Q.
Kiah Sdn Bhd is a controlled company formed on 1 March 2015 with the paid up capital of 200,000 ordinary shares at RM1 per share unit. Hany Enterprise owned 40,000 share units in the company. On 1 January 2016 Kiah Sdn Bhd acquired an interest in real property worth RM700,000. On that date, the total tangible asset of the company was worth RM860,000.
On 1 June 2016, Hany Enterprise acquired additional 20,000 share units from another shareholder at RM40,000.
Given that the property is situated at a newly developed business centre, Kiah Sdn Bhd had the property revalued. At the same time, the company had increased its paid up capital to 300,000 share units. From an excess reserve realized through the revaluation, 100,000 units were issued in the form of bonus shares to existing shareholders. Of these Hany Enterprise received 20,000 share units by the directors' resolution on 1 Jan 2017.
On 1 Mar 2017, Hany Enterprise sold 40,000 share units at RM180,000 and followed with another sale of 10,000 unit shares on 30 Jun 2017. Later, Hany Enterprise disposed a further 10,000 units share on 1 Jan 2018.
Calculate the real property gains tax payable in this case.
(25 marks, 2018 Q3)
A.
Kiah Sdn Bhd (hereafter Kiah), became Real Property Company on 01 Jan, 2016 when it acquired RM700,000 out of RM860,000 tangible assets of the company. This constitute 81.4% of the total share of the company.
Definition of Real Property Company (RPC):
A company is an RPC if it is:
• a controlled company, as defined, and
• owns real property or RPC shares whose combined defined value (market value or in certain cases the deemed acquisition price) is at least 75% of total tangible assets (TTA).
From now onwards, Kiah is a RPC, and will cease to be RPC when this 81.4% come below 75%. However, when the RPC shares were transacted, despite that the company has ceased to be RPC, it is RPC forever. And, hence the transaction of its shares will be treated with RPGT on the gains.
The determining factor of the value of the share transacted will be calculated from the formula below:
Paragraph 34A(3)(a) of Schedule 2 and it is computed as follows:
- A/B x C, where
- A is the number of shares held by the shareholder
B is the total issued shares of the company, and
C is the defined value of the real property at the date of acquisition of the
chargeable asset*.
*In this question - RM700,000 which was the Real Property it acquired on 1 Jan, 2016.
- Kiah -------------------Hany ----------------------------------- Date RPC 01 Jan 2016-------Transaction
- 200,000 --------------Acquire 40,000 + 20,000 (RM40,000) 01 Jun 2016 ---------------------A
- 300,000 --------------Acquire 40,000 + 20,000 + 20,000 (Bonus Share) 01 Jan 2017 --------B
- 300,000 --------------Dispose 40,000 (RM180,000) 01 Mar 2017 -------------------------------C
- 300,000 --------------Dispose 10,000 (No price mentioned) 30 Jun 2017 ----------------------D
- 300,000 --------------Dispose 10,000 (No price mentioned) 01 Jan 2018 -----------------------E
Transaction:
A. When Hany Enterprise (hereafter Hany) which already owned shares (40,000) in Kiah acquired further 20,000 shares at RM40,000 on the 1 June 2016 these shares was RPC shares already for 6 months. This is disposal of RPC shares by another Shareholder and is subjected to RPGT (within the 1st year - 30%).
RPGT = 30% on gains
- Disposal Price = RM40,000
- Original Price = RM70,000 (RM700,000 x 20,000/200,000)
- Loss = (RM30,000)
RPGT payable = 0
(This loss in selling the 20,000 shares to Hany can be brought forward to be deducted from any gains in the future disposal of other shares.)
On the other hand the acquisition price for Hany is RM40,000 for these 20,000 shares. And, subsequent disposal by Hany will be calculated for gains taxable under RPGT on these shares.
B. Bonus issue of shares
Bonus share issued to Hany by Kiah on 01 Jan, 2017 is exempted from RPGT (it is like no gain no loss)
C. Hany disposed of 40,000 shares at RM180,000 on 01 Mar 2017
Disposal price = RM180,000
Acquisition price = RM700,000 x 40,000/300,000 = RM93,333
Gain = RM180,000 - RM93,333 = RM86,667
As it was transacted within 2 years (01 Jan 2016 - 01 Mar 2017 = 15 months), the RPGT rate is 30%
RPGT payable by Hany = RM86,667 x 30% = RM26,000.
D. Hany disposed of 10,000 shares on 30 Jun 2017
As it was transacted within 2 years (01 Jan 2016 - 30 Jun 2017 = 18 months), the RPGT rate is 30%
Assuming that the same price per share was used in this calculation (RM180,000/40,000 shares = RM4.50 / share)
-
- Disposal price = RM4.50 x 10,000 = RM45,000
- Acquisition price = RM40,000 x 10,000/20,000 = RM20,000
- Gain = RM45,000 - RM20,000 = RM25,000
RPGT payable by Hany = RM25,000 x 30% = RM7,500
E. Hany disposed of another 10,000 shares on 01 Jan 2018
As it was transacted within 3 years (01 Jan 2016 - 01 Jan 2018 = 24 months+1 day), the RPGT rate is 30%
Assuming that the same price per share was used in this calculation (RM180,000/40,000 shares = RM4.50 / share)
- Disposal price = RM4.50 x 10,000 = RM45,000
- Acquisition price = RM40,000 x 10,000/20,000 = RM20,000
- Gain = RM45,000 - RM20,000 = RM25,000
RPGT payable by Hany = RM25,000 x 30% = RM7,500
Ref:
Own account.