Real Property Gains Tax (RPGT)

The Real Property Gains Tax (RPGT) is tax on profits made from the sale of real estate.  It is advisable for us to be aware of RPGT in case we ever want to sell our home or land.  It is not only about the money or the profit we made when it comes to selling our property but also the fact that the profit we received from the selling of the property will be taxed.  Therefore, it is advantageous for the seller to be aware of the costs related to the sale and purchase transaction.

In general, real property is defined by the RPGT Act 1976 as any land in Malaysia, as well as any interest, option, or other right in or over such land.  As a result, RPGT will apply to both the land and the structures being built on it.  Surprisingly, real property subject to the RPGT is not limited to land and houses but also includes shares in real property companies (RPCs).

As a matter of fact, Malaysian citizens, permanent residents, and foreigners must pay RPGT to the Lembaga Hasil Dalam Negeri (LHDN) if they sell their property within five years of buying it.  In relation to this, companies must also pay RPGT if the shares in the companies are sold with real estate assets comprising 75% of the total tangible assets.  You may find more information regarding RPGT rates in the official website of LHDN.

 

Legally speaking, the RPGT forms such as CKHT 1, CKHT 3 and CKHT 2A, must be submitted within 60 days of the sale of the property.  In most cases, the 60-day period begins on the date of the Sale and Purchase Agreement.  Should your Sale and Purchase Agreement specifies an unconditional date, such as the requirement to obtain consent from the State Authority, the 60-day period shall begin on the date that the State Authority approves the consent.  You will be charged a penalty on your RPGT in the event you submit after the due date of such RPGT depends on the circumstances as mentioned above, then you may be charged for penalty for the late submission of RPGT form. However, in the event you do not make any profit when you sell your property and you suffered  loss as a result of that sale and purchase transaction, you may not subjected to pay RPGT.

Nevertheless, there are a number of situations where you are not required to pay the RPGT.  First and foremost, if you are the first-time home sellers, you can take advantage of once-in-a-lifetime RPGT exemption.  The property being sold must be used for personal residence only and not for rent.  Second, if you sell your property to certain family members, you may be excluded from paying RPGT.  This is limited to transfer of ownership between parents and children, husband and wife, and grandparents and grandchildren.  Third, according to the RPGT (Exemption) Order 2018 [P.U. (A) 360] and the RPGT (Amendment) Order 2021, the government has taken steps to aid Malaysians by exempting them from paying RPGT if they sell their properties after 5 years or more after purchasing the same but the purchase price or market value of the properties, whichever is higher, must not be more than RM200,000.00. Furthermore, it is important to highlight that beginning 1 January 2022, individuals who sell off their property on the 6th year and onwards would not be subject to RPGT, according to the Finance Act 2021, which was gazetted on 31 December, 2021..

To pay the RPGT, the vendor is required to fill in and sign the form of CKHT 1A and CKHT 3, which can be obtained from LHDN or downloaded from the LHDN’s official website.  In general, Form CKHT 1A is for details of vendor and sold property, while Form CKHT 3 is for sellers who want to apply for tax exemption.  If the seller wants to reduce his RPGT, he must provide all relevant bills, such as legal fees, stamp duties, and other expenditures that allow for the RPGT deduction.   After the above-mentioned forms have been filled, make sure to double-check that your buyer has also filled in Form CKHT 2A (which is for the purchaser’s details) before all documents are submitted to LHDN.  Accordingly, you will receive a notice from LHDN stating the amount of RPGT payable as well as the amount of penalty imposed (if any). Nevertheless, if you find the procedure are too birocratic and hassle to comply with,  you can always have your lawyer to do it on your behalf.  It is unknown fact that, lawyers frequently file CKHT forms on behalf of their clients. By doing that, you are worry free about your RPGT compliance.

To summarise, having an understanding of the RPGT is really beneficial. For individuals, the selling of property after the fifth year of ownership will be exempted from paying RPGT. Meanwhile, for companies formed in or outside of Malaysia, the selling of property or shares will lower the tax rate. This knowledge may also assist us in avoiding selling our home or land too soon after purchase.  Furthermore, if we fall into one of the above-mentioned situations where we are exempted from paying RPGT, we can proceed to get tax exemption by submitting our CKHT 3. As a result, we will be able to enjoy more of our profit and spend less money on RPGT.

Prepared by,
Nurhidayah Rahim
Messrs Misyail Othman & Co.

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