By now, most of us have a broad picture of Belanjawan 2019, its highlights, and perhaps, have an opinion or two on who might be its victors and victims.
Personally, I am more interested in the property segment of the Budget as I am a property investor myself. From it, I have learnt the government is focusing on encouraging Rakyat who is in the low and middle income bracket and first-time homebuyers to purchase a property themselves. It is a positive move towards a higher home ownership rate among Malaysians in the future.
Among the measured announced, there is one, to me, that stood out the most. It is the imposition of 5% Real Property Gain Tax (RPGT) for gains received from disposal of properties after the fifth year of owning them. I believe, it impacts a lot more on long-term property investors over short-term speculators who gain from flipping properties. Ouch!
Regardless of what we think about it, good or bad, RPGT is now a concern to all property investors in Malaysia, myself included. I have downloaded the LHDN’s RPGT Guidelines and studied it. The document is only made available in Malay. No English translation is provided by LHDN at the point of writing.
In this article, I’ll summarize my findings from the RPGT Guideline. This writings would be confined to individual property investors who are either a citizen or a Permanent Resident (PR) of Malaysia. Therefore, here are 5 things you need to know about RPGT in Malaysia.
#1: What’s RPGT?
RPGT is a tax imposed on gains derived from disposal of properties in Malaysia. It includes both residential and commercial properties, estates, and empty plot of lands.
For example, if you bought an apartment for RM 250,000 and decided to sell it for RM 500,000, the profit of RM 250,000 is chargeable under RPGT. However, the formula to calculate your final amount of RPGT is not that straightforward. For a start, the formula is:
RPGT Payable = Net Chargeable Gain x RPGT Rate
#2: Rates of RPGT
The RPGT rates applicable is based on the number of years you own your piece of property. Previously, the RPGT rates are as followed:
|Below 3||4||5||6 and Beyond|
Starting on 1 January 2019, the RPGT rates would be revised to:
|Below 3||4||5||6 and Beyond|
#3: Chargeable Gain
Chargeable gain is calculated based on the formula:
Chargeable Gain = Final Sales Proceeds – Final Purchase Costs
Final Sales Proceeds:
Let us start with the final sales proceeds. It is calculated by deducting allowable selling costs of the property from the agreed selling price of the property itself. These costs include renovation costs, legal fees, real estate agent’s commission and advertising fees incurred to sell the property.
From the example above, you sold your apartment for RM 500,000. You paid a total of RM 10,000 in commission to your agent for selling the property. Hence, your final sales proceeds would be RM 490,000.
Final Purchase Costs:
Meanwhile, the final purchase costs of your property is calculated by adding up allowable purchasing costs of the property from the agreed buying price of the property itself. These costs include stamp duties, valuation fees, legal fees, and real estate agent’s commission in relations to the purchase of your property.
From above, you bought the apartment for RM 250,000. In total, you have paid a total of RM 10,000 in allowable costs for the purchase of your property. Thus, your final purchase costs would be RM 260,000.
Thus, your chargeable gain is RM 230,000 (RM 490,000 – RM 260,000).
#4: RPGT Exemptions
There are several RPGT exemptions available for us to take advantage of which include:
Exemption 1: Personal Residence
You are entitled for a RPGT exemption after disposing a residential property for once in your lifetime. Please use it wisely. It is advisable to utilize this once in a lifetime exemption on higher priced properties over lower priced properties to maximize your amount of tax savings.
If you decide to utilize it, you are not liable to pay RPGT on the chargeable gain of RM 230,000.
Exemption 2: RM 10,000 or 10% of Chargeable Gain
If you decide not to utilize the once in your lifetime RPGT exemption, then, you may utilize a RPGT exemption where the sum is higher of RM 10,000 or 10% of your chargeable gain.
In your case where the chargeable gain is RM 230,000, your RPGT exemption is RM 23,000 (10% of RM 23,000) as it is higher than RM 10,000. Hence, your net chargeable gain is RM 207,000 (RM 230,000 – RM 23,000).
Net Chargeable Gain
= Chargeable Gain – Higher of RM 10,000 or 10% of Chargeable Gain
Exemption 3: Transfer of Ownership as a Gift
This is applicable to property owners who intend to transfer ownership of their properties as a gift to their family members. It is confined to husband and wife, parents and children, and grandparents and grandchildren only.
#5: Allowable Losses
Allowance losses occurred when the final sales proceeds of a property is lower than the seller’s final purchase costs. According to the RPGT Guideline, a seller is allowed to deduct allowable losses if he disposes his property within 5 years after he purchased the property from his net chargeable gain.
For instance, if you have sold another property at a loss of RM 20,000, let’s say two years ago, you can offset the RM 20,000 in allowable loss against your net chargeable gain of RM 207,000. Thus, your final chargeable gain is RM 187,000 (RM 207,000 – RM 20,000).
Final Chargeable Gain
= Net Chargeable Gain – Allowable Losses (If any)
Starting in 1 January 2019, RPGT would be a reality to all homeowners and real estate investors across Malaysia. I think, it is helpful for us to learn about RPGT and its implications to us as property owners. Thus, I would leave you with two materials which are helpful for you to get familiarised with RPGT.