RPGT: Situation whereby the disposal price deemed at Market Value

Sch 2, paragraph 5 provides the rules for determining the disposal price. However, there are certain circumstances where the disposal price shall be deemed at market value.

Under Sch 2, Paragraph 9, the consideration in the following transactions is equal to market value:

a. Where the assets are disposed other than at bargain made at arm's length or by way of gift,

b. The disposal of the asset for a consideration that cannot be valued,

c. The disposal of the asset for ma consideration with loss of employment or for recognition of past services,

d. Transfer of real property for satisfaction of the debt,

e. Lump sum disposal of chargeable asserts or

f. Where the transaction has the direct or indirect effect of altering the incidence of tax, relieving any person from any liability, evading or avoiding any duty or liability and hindering the operation of the RPGT Act.

RPGT: Treatments of gifts

The gift of a chargeable asset by any person and the corresponding acquisition is deemed to be disposed at the market value of the asset.

In a situation where a gift is made and the donor and the done are related, i.e husband and wife, parent and child, or grandparent and grandchild, and the gift is made within 5 years after the date of acquisition of the asset by the donor, the donor is deemed to have received no gain and suffered no loss and therefore any gains will be exempted from RPGT. The donee is deemed to acquire the asset at the donor's acquisition price plus the permitted expenses incurred by the donor.

If the asset is transferred after 5 years from the date of acquisition, the donor is deemed to have disposed of the asset at market value on the date of transfer. As a result, the done is deemed to have acquired the chargeable asset at market value on the date of transfer.

However, if the chargeable asset is acquired as a gift upon the death of the donor, the recipient (done) is deemed to acquire the asset at its market value as on the date of transfer of ownership of the asset to the recipient.

Example 1:

On 31.05.2013, Encik Ali gave his daughter, Cik Nain one of his house which he purchased on 01.09.2009 for RM190,000. The permitted expenses amounted to RM4,000. The market value of the house on 31.05.2011 was RM210,000.

Since it was a gift from the parent to his child, there is no chargeable gain or allowable loss from the transfer of the above property.

Disposal price deemed to be (RM190,000 + RM4,000) = RM194,000

Less: Acquisition price = RM190,000

Add: Permitted expenses = RM4,000

Chargeable gain = NIl

The acquisition price to Cik Nain is, therefore, RM194,000, which is the disposal price to Encil Ali.

Example 2:

a) On the occasion of her daughter's ACCA graduation on 31.03.2019, Mr. Kim gave her a flat which he purchases on 02.08.2005 for RM215,000. The market value on 31.03.2019 was RM450,000.

Ans: The graduation gift is deemed to be disposal (after 5 years) and Mr. Kim is deemed to have disposed of the flat at market value. Mr. Kim would be liable for RPGT as the rate of RPGT after 5 years is 5% (subject to change, depending on Government policy). His daughter is deemed to have acquired the flat at market value (i.e. RM450,000).

b) For the wedding on 02.04.2014, Mr. Kim gave her an apartment which he purchased in 2010 for RM380,000.

Ans: The wedding gift falls within the provision as it was a gift from parent to child made within 5 years after acquisition. Therefore, Mr. Kim is deemed to be in a "no gain no loss" situation in respect of the apartment. She is deemed to have outside the stipulated at the acquisition price paid by her father (RM380,000).

In conclusion, both transactions are gift from parent to child. The distinction between them lies in the holding period of the asset before parting as gift. It is the distinction that results in a different tax treatment in the hands of the daughter, if she disposes of the asset in the future.

Injecting properties into a Company

The properties investor, having considered all of the angles, may conclude that the best vehicle for holding his properties, whether for renting as a business or as an investment, is a company.

At that point, he has a whole range of other decisions to take.

a. What is the company to be called?

b. How much share capital should it have?

c. Who will the shareholders be?

d. Which bank to use?

e. Which firm of an accountant to appoint as auditors?

Some serious tax implications:

1. Transfer of properties from an individual to a company is a disposal for purposes of real property gains tax.

2. When transferor and his close family retain control of the transferee company, the market value of the property at that time of transfer is treated as the disposal value, regardless of the figurer put upon it by the parties.

3. Imposition of stamp duty on the transfer of property. The basis for the charge to stamp duty is the amount of the consideration paid or the market value of the property at the time of transfer if that is higher.

Generally, it is better to inject properties into a company at the time of their acquire as that will not attract any real property gains tax. There is no double charge to stamp duty.

Stamp duty exemption to revive abandoned housing projects

Presently, instruments of transfer and loan agreement executed by rescuing contractors or developers and original house purchases for the purpose of reviving an abandoned housing project are exempted from stamp duty. A revised residential property means a house, a condominium unit, an apartment or a flat of the abandoned project that has been revived and built as a dwelling house by the rescuing contractor or developer who is appointed or approved by the Minister of Housing and Local Government to carry out rehabilitation works for the abandoned project.

Based on the Budget 2018, it is proposed that these exemptions be extended to instruments of transfer and loan agreements executed by rescuing contractors and original house purchases from 1 Jan 2018 to 31 Dec 2020 for abandoned housing projects certified by the Ministry of Urban Wellbeing, Housing and Local Government.

For the loan agreements and instruments of transfer executed from 1 Jan 2018 to 31 Dec 2020 in relation to certified abandoned housing projects.

*Kindly refer to Budget 2018 for more detail information.

Tax exemption on rental income from residential homes

Presently, rental income is subject to income tax under the Section 4 (d) of the Income Tax Act 1967. There is no exemption given on the rental income from a residential home received by a resident individual.

Based on the Budget 2018, it is proposed that an income tax exemption of 50% be given on rental income received by Malaysian resident individuals if following conditions are met:

1. The residential home must be rented out under a legal tenancy agreement between owner and tenant;

2. Rental income received does not exceed RM2,000 per month for each residential home;

This tax exemption is given for a maximum period of three (3) consecutive years of assessment.

Effective date is Years of Assessment 2018 to 2020.