Q.
Ms Sonia has purchased a double storey detached kampong house located at an area known as Tanjung Bidara, Melaka from Encik Atan for RM640,000 in December 2017. The Sale and Purchase agreement was duly executed 5 months later on 30 May 2018. The Market Value for similar properties within the subject locality indicated a value of RM850,000.
Puan Bebe bought that house in January 2015 for a consideration of RM500,000. She has paid 2% agents fees and stamp duty for that purpose. She has done minor refurbishment to the house in May 2016 and paid the contractor RM80,000. She claimed and obtained RM10,000 from the contractor for rectification work that need to be done in August 2016.
Puan Bebe has paid RM500 for an advertisement to sell the house and 1.5% of the selling price to an agent for introducing Ms Sonia to purchase the house. However, during negotiation Puan Bebe has passed away on the day she agreed to enter into agreement with Ms Sonia. Thus, the property transferred to her eldest son Encik Atan. Encik Atan who stay in Kuala Lumpur decided to proceed with the sales.
Calculate all the duties in this case.
(25 marks, 2018 Q1)
A.
THIS IS A TOUGH QUESTION because of two issues:
1. IF it is a question of managing estate of a deceased property owner.
2. IF the new owner should take over as "love and affection" where permitted expenses were claimable in the case of a donor who is a citizen or permanent resident and the gift is made within five years after the date of acquisition by the donor, the recipient shall be deemed to acquire the asset at an acquisition price equal to the acquisition price paid by the donor plus the permitted expenses incurred by the donor expenditure cannot pass down. This is specified in Schedule 2 Para 12(2)(c).
Pn Bebe died. This is a fact.
- If she died suddenly without a will, then the matter is not "love and affection". The law is Distribution Act.
- If before she died, she has done the transfer as "love and affection" or as "GIFT" then, it is under Sch 2 Para 12 (2) (c) where No Gain No Loss and Stamp Duty is 50% for Parent to Child (exemption order 2007). Market Value (ad valorem duty) is used in this Stamp Duty Calculation.
*If it is under Distribution Act, the stamp duty is RM10. However, if it is not, then the transfer to En Atan is ad valorem.
More reading at "Managing Properties of the Deceased" by Property Insight.
ANSWER
The taxes are Stamp Duty and Real Property Gains Tax.
Pn Bebe ----> En. Atan ----> Ms Sonia
Jan 2015 -----Dec 2017------ 30 May 2018
RM500,000 ------------------RM640,000 (Market RM850,000)
Calculation of RPGT Payable
Pn Bebe (during acquisition)
Consideration paid RM500,000
Incidental costs during purchase:
- Agent fee - 2% = RM10,000
- Stamp Duty for RM500,000 = 1% (100,000) + 2% (400,000) = 1,000 + 8,000 = RM9,000
Permitted expenses:
- Renovation = RM80,000
Recoveries:
- Claim from contractor = RM10,000
Incidental costs during disposal (before she passed on):
- Advertisement = RM500
- Agent fee - 1.5% = RM640,000 x 1.5% = RM9,600
As Pn Bebe passed away on the day of sale, the property was transferred to her son. This is by operation of the law. Read further at
LRP 2017 Q6 on transfer by operation of law.
As the estate is under the category of a small estate (less than RM600,000), the distribution shall be made according to the Distribution Act 1958 (for non-Muslims) or according to the rule of faraid (for Muslims) or according to an agreement entered into by all the beneficiaries.
In the case of Pn Bebe, it was transferred by operation of law to her son En Atan by Love and Affection, following
Sch 2 Para 12 - transfer as gift between husband and wife, parent to children, grandparent to grandchildren, whereby Disposal Price equals to Acquisition Price, arriving at 'no gain no loss'.
From Pn Bebe to En Atan, the consideration was 'gift' and hence En Atan acquired the property at RM500,000.
As for Real Property Gains Tax, it is exempted under Sch 2 Para 12 as 'no gain no loss'. However, the incidental costs, permitted expenses and recoveries are passed down to En Atan. Now, when En Atan sold it to Ms Sonia, the RPGT on En Atan is calculated as:
-- CALCULATION OF DISPOSAL PRICE --
Consideration Received: RM640,000
Less:
Incidental cost:
- Advertisement = RM500
- Agent fee - 1.5% = RM640,000 x 1.5% = RM9,600
Permitted expenses
- Renovation = RM80,000
RM640,000 (consideration received) - RM80,000 (renovation) - RM9,600 (agent fee) - RM500 (advertisement)
Disposal Price = RM549,900
-- CALCULATION OF ACQUISITION PRICE --
Previous Inherited Price by Love and Affection: RM500,000
Add:
Previous incidental cost during acquisition
- Agent fee - 2% = RM10,000
- Stamp Duty for RM500,000 = RM9,000 (Pn Bebe bought in Jan, 2015)
Transfer by Love and Affection - stamp duty (Pn Bebe - En Atan)
- Stamp Duty for RM850,000 (RM19,500 x 50%*) = Transfer by "love and affection" RM9,750
- 1% for first RM100,000 = RM1,000
- 2% for RM100,001-500,000 = RM8,000
- 3% for RM500,001-850,000 = RM10,500
Total = RM19,500
* Stamp Duty exemption order No.10, 2007
Less:
Recoveries = RM10,000
RM500,000 + RM10,000 (agent fee) + RM9,000 (stamp duty) + RM9,750 (stamp duty) - RM10,000 (recovery)
Acquisition Price = RM518,750
Chargeable RPGT Gain = Disposal Price - Acquisition Price = RM549,900 - RM518,750 = RM31,150
Less exemption for individual Sch 4 Para 2, RM10,000 or 10% whichever is higher.
RM10,000 compared to 10% of RM31,150, which is RM3,115, RM10,000 is higher.
RM31,150 - RM10,000 = RM21,150 ----- Chargeable gain to be taxed at the RPGT Rate for individual within 3 years (30%).
RPGT Payable = RM21,150 x 30% = RM6,345 payable by En Atan.
Of course En Atan can elect to exercise his once in a life time exemption under Sch 3 Para 9 for residential property only.
Calculation of STAMP DUTY
Pn Bebe ----> En. Atan ----> Ms Sonia
Jan 2015 -----Dec 2017------ 30 May 2018
RM500,000 ------------------RM640,000 (Market RM850,000)
Pn Bebe
When acquiring the property in 2015 Jan. Assuming that RM500,000 was the market value. The Stamp Duty paid should be:
- 1% for the first 100,000 = RM1,000
- 2% for 101,000 to 500,000 = 2% x 400,000 = RM8,000
Total Stamp Duty Pn Bebe = RM9,000.
En Atan
When inherited from Pn Bebe by Love and Affection, Stamp Duty is exempted** to 50%.
Stamp Duty (Exemption) (No. 10) Order 2007
** Percentage of exemption is at 50% for Parent - Child. Between Spouse is 100% exemption (see below).
See Stamp Duty Exemption here.
For Stamp Duty on En Atan, MARKET VALUE RM850,000 is used.
RM850,000 should have a stamp duty on transfer of RM1,000 (1% x 100,000) + RM8,000 (2% of 400,000) + RM10,500 (3% of 350,000) = RM19,500, but for Love and Affection Pn Bebe to Son En Atan, this is given 50% exemption, thus RM19,500 x 50% = RM9,750.
En Atan - RM9,750
Ref:
Lim Jo Yan and Mak Ka Wai in Transfer between family members by MahWengKwai.com
Ms Sonie
Stamp duty payable for Ms Sonia on her purchase from En Atan is according to Market Value which is higher at RM850,000.
- 1% for the first RM100,000 = RM1,000
- 2% for 101,000 - 500,000 = RM8,000
- 3% for >500,000 = 350,000 x 3% = RM10,500
Total = RM19,500
Remarks:
Pursuant to the Stamp Duty (Exemption) (No. 10) Order 2007, the law provides for stamp duty exemption for a transfer of property between family members by way of love and affection as follows:
| Transferor | Transferee | Exemption Rate |
| Husband | Wife | 100% |
| Wife | Husband | 100% |
| Mother and/or father | Child | 50% |
| Child | Mother and/or father | 50% |
Note that ‘Child’ means a legitimate child, a step child or child adopted in accordance with any law. Also, stamp duty is typically paid by the transferee, unless agreed otherwise by parties.
Ref:
Own account.