What is RPGT?

There was once a person who confused RPGT with the LGBT community (actual true story); so we feel compelled to say that these two are not connected in any way. According to Real Property Gains Tax Act 1976, RPGT is actually a form of
Capital Gains Tax levied by the Inland Revenue (LHDN) on chargeable gains derived from the disposal of real property – in this case your land or building.

Capital Gains Tax: A tax levied on profit from the sale of property or of an investment.
Chargeable/capital gains: The profit you make for selling a property at a higher price.

To explain it in simpler terms, RPGT is basically the tax collected from the sale of your land or property. Hang on, why do you have to pay tax when the property is no longer yours?! RPGT is imposed with the intention to curb property speculations or as they are fondly known – property ‘flippers’ (because they buy and ‘flip’ property at a higher price. This drives property prices sky high artificially and prevents real buyers from getting a home at the regular rate). It was suspended temporarily in 2008 – 2009 (to spur investments), but reintroduced in 2010. Ever since then, the RPGT has been increasing each year.

As the internet doge would say, “
Wow, many jargons, much puzzling”. To put it simply, if you bought a property at RM100,000 and sold it for RM400,000 – you will be taxed on your RM300,000 profit. But wait! Just like most taxes, the calculations are not that straightforward.

So, how is RPGT Calculated?

RPGT is calculated based on your
net chargeable gains; here, RM300,000 is only your gross chargeable gains. To arrive at your net chargeable gains, you can subtract a few expenses such as legal fees, real estate fees (sales commission), administrative fees, and expenditure incurred to maintain / upgrade the property (including interior design works – like all of your IKEA furniture).

Gross Chargeable gains = Acquisition price – Disposal price
Net chargeable gains = Gross chargeable gains (ie. your profit) – Individual exemption waiver (RM10,000 or 10% of the chargeable gains)
Tax payable = RPGT Rate (based on X years of property ownership) x Net chargeable gains

RPGT Rates in Malaysia as of Budget 2014:

1) RPGT Rates for Individuals

RPGT for Individuals	2014 Budget	2013 Budget	2012 Budget	Disposals on Jan-10 to Dec-11	Disposals on Apr-07 to Dec-09	Disposals on Oct-95 to Mar-07
Disposal in 1st year	30%	15%	10%	5%	0%	30%
Disposal in 2nd year	30%	15%	10%	5%	0%	30%
Disposal in 3rd year	30%	10%	5%	5%	0%	20%
Disposal in 4th year	20%	10%	5%	5%	0%	15%
Disposal in 5th year	15%	10%	5%	5%	0%	5%
Disposal in 6th year and beyond	0%	0%	0%	0%	0%	0%

 

2) RPGT Rates for Companies

RPGT for Companies	Budget 2014	Budget 2013
Disposal in 1st year	30%	15%
Disposal in 2nd year	30%	15%
Disposal in 3rd year	30%	10%
Disposal in 4th year	20%	10%
Disposal in 5th year	15%	10%
Disposal in 6th year and beyond	5%	0%

 

3) RPGT Rates for Non-Citizens and Non-Permanent Residents

RPGT for Non-PRs	Budget 2014	Budget 2013
Disposal in 1st year	30%	15%
Disposal in 2nd year	30%	15%
Disposal in 3rd year	30%	10%
Disposal in 4th year	30%	10%
Disposal in 5th year	30%	10%
Disposal in 6th year and beyond	5%	0%

After the Budget 2014 announcement, RPGT has been increased substantially to 30% for properties sold within 3 years or less (previously, it was 15% for 2 years and below and 10% for 3 years and below), 20% for properties disposed within 4 years of purchase and 15% for 5 years (previously it was 10% for both 4 and 5 years). Fortunately, 0% RPGT rate for properties older than 5 years was kept as it is.

Additionally, Foreigners can only buy properties with a minimum value or RM1M RPGT at 30% for first 5 years and 5% thereafter.

How do I calculate the years? 

Generally, the dates which are used to determine the RPGT tax rates are dependent on the date when the property was acquired, and you can find your property “disposal date” on the respective Sale and Purchase Agreements. The same applies for properties under construction i.e. the purchase date is determined as the date on the Sale and Purchase Agreement, when you agreed to buy the property and not the property completion date. So take note!

RPGT Calculation Example: 

Diana (Malaysian citizen), purchased a house in 2012 for RM415,000. She sold it in 2014 for RM560,000. Let’s assume that Diana spent RM30,000 in legal fees, agent fees, administrative fees, and maintenance works;

Chargeable gains = RM560,000 – RM415,000 = RM 145,000

Net chargeable gain to be taxed

= (RM145,000 – RM30,000) – 10% individual exemption

= RM115,000 – RM11,500

= RM103,500

Diana sold the property within two years of purchasing it, so the tax imposed on RPGT is 30%.

Tax payable = 30% x RM103,500 = RM31,050.00

RPGT Exemptions 

Put on your dancing shoes, because there are a
few exemptions allowed for RPGT:

• An individual will be given an exemption equal to RM10,000 or 10% of the chargeable gain, whichever is greater.
• An individual who is a Malaysian citizen or a permanent resident will be given an once-in-a-lifetime exemption on any chargeable gain arising from the disposal of his/her private residence if he/she elects in writing for the exemption to apply to that private residence.
• Exemption given to transactions in which the disposal price is deemed equal to acquisition price (i.e. “No gain no loss” transactions) ; this includes transfer between spouses / family members, disposal due to compulsory acquisition, and gifts to the government, local authority, or charity exempt from income tax.

RPGT – What Else do I need to Know?

For those who want to avoid paying RPGT (0%), the most ideal way is to sell your property after five years of ownership. What will become of RPGT for Budget 2015? Head back to this article on October 15th for the update!

 

• TAGS:
• Buying A Property
• Property Investment
• Property Tax
• Real Property Gains Tax
• RPGT