When it comes to taxes applicable for real estate investments, there are a myriad of tax liabilities that you need to know in order to get the most out of your investment.
Generally, gains on buying and selling properties are not subject to income tax but in situations where the buying and selling activities are treated as trading in nature, then the gains are subject to income tax. Real Property Gains Tax (RPGT) are only chargeable if the gains are capital in nature.
However periodical income derived from properties such as net rental income is subject to income tax as follows:
REAL PROPERTY GAINS TAX
Real Property Gains Tax (RPGT) is a form of Capital Gains Tax that is imposed on the disposal of property in Malaysia. It was suspended temporarily on 1st April 2007, and reintroduced in 2010. With effect from 1st January 2014, the uniform RPGT rate applicable for individuals and companies will no longer apply.
Real Property Gains Tax rate for disposal of real properties for holding period up to 3 years is 30%, disposal in 4th year is 20%, disposal in 5th year is 15%, disposal after 5 years by individual is 0%, and by companies is 5%.
RPGT is a tax on chargeable gains derived from disposal of property. A chargeable gain is the profit when the disposal or sale price is more than purchase price of the property.
You will be only be taxed on the positive net capital gains which is the disposal price less the purchase price plus the miscellaneous charges such as stamp duty, legal fees, advertisement charges, etc. Additionally, a waiver on the taxable amount is granted to individuals (but not companies). The holding period is from the date on the S&P agreement till the disposal date.
In line with the Government’s aspiration to modernise the tax system and given that people are increasingly more responsible, tax on gains from the disposal of property will be self-assessed by the taxpayer effective from the year 2016.
RPGT Exemptions
There are exemptions allowed for RPGT; among them are:
1) Exemption on chargeable gains from the disposal of one residential property once in a lifetime to an individual who is a Malaysian citizen or a permanent resident.
2) “No gain no loss” transactions for the disposal of real property between family members (e.g. husband and wife, parents and children; and grandparents and grandchildren)
3) 10% of chargeable gains OR RM10,000 per transaction (whichever is higher) is not taxable.
STAMP DUTY
Stamp duty is chargeable on transfer of properties. The rate of duty varies according to the transacted values. However, exemption of stamp duty is given on certain transactions. The following are rates of stamp duty for the transacted values of properties.
Stamp duty exemptions
1. Exemption of 50% on stamp duty for sale and purchase and loan agreement is given for first time home buyer or home buyer under My First Home Scheme (house price ≤RM 500,000) with the condition that the sale and purchase agreement must be executed between 1st January 2015 and 31st December 2016.
2. For purchases under the 1 Malaysia Housing Programme (PR1MA) with the house price not more than RM300,000, the stamp duty for loan agreement is exempted with the condition that it must be executed between 1st January 2012 and 31st December 2016.
GOODS AND SERVICES TAX (GST)
Since the GST implementation on 1st April 2015, a lot of people think that there is a clear cut-off point where the GST is concerned in regards to the real estate industry but that could not be further from the truth. There is a doubt as to whether an individual has to charge GST when selling his commercial property, as this sale may not be considered a business transaction!
However, according to the latest Customs Director-General’s decision, any individual who is not a GST registered person is treated as carrying out a business if he, at any one time owns:
(a) more than 2 commercial properties;
(b) more than one acre of commercial land; or
(c) commercial property or commercial land worth more than 2 million ringgit at market price;
Any individual mentioned above is liable to be registered as a GST registered person if
(i) he has the intention to supply any of his commercial properties or commercial land; and
(ii) the total value of such supply exceeds the prescribed threshold in 12-months periods.
Koong Lin Loong, managing partner of Reanda LLKG International Chartered Accountants, has won numerous awards including the “The World Top 10 Outstanding Overseas Chinese of Guangdong Origin” in 2011.