Buying for investment? Factor in RPGT too
Of course the government has announced it month ago and seems to have imposed it immediately when New Year comes. There were two announcements made with regards to Real Property Gain Tax in 2009 which basically announced the resurrection of the dormant RPGT, as it is widely known, after it was put to sleep in April 2007. Everyone was happy when it was announced in 2007 that Malaysian who sold off their properties is not subjected to any more tax. As Malaysians do not have to declare any of their assets in their income tax (except for companies and individual who wants to get the benefit of paying interest to finance the purchase of their properties), within April 2007 until December 2009, Malaysia got away with the full profit of selling and making a profit of any house they owned.
Then in Budget 2010, the Prime Minister announced the return of the dreaded RPGT. Everyone was surprised of its severity as ANY transaction will be subject to RPGT. Which means that anyone selling his or her property, if they make a profit, they will have to pay a flat tax of 5%. Which means that, if you make a profit of RM10,000, your RPGT will be RM500 (this is a simplistic explanation without any exemption being taken into account). All this is supposed to be imposed on the people immediately on 1.1.2010.
Then, in another announcement, at the very last moment before the date of implementation, the Prime Minister announced a kind of reversal which gives the people some kind of reprieve. Basically, the government decided to give a kind of an exemption (which may not last forever) to the people in which only properties below 5 years being held by an individual will be taxed. How the tax is calculated is another matter.
So, what is the salient points of the new RPGT? Here are the basic operation of the new RPGT :
1) You will have to submit the forms for the determination of RPGT called CKHT 1 (for seller) and CKHT 2 (for buyer), either you think you will be taxed on the sale of your property or not. Even if you held the property more than 5 years, my advice is to ensure that you have submitted your form to the nearest Lembaga Hasil Dalam Negeri (LHDN). When you get an exemption letter or better known as a clearance letter, only then will you be in the clear.
2) You have to file these forms within 60 days of the signing of your Sale & Purchase Agreement. When it says 'days' there, it means 'working days'. It was changed from 'one month' to '60 days' in the Real Property Gain Tax Act.
3) The next important point is that the buyer (referred to as the acquirer in the Act) of the property has to forward a sum of two percent (2%) from the total purchase price to the LHDN regardless whether the buyer (or the seller) thinks he will or will not be taxed.
This is a very controversial and unprecedented piece of law in which the buyer has to pay this 2 percent regardless of any reason and can only be returned if it is determine that the seller is not liable to pay any RPGT or if he has to, it will be utilised for the payment of such amount.
These basic points are the important points that people must know about Real Property Gain Tax.
Just a reminder, all lawyers will offer the service of filing and ensuring you get the letter of clearance or make the necessary payment to LHDN. The burden of retaining the 2% of the purchase price and its payment under the law is on the acquirer or better known as the buyer. Buyer will be subject to penalty if he does not act on this. However, once you appoint a lawyer to do the filing of CKHT 1 or CKHT 2, the burden will be shifted to the lawyer under the Contract for Service you have appoint him under. Of course, as the buyer, you will be the one who will be penalised, if it was found you fail to file or pay anything to LHDN under RPGT but then, if you have a lawyer, you can claim the failure on him (unless he can prove back that you were at fault or he has done everything his power to enforce this part of the Act on you)
p/s : There are other explanations in the amendment about the calculation of RPGT which are actually done by LHDN (meaning you can huff and puff but in the end they are the one which will determine how much is the RPGT you have to pay) but as a lawyer, I am too dumb to understand it. Let me give you an example the wordings used :
"is the amount of tax charged on the chargeable gain on the person at the appropriate tax rate reduced by the amount of tax charged on such chargeable gain at the rate of five per cent"
p.p.s : Every time I tell my wife of such a piece of law exist, she will coolly says, "Wasn't it drafted by a lawyer?"