12 April 2023, by Randy Emanuel Dias, Officer, Bar Council Professional Indemnity Insurance and Risk Management Department
Real Property Gains Tax (“RPGT”) is a tax charged by the Inland Revenue Board (“LHDN”) under the Real Property Gains Tax Act 1976 (“RPGTA 1976”) for chargeable gain accruing on the disposal of land or real property, including shares in a real property company (“RPC”).
In the past five years, there have been 10 notifications made to the Malaysian Bar Professional Indemnity Insurance Scheme Insurer relating to RPGT. These claims generally arise from late or delayed submissions of the RPGT Forms by lawyers who are acting for vendors in property sale transactions, which resulted in a 10% penalty on the tax imposed on the vendor. The vendors would then hold the lawyers responsible for these penalties, which range anywhere from RM40,000 to RM580,000, depending on the amount of the payable RPGT.
It is therefore crucial to be fully aware of, and compliant with, the RPGT rates, procedures, deadlines, and exemptions when submitting your RPGT Forms to avoid paying hefty penalties.
The RPGT rates for the disposal of chargeable assets under the RPGTA 1976 with effect from 1 Jan 2022 are as follows:
| Disposal Period |
Individuals (Citizens and Permanent Residents) |
Individuals (Non-Citizens, Foreigners and Foreign Companies) |
Companies |
| Within three years |
30% |
30% |
30% |
| In the fourth year |
20% |
30% |
20% |
| In the fifth year |
15% |
30% |
15% |
In the sixth year
and thereafter |
Nil |
10% |
10% |
The above rates will only be applicable to your net chargeable gains.
Procedure for submission of RPGT Forms
- The disposer and acquirer are required to submit the following RPGT forms:
- Disposer
- Form Cukai Keuntungan Harta Tanah (“CKHT”) 1A — for disposal of real property
- Form CKHT 1B — for disposal of shares in an RPC
- Form CKHT 3 — notification of disposal of assets not subjected to tax or exempted from the payment of tax
- Acquirer
- Form CKHT 2A — acquisition of real property / shares in an RPC
- Every disposer and acquirer is required to submit the forms together with the relevant supporting documents (please refer to the checklist available at the relevant RPGT form) to the LHDN branch where the income tax will be filed or any nearby branches. Click here to view the forms.
- The disposer and acquirer may alternatively submit the forms at the e-CKHT online platform available at MyTax via https://mytax.hasil.gov.my/.
Note: Kindly refer to Bar Council Circular No 076/2023 for the latest update on the use of the MyTax Portal on filing of e-CKHT forms and the eventual launch of e-TAeF which will enable Members to access the MyTax portal as an agent of a client taxpayer.
- For each disposal, both the disposer and acquirer are required to submit RPGT returns within 60 days from the date of disposal.
The date of disposal is taken as the date of the written agreement of the disposal. In the absence of a written agreement, the date shall be taken as the earlier date of the full payment of the purchase consideration or the date when all things which are necessary for the transfer of ownership of the real property under any written law has been done. Where the disposal is subject to the approval from the Government or State Government, the date of disposal is the date of such approval or if the approval is conditional, the date when the last condition is satisfied.
Members may forward any enquiries on e-filing of CKHT returns to LHDN’s email at eckht@hasil.gov.my. Click
here to view the user manual.
Exemptions from RPGT
It should be noted that the RPGTA 1976 does allow for some exemptions from RPGT for certain individuals, such as for transfers of property between family members by way of love and affection in the following instances:
- Husband and wife;
- Parent and child; and
- Grandparent and grandchild.
This is in line with Paragraph 12 of Schedule 2 of RPGTA 1976.
RPGT exemption is also available to individuals disposing of shares and real property. The exemption is calculated as follows:
- Disposal of the whole chargeable asset owned by the individual
The exemption is RM10,000 or 10% of the chargeable gain, whichever is greater.
- Disposal of part of the whole chargeable asset owned by the individual
If an individual disposes part of his entire chargeable asset, the exemption allowed is as follows:
|
a. Relating to the disposal of real property, according to the Finance Act 2021
(A/B) x C
where;
- A is part of the area of the chargeable asset dispose
- B is the total area of the chargeable asse
- C is RM10,000
or 10% of the chargeable gain, whichever is greater.
|
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b. Relating to the disposal of shares, according to the Finance Act 2021
(A/B) x C
where;
- A is the number of shares deemed to be a chargeable asset under Paragraph 34 or 34A of the Schedule 2
- B is the total number of issued shares deemed to be a chargeable asset in relation to shares deemed to be chargeable assets under Paragraph 34 or 34A of Schedule 2
- C is RM10,000
or 10% of the chargeable gain, whichever is greater.
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The above is pursuant to Paragraph 2 of Schedule 4 of the RPGTA 1976.
Exemption from RPGT will also be given for the disposal of private residences by individuals (section 8 of the RPGTA 1976). It is granted on gains derived from the disposal of a private residence, and individuals are entitled to this exemption once in a lifetime.
This exemption is granted based on the following conditions:
- The individual is a Malaysian citizen or permanent resident;
- Exemption is granted for the disposal of a private residence only; and
- Election for exemption must be made in writing and is irrevocable. No further exemption will be given for the disposal of other private residences.
Imposition of penalties and increases of tax
It is important to be aware that the RPGTA 1976 will impose penalties for failure to comply with certain requirements.
If the disposer or acquirer:
- fails to submit the completed Form CKHT 1A / CKHT 1B within 60 days from the date of disposal of the asset; or
- fails to submit the completed Form CKHT 1A / CKHT 1B after the extended date of permitted time;
or if the disposer fails to declare the disposal of a chargeable asset, then there may be a penalty charged up to three times the amount of tax payable. This is in line with section 29(3) of the RPGTA 1976.
Other than that, where a person makes an incorrect return or gives incorrect information on the disposal of an asset, a penalty may be charged equal to the amount of tax under declared (maximum of 100%). This is applicable under subsection 30(2) of the RPGTA 1976.
A disposer will be subject to an increased tax if they make an incorrect return under subsection 13(6) of the RPGTA 1976, which causes the acquirer to fail to remit the payment under subsection 21B(1) or (1A) of the RPGTA 1976. The increase is 10% on the amount of tax charged as stated in subsection 14(5) of the RPGTA 1976.
In conclusion, lawyers who are representing vendors in property transactions must be aware of the RPGT rates, procedures for submitting tax forms, as well as exemptions from RPGT. This is because failure to comply with RPGT regulations can result in severe financial penalties. It is, therefore, crucial for lawyers to remain informed and vigilant in dealing with RPGT-related matters to provide their clients with the best possible legal counsel.