Q.
When is "Fair Market Value" (FMV) used in calculation of tax treatment in RPGT or Stamp Duty?
A.
Stamp Duty Act 1949 specifies that Market Value or Actual Price which ever is higher is used for calculation of Stamp Duty due for payment.
Real Property Gain Tax 1976 specifies "Consideration" in arriving at the Disposal Price or Acquisition Price, however, what is "Consideration" depends on the scenario of the transaction. And, Schedule 2 Para 9 and 11 specified that Market Value is to be used in the conditions provided below.
Certain transactions deemed to be at market value (Schedule 2, Paragraph 9)
The acquisition or disposal of an asset by a person shall be deemed to be for a consideration equal to the market value of the asset-
(a) where he acquires or disposes of the asset otherwise than by way of a bargain made at arm's length and, in particular, where he acquires or disposes of it by way of gift: or
(b) where he acquires or disposes of the asset wholly or partly-
(i) for a consideration that cannot be valued; or
(ii) in connection with his own or another's loss of office or employment or diminution of emoluments; or
(iii) in consideration for or recognition of his or another's services or past services in any office or employment or of any other service rendered or to be rendered by him or another; or
(c) where he acquires an asset as trustee for the creditors of any person in full or part satisfaction of any debt due from that person or where he transfers an asset as trustee for the creditors of any person to the creditors in full or part satisfaction of any debt due to the creditors; or
(d) where he acquires or disposes of an asset in a transaction for the transfer of a business for a lump sum consideration; or
(e) where section 25(2) applies.
What is S.25(2)?
25
- (a) altering the incidence of tax which is payable or suffered by or which would otherwise have been payable or suffered by any person;
- (b) relieving any person from any liability which has arisen or which would otherwise have arisen to pay tax or to make a return;
(c) evading or avoiding any duty or liability which is imposed or would otherwise have been imposed on any person by this Act; or
(d) hindering or preventing the operation of this Act in any respect,
may, without prejudice to such validity as it may have in any other respect or for any other purpose, disregard or vary the transaction and make such assessments as he considers just and proper in the circumstances.
Definition of market value (Schedule 2, Paragraph 11)
(1) Subject to this paragraph, the market value of an asset, which is acquired or disposed of is the price which it would fetch if it were sold in a transaction between independent persons dealing at arm's length at the time of the acquisition or disposal.
(2) If-
(a) the parties to the disposal of an asset are unable to agree on its market value; or
(b) there is only one party to the disposal of an asset; or
(c) the Director General is of the opinion that the market value of an asset as agreed on by the parties to its disposal is incorrect,
the market value in question shall be determined by the Director General.
Gifts (Schedule 2, Paragraph 12)
Where an asset is disposed of by way of a gift, the disposal shall be deemed to be a disposal at the market value of the asset:
Provided that, where the donor and recipient and husband and wife, parent and child or grandparent and grandchild, and the gift is made within five years after the date of acquisition of the asset by the donor, the donor shall be deemed to have received no gain and suffered no loss on the disposal and the recipient shall be deemed to have acquired the assets at an acquisition price equal to the acquisition price paid by the donor plus the permitted expenses incurred by the donor.
S.25(2) RPGT, 1976.