No matter how high the RPGT rate is, speculation
in properties will still occur so long as the return on
investment is attractive enough.
Then again, are the proposed RPGT rates really that high?
17.10.97
to 31.03.07
01.01.14
onwards
Within 2 years
30%
30%
Disposal in the 3rd year
20%
30%
Disposal in the 4th year
15%
20%
Disposal in the 5th year
5%
15%
Disposal in the 6th year and
thereafter
0%
0%
The proposed RPGT rates don’t even come close to the highest RPGT rates that
the country, in the history of the Real Property Gains Tax Act 1976, (RPGT Act), has
experienced. When the RPGT Act was first introduced, the disposal of a property
which occurred within two years after the date of its acquisition was subject to
RPGT at a hefty rate of 50%!
So now that we are faced with the RPGT regime in 2014, property investors,
especially the speculators, will have to better plan their taxation strategy in order to
reduce their tax exposure on their property investments as best as they can, legally.
It must be remembered that there are TWO laws that govern property transactions
in Malaysia and they are:
•
The Income Tax Act 1967; and
•
The Real Property Gains Tax Act 1976.
Under certain situations, where the badges of trade testisfulfilled (refer to my
earlier article published in the [ month ] issue of Property Hunter titled, ‘Taxation of
Property Transactions: Income Tax or Real Property Gains Tax?’*, a disposal of a
property may be subject to Income Tax instead of RPGT.
(*The article may also be viewed at http://propertyhunter.com.my/v1/expert.php?id=22)
To have a better appreciation of how the RPGT and income tax rates relate to each
other, let us look at the graph :
25%
20%
Tax Rate
It is interesting to note that the proposedchanges to the RPGT rates are nothing
more than, to a great extent, reverting the RPGT rates to its prior position in 1997.
In 1997, the RPGT rate was 30% for disposal within two years after the date of
acquisition of a property, which will now be extended to three years.A comparison
of the RPGT rates for individuals (citizens and permanent residents) then and
moving forward in 2014, is illustrated below:
Within 3 years
(5 years for
non-Citizens)
30%
In the 4th year
15%
In the 5th year
10%
In the 6th and
subsequent years
(Company &
non-Citizens)
5%
0%
0
0
0
0
0
0
00 000 000 000 000 000 000 000
50 ,00 ,00 ,00 ,00 ,00
,0
,
,
,
,
,
,
,
5 10
20
35 50
70 100 150 200 200 500 700 000
1,
2,
Chargeable Income
Income Tax Rates
RPGT Rates
Individual
Company/LLP
Considering the fact that the RPGT rates would be higher than income tax rates
in the case of disposal of properties within three years after their acquisition date,
it may best for the property speculators, when fulfilling most of the badges of
trade test to own up that they are in fact, speculating or trading in properties and
consider putting such properties in a company or a limited liability partnership (LLP)
where the tax is lower, when assessed as a trading activity under income tax.
It is also worthy to note that with effect from the Year of Assessment 2016, it has
also being proposed that the income tax rate of a company with a paid-up capital
(or in the case of a LLP, capital contribution) of not exceeding RM2.5 million will be
reduced by 1%, ie. to 19% on the first RM500,000 of its chargeable income while
the balance taxed at 24%, thus making income tax rates lower than RPGT rates
even for properties disposed within four years after their acquisition date.
Moving ahead, it would be advisable to acquire such properties (intended to be
held for periods of four years or less) in a separate entity, such as a property dealing
company, in order to shield the other properties legitimately held for long-term
investments, from being exposed to income tax implications as well.
Tax planning therefore starts even before you buy your property and not only when
you decide to sell your property as you stand to save the most taxes when you
develop a tax plan that best suits your investment strategies.With proper planning,
property investors and speculators, can save themselves a considerable amount of
money in taxes.
www.PropertyHunter.com.my
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