions, and remuneration paid for the professional services of accountants, lawyers, surveyors, architects, etc.
costs of transfer (including stamp fees)
costs of advertising to attract buyers.
Paragraph 4 of Sch 2 also provides that in computing the acquisition price, the following must be deducted:
compensation or similar receipts for any damage, injury, destruction, dissipation, depreciation or risk of depreciation of the asset
receipts under an insurance policy for any damage, etc
deposits forfeited, if any, in respect of that asset.
RPGT Tax Exemptions
All Malaysian citizens are entitled to a once-in-a-lifetime tax exemption when disposing of a residential property.
To opt for the exemption under section 8 of the RPGT Act 1976, the individual must complete Lampiran 3 in the CKHT 1A form (vendor's) and enclose supporting documents such as a copy of:
the Certificate of Completion and Compliance; or
the latest utility bills, water bills or telephone bills.
Tax Reliefs for RPGT
Tax reliefs are available for certain disposals of real property.
For example, disposals of low-cost housing and disposals due to compulsory acquisition by the government may be eligible for tax relief.
These reliefs are subject to certain conditions and limitations, so it's important to consult with a tax professional to determine whether you qualify for them.
Disposal Price Deemed To Be Equal To Acquisition Price
In a transaction where the disposal price is deemed equal to the acquisition price, there is no chargeable gain or allowable loss to the disposer. Among the transactions are:
Devolution of assets of a deceased person [subparagraph 3(1)(a) of Schedule 2] The devolution of the assets of a deceased person on his executor or legatee under a will or intestacy or on the trustees of a trust created under his will. Transfer of assets between husband and wife [subparagraph 3(1)(b)(i) of Schedule 2] Transfer of assets between spouses. With effect from 1.1.2018, the application of this provision is restricted to a resident who is a Malaysian citizen only.
[Finance Bill 2023 proposes to include: the transfer of assets between former spouses pursuant to an order of any court in consequence of the dissolution or annulment of their marriage]
Transfer of assets to a company controlled by an individual or his wife, or both or with a connected person [subparagraph 3(1)(b)(ii) of Schedule 2]
Asset owned by an individual, his wife, or both or an individual with a connected person, by a nominee for the individual, a nominee for the wife of the individual or both or a trustee for the individual, a trustee for the wife or both are transferred to a company resident in Malaysia or not [Finance Bill 2023: by substituting for the words “to a company resident in Malaysia or not” the words “to a company incorporated in Malaysia”]. Effective from 1.1.2018, the transferred assets must be owned by Malaysian citizens only;
The company is controlled by him or his wife, or both or with a connected person, by the nominee for the individual, the nominee for the wife or both or by the trustee for the individual, the trustee for the wife of the individual or both; and
The consideration for the transfer must be in the form of shares in the company or at least 75% in the form of shares in the company and the balance of a monetary payment. Suppose the shares [received from the transaction which was not taxable under paragraph 3(1)(b) of Schedule 2] are disposed of. In that case, the disposal of such shares is subjected to RPGT under paragraph 34 of Schedule 2 of the RPGTA. Effective from 1.1.2022, a loss suffered in respect of paragraph 34 of Schedule 2 is no longer allowable.
Gift to Government [subparagraph 3(1)(e) of Schedule 2] Gift of an asset to the Federal Government, State Government, local authority or charitable body exempted from ITA.
Compulsory acquisition [subparagraph 3(1)(f) of Schedule 2] Disposal of an asset due to compulsory acquisition under any law.
Gift [paragraph 12 of Schedule 2]
Disposal of assets by way of gift (for love and affection) is deemed to be disposal at the asset's market value.
However, if the gift is between:
husband and wife,
parents and children,
grandparents and grandchildren,
the donor shall be deemed to have received no gain and suffered no loss on the disposal.
Therefore the donor is not liable for tax. With effect from 1.1.2017, the donor must be a Malaysian citizen to enjoy the benefit under this paragraph.
Record-Keeping for RPGT Forms
If subject to RPGT, you must keep records of your property transactions for at least seven years.
These records should include information such as the date of acquisition, the purchase price, the date of disposal, the sale price, and any expenses incurred in the acquisition or disposal of the property.
This information will be necessary when you file your RPGT forms.
Imposition of Penalties and Increases of Tax
1. Penalty under subsection 29(3) of the RPGT ACT 1976
Penalty under subsection 29(3) of the RPGT Act 1976 may apply if the disposer or acquirer :
Fails to submit completed Form CKHT 1A / CKHT 1B within 60 days from the date of disposal of the asset;
Fails to submit completed Form CKHT 1A / CKHT 1B after the extended date of permitted time; or
The disposer fails to declare the disposal of a chargeable asset.
The penalty can be charged up to 3 times the amount of tax charged.
2. Penalty under subsection 30 (2) of the RPGT ACT 1976
Where a person makes an incorrect return or gives incorrect information on the disposal of the asset, the DGIR may impose penalties under subsection 30(2) of the RPGT Act 1976.
The penalty may be charged equal to the amount of tax under-declared (maximum of 100%).
3. The increase under subsection 14(5) of the RPGT ACT 1976
A disposer will be subject to an increase under this subsection if making an incorrect return under subsection 13(6) of RPGT Act 1976 which causes the acquirer fails to remit the payment under subsection 21B(1) or (1A) of the RPGT Act 1976.
The increase is 10% on the amount of tax charged.
RPGT for Real Property Companies
When a person disposes of shares in a real property company (RPC) in Malaysia, the disposal of these shares may be subject to RPGT.
RPC is -
a controlled company;
owned property or RPC shares in another RPC or both; and
defined value of the property or shares in other RPC or both is not less than 75% of the value of its total tangible assets
Conclusion
To conclude, Real Property Gains Tax (RPGT) is a tax individuals and companies in Malaysia must pay on selling their real estate property or shares in Real Property Companies.
The tax is calculated based on the chargeable gain, which is the difference between the disposal price and the acquisition price of the property.
All RPGT return forms must be submitted within 60 days from the date of the sale and purchase agreement or the date of the letter of approval/consent from the State Authority regarding the sale of the property to the disposer's (vendor's) tax branch.
Failure to submit the forms on time may result in penalties. Tax reliefs and exemptions are available under certain conditions and limitations. It is recommended to consult with a tax professional for guidance on RPGT.
FAQs:
Q: When is RPGT payable?
A: RPGT is payable when you dispose of real property. The tax must be paid within 60 days of the date of disposal.
Q: How is RPGT calculated?
A: RPGT is calculated based on the chargeable gain, which is the difference between the disposal price and the acquisition price of the property, less any allowable expenses.
Q: Are there any exemptions from RPGT?
A: Certain exemptions are available for disposals of low-cost housing and disposals due to compulsory acquisition by the government, among others.
Q: What happens if I don't pay RPGT?
A: Failure to pay RPGT may result in penalties and fines, including interest on any overdue tax. In extreme cases, legal action may be taken against you.
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