Para 34A of Schedule 2 establishes rules for taxing the acquisition and disposal of shares in a real property company.
This ensures that such transactions are subject to Real Property Gains Tax, even if the company's status changes over time. The calculations are based on specific criteria and formulas outlined in the section.
Finance (No. 2) Bill 2023
Finance (No. 2) Bill 2023 proposes Schedule 2 to the Real Property Gains Tax Act 1976 is amended in paragraph 34A by inserting after subparagraph (5) the following subparagraph: “(5A) This paragraph shall not apply to an acquisition or a disposal of any shares by a company, limited liability partnership, trust body or co-operative society, other than a Labuan entity as provided under section 2B of the Labuan Business Activity Tax Act 1990, on or after 1 January 2024.”.
The proposed amendment to Schedule 2 of the Real Property Gains Tax Act 1976 introduces a new subparagraph (5A) to paragraph 34A.
The new subparagraph (5A) stipulates that paragraph 34A will not apply to the acquisition or disposal of any shares by certain entities.
The entities specified are companies, limited liability partnerships, trust bodies, or co-operative societies, excluding Labuan entities as defined in section 2B of the Labuan Business Activity Tax Act 1990.
The exception applies to acquisitions or disposals of shares by the mentioned entities on or after 1 January 2024.
Exclusion of Certain Entities:
The amendment excludes specific types of entities (companies, limited liability partnerships, trust bodies, or co-operative societies) from the provisions of paragraph 34A concerning the acquisition or disposal of shares. The exception does not extend to Labuan entities.
Labuan Entities:
Labuan entities are exempted from this exclusion as defined in the Labuan Business Activity Tax Act 1990. This implies that Labuan entities are still subject to the rules and provisions of paragraph 34A.
Impact on Tax Liability:
The exclusion means that the specified entities will not be subject to the rules and tax implications outlined in paragraph 34A for acquiring or disposing shares.
Labuan Entities' Status:
Labuan entities, which are exempted from this exclusion, will continue to be governed by the existing provisions of paragraph 34A when acquiring or disposing of shares.
Policy Considerations:
The amendment might be driven by policy considerations, aiming to differentiate the tax treatment of certain entities in the context of real property gains due to:- The Finance (No. 2) Bill 2023 proposes that Section 4 of the Income Tax Act 1967 be amended by inserting after paragraph (a) the following paragraph:
“(aa) gains or profits from the disposal of capital asset.
Conclusion: The proposed amendment introduces an exception for specific entities from the provisions of paragraph 34A, impacting the tax treatment of share acquisitions and disposals for those entities.
The exclusion does not apply to Labuan entities, which will continue to be subject to the existing rules.
