Q.
Mr Kurunathan purchased a terrace factory building at Subang Jaya from Mrs Chan on 30 April, 2012 at a purchase price of 20% higher than the market value. Mrs Chan inherited the property from her father's estate in year 2006.
Mr Kurunathan then sold the terrace building to Mr Eric on 30 November, 2012. The market value of similar properties is at RM2,550,000. However, Mr Kurunathan sold the property for RM2,000,000 because he needed the money urgently to migrate to Australia.
a) Explain the property taxes involved in the above case. (15 marks)
b) If Mr Eric is not satisfied with the amount of duty to be paid, explain the actions that can be taken by him. (10 marks)
(25 marks, 2013 Q7)
A.
Part b) Go Stamp Duty Appeal here.
a) Kurunathan
The taxes involved are Stamp Duty and Real Property Gain Tax.
(i) Stamp Duty
Stamp Duty is charged on the transaction of real property in accordance to Stamp Duty Act, 1949. The duty charged is ad valorem, i.e. according to the amount of transaction. When a real property is transferred, the TRANSFEREE (to whom it is transferred) must pay Stamp Duty.
Transaction Kurunathan from Mrs Chan on 30 Apr, 2012 at 20% higher than market value.
Kurunathan - Stamp duty is calculated based on the consideration of moneys paid or market value which ever is greater. Thus, the stamp duty is calculated based on the purchase price which is 20% higher than the market value. Duty to pay is by the transferee who is Mr Kurunathan.
Mrs Chan - Stamp duty is charged to Kurunathan as transferee. Mrs Chan is the transferor.
Stamp Duty on Loan Facilities
In case of Kurunathan taking a loan and charged the property as a security, it is common practice now to treat the Loan or Facility Agreement as principal instrument and the charge as subsidiary instrument. In the aforesaid circumstances, the principal instrument will be charged with ad valorem duty whereas the subsidiary instrument will be charged only RM10.
The ad valorem duty for the principal instrument of a loan is calculated at RM5 for each RM1,000 or part thereof. For example, if the loan is RM400,000, the stamp duty payable is calculated as follows:-
RM5 x RM400,000 ÷ RM1,000 = RM2,000
Transaction Kurunathan to Mr Eric on 30 Nov, 2012, at RM2.00mio, rather than market value RM2.55mio.
Stamp duty is charged based on the consideration of moneys paid or market value which ever is the greater. Thus, the stamp duty is calculated based on the market value which is RM2.55mio, and not the actual sale price of RM2.00mio. Duty to pay is by the transferee who is Mr Eric.
Stamp duty is charged to Eric as transferee. Mr Kurunathan is the transferor.
(ii) Real Property Gain Tax
Real property gain tax is charged based on Real Property Gain Tax Act, 1976. The tax levied is based on the gain from deducting Acquisition Price from the Disposal Price, the remaining of which is subjected to personal relief and RPGT allowable losses carried forward from previous transactions, to arrive at a chargeable gain.
Transaction Kurunathan from Mrs Chan on 30 Apr, 2012 at 20% higher than market value.
Mrs Chan's RPGT calculation is based on the Acquisition price which is a gift from her father.
Acquisition Price
Based on Para 12 Sch 2, RPGT 1976, this is a "No gain no loss" transaction, hence the acquisition price is the same as the original acquisition price of her father. The date of acquisition is 2006, and not the earlier original acquisition date of her father as she inherited the property in 2006. The duration of holding of this property under her name is used to determine the rate of RPGT.
Disposal Price
The disposal price is the actual consideration received from Mr Kurunathan on 30 Apr, 2012. In this context, it does not matter if it is higher or lower than the Market Value as there was an earlier arm's length transaction. Rather, if there was no transaction, example having rewarded or awarded as gift or won as a prize, market value is used instead.
The chargeable gain is illustrated below:
Disposal Price
Consideration Received from Mr Kurunathan on 30 Apr, 2012
Less
(Permitted expenses)
Any cost of advertisement, agent fee, etc. in getting the property sold,
Any cost in making enhancement to the property (renovation, construction or extension),
Any cost of defending the title, or having paid in acquiring the inheritance,
Any legal fee paid
Minus
Acquisition Price
Inherited from Father 2006, at the original price "No gain no loss"
Add
Any stamp duty and legal fee paid,
Less
(Recoveries)
Any compensation received in damages,
Any compensation received for insurance claims,
Any deposits forfeited by intended buyers.
Gain subjected to deductions:
Less
- Personal Relief of RM10,000 or 10% of the Gain whichever is greater
- Allowable RPGT Loss carried forward from previous RPGT transaction
Chargeable RPGT Gain/Loss
Subject to the RPGT rate for holding period (2012 - 2006 = more than 5 years).
As the RPGT rate for individuals of holding more than 5 years is zero, there will be no RPGT levied on Mrs Chan.
Filing of forms
Mr Kurunathan has to file in CKHT 2A (Acquisition of Real Property) to the Inland Revenue Board (Lembaga Hasil Dalam Negeri) for RPGT Filing.
Mrs Chan has to file in CKHT 1A (Disposal of Real Property) to the Inland Revenue Board (Lembaga Hasil Dalam Negeri) for RPGT Filing
Transaction Kurunathan to Mr Eric on 30 Nov, 2012, at RM2.00mio, rather than market value RM2.55mio.
Mr Kurunathan's Acquisition Price is the actual purchase price which is 20% higher than the market value.
Mr Kurunathan's Disposal Price is RM2.00mio, which is the actual sale price under an arm's length transaction to Mr Eric.
The chargeable gain is illustrated below:
Disposal Price
Consideration Received (RM2.00mio) from Mr Eric on 30 Nov, 2012
Less
(Permitted expenses)
Any cost of advertisement, agent fee, etc. in getting the property sold,
Any enhancement cost (renovation, construction or extension),
Any cost of defending the title,
Any legal fee paid
Minus
Acquisition Price
Purchase price which was 20% higher than market value
Add
Any legal fee and stamp duty paid,
Less
Recoveries (compensation received from damage or insurance claim) and
Any forfeiture of deposits by potential buyers.
Gain subjected to deductions:
Less
- Personal Relief of RM10,000 or 10% of the Gain whichever is greater
- Allowable RPGT Loss carried forward from previous RPGT transaction
Chargeable RPGT Gain/Loss
Subject to the RPGT rate for holding period (30 Nov 2012 - 30 Apr 2012 = within a year) during the year of disposal 2012. Refer historical rates here.
As the RPGT rate for individuals of holding in the first year is 10%, there will be 10% RPGT levied on Mr Kurunathan's chargeable gain.
Filing of forms
Mr Eric has to file in CKHT 2A (Acquisition of Real Property) to the Inland Revenue Board (Lembaga Hasil Dalam Negeri) for RPGT Filing.
Mr Kurunathan has to file in CKHT 1A (Disposal of Real Property) to the Inland Revenue Board (Lembaga Hasil Dalam Negeri) for RPGT Filing
Ref:
Own account based on earlier posts:
RPGT 1
RPGT 2
Exemption under RPGT
Standard Format for RPGT Calculation
Market Value versus Actual Price in RPGT and Stamp Duty
Past Year 2011 Q4 Mrs Suria
Past Year 2011 Q2 Mr Hadi