On 14 March 2023, the Dewan Rakyat of the Malaysian Parliament tabled the Finance Bill 2023 for its first reading.
Amongst other things, the Bill proposes amendments to the Real Property Gains Tax Act 1976 (‘RPGTA’) in relation to:
the transfer of assets between former spouses; and
the limitation of the scope of a transfer to a controlled company.
In this article, we explore the proposed changes to the RPGTA and their potential implications for Malaysian citizens.
Proposed Amendment 1: Transfer of Assets between Former Spouses
The RPGTA currently imposes real property gains tax on the transfer of assets between former spouses, ranging from 0% to 30%, depending on the period for which the asset has been held by the disposer.
However, the Finance Bill 2023 proposes that the transfer of assets between former spouses pursuant to a court order in consequence of the dissolution or annulment of their marriage be treated as a transaction in which the disposal price is deemed equal to the acquisition price ('No Gain No Loss'), provided that a Malaysian citizen owns the asset.
This proposed amendment is significant, as it seeks to remove the real property gains tax burden on Malaysian citizens who are compelled to transfer assets to their former spouse as part of a court order arising from the dissolution or annulment of their marriage.
This is a welcome relief for Malaysian citizens burdened with the additional tax liability in the past.
Proposed Amendment 2: Limitation of the scope of a transfer to a controlled company
Transfers of assets owned by an individual, his spouse, or by an individual jointly with his spouse or with a connected person by a nominee or trustee for an individual or his spouse or for both, to a company resident in Malaysia or not, that is controlled by the individual, his spouse, or by an individual jointly with his spouse or with a connected person, by a nominee or trustee for an individual or his spouse or for both, for a consideration consisting entirely or substantially of shares in the company, with the remainder being paid in cash, is a No-gain-no-loss transaction ("NGNL") [acquisition in which the disposal price is equated with the purchase price].
Mr X acquired a piece of land on 1 February 2013 for RM100,000. On 1 March 2019, he transferred the land to X Sdn Bhd in exchange for 200,000 shares in the company.
Subsequently, X Sdn Bhd disposed of the land on 1 September 2019 to a third party for RM500,000.
RPGT Treatment for Mr A
Mr X’s land transfer to X Sdn Bhd is an NGNL transaction.
X Sdn Bhd is deemed to have acquired the land for RM100,000 on 1 March 2019.
The Finance Bill 2023 proposes that the controlled company to which the assets are transferred must be incorporated in Malaysia. This means that assets transferred to a controlled company incorporated outside Malaysia will no longer be exempt from real property gains tax.
This amendment aims to ensure that Malaysian companies benefit from the transfer of assets. It will discourage individuals from transferring assets to foreign-controlled companies to avoid paying real property gains tax in Malaysia.
Conclusion: Implications of the Proposed Amendments
The proposed amendments to the RPGTA will come into operation on the date the Finance Act 2023 comes into operation.
The FIRST proposed amendments are likely to significantly impact Malaysian citizens as they seek to provide relief from real property gains tax on certain types of asset transfers.
Malaysian citizens will be pleased with the proposed amendments, as they provide much-needed relief from the real property gains tax, particularly when asset transfers are required as part of a court order arising from the dissolution or annulment of marriage.
Furthermore, the limitation of the scope of a transfer to a controlled company will encourage the transfer of assets to Malaysian-controlled companies, which will boost the Malaysian economy by encouraging the formation of locally controlled companies.