Real Property Gain Tax (RPGT) vs Income Tax

What is RPGT?

Real Property Gains Tax is one of Malaysia’s most important real estate taxes.

If you made a profit from selling real estate, you need to make sure you pay the RPGT within 60 days of the sale to the Malaysia Inland Revenue Board (IRB). However, you do not have to pay RPGT if you sell the property for a loss or for no profit (the initial purchase price) (sell for a loss).

This real estate tax, which is taxed on the sale of real estate, was established under Malaysia’s 1976 Real Property Gain Tax Act (Real Property Gain Tax 1976).

The government issued this decree in 1976 to limit speculation in the real estate market and prevent it from becoming a bubble.

*Speculation = refers to the practice of investors speculating in real estate by purchasing low and selling high to generate large profits.

What is ITA?

ITA is imposed in Malaysia under the Income Tax Act 1967 on income accruing in or derived from Malaysia, except for the revenue of a resident corporation operating in the business of air/sea transport, banking, or insurance, which is assessable on income received from anywhere (world income scope). Income attributable to a place of business (as defined) in Malaysia is also presumed to have originated in Malaysia.

Whether you are a real estate investor trying to sell your property for a profit or a homeowner looking to sell your current home and relocate, RPGT is a real estate tax charge you should be aware of.

This is due to the Malaysian government frequently adjusting the property profit tax rate based on market conditions. In reality, it has undergone various changes since its inception in 1976. The government even stopped the RPGT from 2007 to 2009 before reintroducing it in 2010.

Photo 1: The Changes in RPGT of Malaysia’s Property Profit Tax

As can be seen, RPGT is a real estate tax that is frequently changed.

Based on Real Case Study:

KST sold the property to a development business for RM1,520,000. IRB asserted that the sale of land is subject to the Income Tax Act of 1967. (ITA)

 KST did not agree

  • The initial plan is to provide the land to 9 siblings with no intention of trading.
  • Following that, KST sold the land when it got an offer from the developer

So, the gain from land disposal is not subject to ITA 1967.

What is IRB (Inland Revenue Board) argument?

  • The initial intention has changed.
  • The holding period is short.
  • KST is one of the directors of the land-acquired company.
  • Improvement on land is done before disposal.

So, the gain from land disposal is subject to Income Tax Act 1967 (ITA1967).

The decision by Special Commissioners of Income Tax:
Special Commissioner agreed with IRB tax treatment. Gain from land disposal is subject to Section 4(a) ITA 1967.

Photo 2: The Difference between RPGT and ITA

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