In Malaysia there is no capital gains tax until the introduction of Land Speculation Tax Act. 1974 on 6th December 1973. This tax was introduced to curb property speculation and the soaring prices of immovable property especially residential houses during the years 1973 and 1974. The Land speculation Tax was replaced on 6th November 1975 by the introduction of Real Property Gains Tax Act, which is effective from 7th November 1975. By Section 3 (1) of the Act, a tax called Real Property Gains Tax is charged onchargeable gains accruing on the disposal of any real property.
Chargeable gain = disposal price – acquisition price
(if disposal price is more than acquisition price)
Allowable loss = acquisition price – disposal price
(if disposal price is less than acquisition price)
No Gain No Loss if disposal price = acquisition price
In calculating the Real Property Gains:-
The holding period of 3, 4, 5 and 6 years to the period between the date of the acquisition of the property and the date of disposal of such property. The following RPGT exemptions which were implemented under the previous regime continue to be available:
(a) RPGT exemption on gains from the disposal of one residential property once in a lifetime to individuals;
(b) RPGT exemption of up to RM 10,000 or 10% of the net gains, (whichever is higher) from the disposal of real
property by individuals; and
(c) RPGT exemption on gains arising from the disposal of real property between family members (e.g. husband and
wife, parents and children, and grandparents and grandchildren).
There are however, several exemptions under the act which wll be elaborated and analyzed further in the following article.
Section 8 Exemptions
(a) Exempts a gain to an individual citizen or individual who is a permanent residentof Malaysia on disposal of his private residence. This is given for only one disposal in a lifetime.
Definition of Private Residence : “ a building or part of a building in Malaysia owned by an individual and occupied or certified fit for occupation as a place of residence”.
Schedule 4 Exemptions
(a) Disposal of chargeable asset before the date of coming into force of Real Property Gains Tax Act.
RM10,000 or 10% of chargeable gain whichever is greater accruing to an individual. Amount exempted is deducted against the chargeable income.
(b) Exemption not applicable where chargeable asset is or was part of a larger chargeable asset at the time of disposal. (1.1.2010 -9.1.2013)
(c) Exemption applicable for part of a larger chargeable asset but to be apportioned > 10.1.2013
“Individual” means a natural person. Not applicable to a partnership or an executor of deceased person’s estate.
(d) A gain accruing to the Government, a state Government, or a local authority.
(e) A gain equal to the amount of estate duty payable under any law relating to estate duty applicable in Malaysia on an estate of a deceased person accruing in respect of a disposal of a chargeable asset from that estate where the Director General is satisfied that the disposer is compelled to dispose the property in order to pay the estate duty.
Disposal Price Deemed Equal to Acquisition Price
Where the disposal price is equal to acquisition price there is no chargeable gain or allowable loss. Paragraph 3 of Schedule 2 sets out the various circumstances under which the disposal price is equal of acquisition price are as follow :
(a) Devolution of the Assets of a Deceased Person
A person dies and his assets devolve on his executor, legatee or trustee. The devolution does not give rise to chargeable gain or allowable loss.
(b) Transfer of assets between spouses, connected person and company
(i) An asset transferred from husband to wife and vice versa.
(ii) The transfer of assets owned by an individual, by his wife or by an individual jointly with his wife or with o connected person, to a company (whether resident or not in Malaysia) controlled by the individual, by his wife or by the individual jointly with his wife or with a connected person for a consideration, consisting substantially of shares (at least 75% shares) in the company and the balance of a money payment.
(c) Transfer to Nomineeor Trustee
(d) Conveyance/ transfer of an asset by way of security.
(e) Gifts to the Government, State Government, local authority or a charity exempt from income tax under the Income Tax Act 1967.
(f) Compulsory acquisition under any law
(g) Disposal of asset to an Islamic Bank