Someone once said, “A person doesn’t know how much he has to be thankful for until he has to pay taxes on it.” Now if you are a Malaysian, you will probably relate to this quote since you are probably familiar with Real Property Gains Tax or RPGT. Though there is no lack of rewards in the property business while investing, you cannot just escape tax and just get your profit afterwards.
With that being said, a person looking to buy or put money into a property in Malaysia should have an in-depth understanding of RPGT, including knowing what it is, when it is applicable, how it is calculated and how it will be filed to pay.
Even if you know about it, understanding the procedure can be confusing at times, especially when it comes to the alterations of rates made by the Malaysian government.
Puzzled? Don’t worry. In this article, we will clear all your confusions before you step forward into the field of buying and selling properties.
What is RPGT?
Simply put, when a property is sold, a tax is chargeable on the profit gained from it and the seller has to pay it to the Inland Revenue Board. This tax is called Real Property Gains Tax (RPGT). It is only applicable to the seller.
Whether it is from a Malaysian citizen to a foreign resident, an employed person to a retired officer – no matter who you are, you will be counted for RPGT when you sell a property in Malaysia at a profit.
How is RPGT calculated?
There is a simple formula of the RPGT payable.
RPGT = Chargeable Gain x RPGT Rate
Basically, the rate for this tax is applied when you get a net profit or chargeable gain after selling a property. Now if you subtract the original price of the property when it was bought from the price of the property when it is sold, you will easily get the chargeable gain. The formula is as such:
Chargeable gain = Sale Price – Purchase Price
As per the last budget presented by the Malaysian government, the RPGT has been increased for disposal of a property from the sixth year onwards and it is being implemented from January 1, 2019.
As of October 11, 2019, for the Budget 2020, the government announced that it will enhance the RPGT treatment by revising the base year for asset acquisition to Jan 1, 2013 for assets acquired before Jan 1, 2013 compared with the base year of Jan 1, 2000 previously.
So, how will it impact me when the base year has been shifted to Jan 1, 2013?
Let’s assume A bought a landed property in 1995 for RM 200,000. In 2000, the price of the property increased to RM 230,000 whereas in 2013, the price of the property increased to RM 300,000. In 2020, A sells the house for RM 500,000.
If we take 2000 as the base year.
|The tax that needs to be paid:
RM 500,000 – RM 230,000 = RM 270,000 X 5% = RM 13,500
If we take 2013 as the base year.
|The tax that needs to be paid:
RM 500,000 – RM 300,000 = RM 270,000 X 5% = RM 10,000
With the new revision to the base year, A will be able to save RM 3,500 from tax.
Are there any RPGT exemptions?
Yes. Thankfully there are few exemptions to be benefitted from, for property owners. They can deduct their taxes. This is why they need to be acquainted with the proper way to do it.
- The property owners can get a once in a lifetime exemption on gains that will arise when they dispose of their residential property.
- There is an exemption on gains from the disposal of property between family members. For instance between father and child, husband and wife or grandparents and grandchildren.
- The third exemption is a waiver of 10 percent of chargeable gains or RM 10,000 (which is one of the higher sums) per transaction.
How do you file to pay RPGT?
You will have to go through some steps to in order to pay off your RPGT. The easiest way is as follows:
- Fill out Disposal of Real Property form, also known as CKHT 1A form. The sale and purchase agreement should be attached with the form. If there are any other documents supporting the calculation, they should also be included with the form.
- When you are applying for the RGPT exemptions, you should also fill out a Notification under Section 27 RPGTA 1976 (CKHT 3) form.
- The buyer’s Acquisition of Real Property (CKHT 4) form should also be filled out along with a copy of the Sale and Purchase Agreement.
- The last step is submitting the forms and all the necessary documents to the nearest IRB (LHDN) branch within 60 days of a sale.
You can get all the forms from any IRB (LHDN) branch or download them from IRB’s website. Your request will be processed and you will also be notified.
So now you know how to file for RPGT. It isn’t as complicated some people make it out to be. Good citizens always pay their taxes. Happy taxing!
This article is written by Rahnama Haque.
If you wish to read this article in Chinese, please click here.
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