Tax Relief for Allowable Losses

Q.
Explain what is tax relief for allowable losses in Real Property Gains Tax.

A.
Section 7 (4) of the RPGT 1976 specifies that:

(4)(a) Where there is an allowable loss in respect of a disposal, tax relief shall be allowed in respect of such allowable loss in an amount equal to the sum arrived at by applying to every ringgit of such allowable loss the appropriate rate of tax specified in Schedule 5 in respect of the category of disposal giving rise to that allowable loss as a deduction from the total tax assessed for the year of assessment in which the disposal was made; and

(b) where, by reason of an insufficiency or absence of total tax assessed for the year of assessment in which the allowable loss arose, effect cannot be given or cannot be given in full to paragraph (a), the tax relief which has not been so allowed (or so much thereof as has not been so allowed for that year) shall be allowed for the first subsequent year of assessment for which there is total tax assessed and so on for subsequent years of assessment until the whole amount of the tax relief to be allowed has been allowed.

This means the loss at disposal for property A, for example was RM100,000 which should be levied at 20% would be used as a relief for whatever the tax chargeable during that year.

E.g. 1

Property A Allowable Loss: RM100,000 x 20% = (20,000).

Property B Gain Chargeable: RM200,000 x 20% = 40,000.

Total tax due: 40,000 - 20,000 = RM20,000.

E.g. 2

Property X, allowable loss RM200,000 subjected to holding of 4 years at 5% = (10,000).

Property Y, gain chargeable RM200,000 subjected to holding of 2 years at 10% = 20,000

Net payable RPGT = 20,000 - 10,000 = RM10,000.

[However, from 1st Jan, 2010, tax relief for loss on disposal was replaced by the claim of allowable loss arising from the disposal of chargeable assets against chargeable gains from subsequent disposals. The allowable losses can be brought forward until it is fully utilized. In other words, the un-utilized allowable losses can be carried forward for offset against future chargeable gains until it is fully utilized.]

E.g. 1

Property B Gain less Property A loss = 200,000 - 100,000 = 100,000

Net chargeable gain of RM100,000 is subjected to 20% = RM20,000.

E.g. 2

Property Y Gain less Property X loss = 200,000 - 200,000 = 0

Net chargeable gain of RM0, hence no tax.

Hence, the new method of deducting the allowable losses brought forward would be better than the tax relief calculation earlier on. The total sum lost can be deducted from the current gain, and at less taxable burden to the chargeable person.