Real Property Gains Tax (RPGT) is a form of Capital Gains Tax that homeowners and businesses have to pay when disposing of their property in Malaysia. This means that if one day you decide to sell your house, you have to pay taxes on the profit (gains) if you have any. If you sell your house with a loss you don’t have to pay any RPGT because you didn’t make any profit. If you made a profit you need to make sure you pay the RPGT within 60 days of the sale. You can pay the RPGT by paying a fee for the solicitors of the sale. Paying yourself is also possible if you prefer that instead of dealing with a lawyer you can fill in the necessary forms for the Inland Revenue Board. Further in the article, we will talk about handy tools, how it is calculated and exemptions. Now, here is some history about the RPGT. First, it was suspended temporarily from April 2007 to December 2009 and reintroduced in 2010. In 2014, the RPGT was increased for the fifth straight year since 2009. In 2019, the RPGT rates have been revised. Then, there's another revision to the RPGT under Budget 2020, as well as the Exemption Order for 2020. Additionally, under Budget 2022, Finance Minister Tengku Zafrul announced that the government will no longer impose Real Property Gains Tax or RPGT for property disposals by individuals comprising Malaysian citizens, permanent residents and foreigners starting from the sixth year. But first... RPGT rates classification The following is the RPGT rates effective from January 2022:
Source: LHDN
RPGT amendment under Budget 2022
As per the Budget 2022 announcement, individuals who are Malaysian citizens and permanent residents will benefit from the removal of the Real Property Gains Tax (RPGT) on the disposal of any residential property in the sixth year of ownership and beyond.
How to calculate RPGT, and what kind of impact does it have on you?
Image source: iProperty
Based on the Real Property Gains Tax Act 1976, RPGT is a tax on chargeable gains derived from the disposal of property. A chargeable gain is a profit when the disposal price is more than the purchase price of the property. What most people don’t know is that RPGT is also applicable in the procurement and disposal of shares in companies where 75% of their tangible assets are in properties, a.k.a. Real Property Companies (RPC). RPGT applies to both residents and non-residents.
You will be only be taxed on the positive net capital gains which are disposal price less the purchased price less 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 Sales and Purchase Agreement (S&P) until the disposal date.
For a quick calculation, the formula is:
Chargeable Gain = Disposal Price - Purchased Price - Miscellaneous Costs
Net Chargeable Gain = Chargeable Gain - Exemption Waiver (RM10,000 or 10% of Chargeable Gain, whichever is higher)
Tax payable = RPGT Rate (based on holding period) * Net Chargeable Gain
If you'd like a simpler way to compute your RPGT, why not check out this handy calculator which will save you the hassle!
If you want to see a real example, here you go:
Let’s say you purchased a house 12 years ago for RM500,000, now you want to sell it. The market price of the house is now RM700,000. To calculate the chargeable gain we minus the price RM700,000 by the original purchase price RM500,000 and any miscellaneous cost, let's say we incurred a miscellaneous cost of RM10,000 from lawyer fees. The calculation goes as follows:
Chargeable Gain = Disposal Price - Purchased Price - Miscellaneous Costs
= RM700,000 - RM500,000 - RM10,000
= RM190,000
Now, we move on to the net chargeable gain. As mentioned above we can deduct the exemption waiver.
Net Chargeable Gain = Chargeable Gain - Exemption Waiver (RM10,000 or 10% of Chargeable Gain, whichever is higher)
= RM190,000 - (RM190,000 X 10%)
= RM171,000
Tax payable = Net Chargeble Gain X RPGT Rate (based on holding period)
= RM171,000 X 5%
= RM8,550
You’ll pay the RPTG over the net chargeable gain. If you owned the property for 12 years, you’ll need to pay an RPGT of 5%.
RPGT Exemptions (tax relief)
Good news! There are some exemptions allowed for RPGT.
Malaysian citizens or permanent residents are allowed exemption on profits from the disposal of a private residence once in a lifetime. According to the CHKT Act, a private residence is a building or part of a building owned by an individual or occupied as a dwelling place.
Exceptions for disposal of property between family members (such as between parents with children, spouses, and even grandparents with grandchildren).
Exemption for an amount equal to 10% of taxable profits, or RM10,000 (whichever is higher) per transaction will not be taxable.
RPGT Exemption Order 2020 (“Exemption Order”) Announced during PENJANA 2020, under the Exemption Order, Malaysians will be exempted from paying the 5% (or higher) RPGT for the disposal of residential property from 1 June 2020 and 31 December 2021. Such exemption is granted for up to three residential properties per individual if the following conditions are fulfilled: 1. the disposer must be an individual who is a Malaysian citizen and is the sole or joint owner of the property to be disposed; 2. the property disposed must be a ‘residential property', namely a house, a condominium unit, an apartment or flat in Malaysia, and includes a service apartment and a small office home office (SOHO) which is used only as a dwelling house; 3. the residential property which is being disposed of is not acquired by way of:
transfer between spouses; or
a gift between spouses, parent and child, or grandparent and grandchild where the donor is a citizen; and
4. the SPA for the disposal of the residential property is executed on or after 1 June 2020 but not later than 31 December 2021 and is duly stamped not later than 31 January 2022. Where there is no SPA, the instrument of transfer for the disposal of the residential property is executed on or after 1 June 2020 but not later than 31 December 2021 and is duly stamped not later than 31 January 2022. If the individual disposes of more than three units of residential properties, the disposer may elect any three from the said disposals to be exempted. Once the decision is made, the election is final and irrevocable. In the event the disposal of the residential property is a conditional contract requiring the Federal Government or a State Authority’s approval, the exemption will be applicable subject to the following conditions:
the contract of disposal of a residential property is executed on or after 1 June 2020 but not later than 31 December 2021 and is duly stamped not later than 31 January 2022; and
the approval is obtained on or after 1 June 2020.
Take note that the exemption from payment of real property gains tax under the Exemption Order does not absolve the disposer from complying with the requirement to submit any returns or information under the Act.
How to make an RPGT payment?
1. First, fill in the Property Disposal form (RPGT 1A). With this form, you must attach the Sale and Purchase Agreement (SPA) and all the documents that support the deduction that you want to apply for from RPGT. 2. If you want to apply for RPGT/ RPGT exemption, you must also fill in the Information Notification Notice form under Section 27 A RPGT 1976 (RPGT 3). 3. As a seller, you must also make sure that the buyer fills in the Certificate of Settlement (RPGT 4) form, which must be shared with a copy of the Sale and Purchase Agreement. 4. Once you have completed all, submit the forms once with the supporting documents at the nearest LHDN branch within 60 days. You can get the forms from any LHDN branch or download just download them from the LHDN website. (Normally you lawyer will handle all of those process.)