Q.
Real Property Gains Tax was re-imposed from 1 January, 2010. Using appropriate examples, explain the followings:
a) Chargeable gains (8 marks)
b) Allowable losses (7 marks)
c) Tax relief for allowable losses (10 marks)
(25 marks, 2012 Q7)
A.
For format of calculation for RPGT, refer here.
a) Chargeable Gains
Based on the Real Property Gain Tax Act 1976, RPGT is a tax on chargeable gains derived from disposal of property.
A chargeable gain is the profit when the disposal price is more than purchase price of the property. What most people don’t know is that RPGT is also applicable in the procurement and disposal of shares in companies where 75% of their tangible assets are in properties, a.k.a. Real Property Companies (RPC). RPGT applies to both residents and non-residents.
RPGT is levied on the positive net capital gains which is disposal price less the purchased price less the miscellaneous charges such as;( stamp duty, legal fees, advertisement charges ,etc). Additionally, a waiver on the taxable amount is granted to individuals (but not companies). The holding period is from the date on the S&P agreement till to the disposal date. For a simple and a quick calculation, the formula is;
Chargeable Gain = Disposal Price - Purchased Price
Chargeable Gain = Chargeable gain - Exemption Waiver (RM10,000 or 10% of Chargeable Gain,whichever is higher)
Tax payable = RPGT rate (based on holding period)* Net Chargeable Gain
Ref:
Real Property Gains Tax (RPGT) In Malaysia, available fromhttp://loanstreet.com.my/learning-centre/rpgt-in-malaysia
b) Allowable Losses
Where there are more than one transactions of real property in a year of assessment, allowable loss from one transaction may be set-off against another transaction that yields a chargeable gain.
Section 7(4) of Real Property Gains Tax Act 1976 reads:
‘Where there is an allowable loss in respect of a disposal, such allowable loss shall be allowed as a reduction to reduce the total chargeable gain of a person for a year of assessment in which the disposal was made.’
The provision enables the deduction of an allowable loss from a transaction against the total chargeable gain of the person from other transaction/s in the same year of assessment, regardless of whether the loss transaction occurred before or after the profitable transaction/s during that year of assessment.
Allowable losses carried forward
Of course, Section 7(4)(b) goes on to state that any unabsorbed loss may be carried forward to the subsequent year/s of assessment until it is absorbed.
Do be mindful that, for an individual, any allowable loss is absorbed after the exemption under Schedule 4 – ie the greater of 10% or RM10,000. This is provided for in Section 7(5) of the RPGT Act.
Ref:
ACCA Paper P6 Apr 2011, available at
http://www.accaglobal.com/content/dam/acca/global/pdf/sa_apr11_p6mys_rpgt.pdf