6 Steps to Calculate Your [RPGT] Real Property Gains Tax in Malaysia
Question:
Hi, I’m Larry. Lately, I have just sold a 2-storey terrace house for RM 800,000, which I had bought ten years ago for RM 400,000. I have incurred the following transactions relating to this property:
| No. | Items | Descriptions | Amount (RM) |
|---|---|---|---|
| 1 | Stamp Duty | On the Sale & Purchase Agreement (SPA) when purchasing the property. | 7,000 |
| 2 | Legal Fees | 4,000 | |
| 3 | Valuation Report | Bought in the course of property purchase | 1,000 |
| 4 | Renovation Costs | Living Room Extension and Kitchen Cabinet | 45,000 |
| 5 | Deposit Forfeited | Related to a potential buyer who cancelled his purchase of my property last year. | 28,000 |
| 6 | Agent’s Fees | To Market the Property for Sale | 24,000 |
I have a few questions related to the RPGT Payable rate:
- Am I obligated to pay for the RPGT?
- How do I calculate the amount of RPGT?
- When is the last day for me to pay the RPGT in Malaysia?
Please advise me on the above so I know how to calculate the amount of RPGT and I know exactly what amount I have to pay in taxes from the property I just sold.
Answer:
Before calculating the amount of Real Property Gains Tax that Larry has to pay, I will explain a bit about what Real Property Gains Tax is in Malaysia.
Real Property Gains Tax is a tax on your gains or earnings you have made either as a private individual or as a private company after you transfer or sell the property in Malaysia.
According to Real Property Gains Tax Act 1976, the seller should make payment for the Real Property Gains Tax (RPGT) within 60 days after transferring or selling the property if the sale made a profit.
Do you also rent out a property in Malaysia? Read this: Tax on Rental Income | 5 Rules You Must Know If You Rent out a Property in Malaysia
In Larry’s case There are 5 things he needs to calculate to figure out the Real Property Gains Tax amount he needs to pay from the sale of his property:
#1:The Net Selling Price
In order to calculate the amount of RPGT in Malaysia, Larry will need to calculate the net selling price as the first step to figure out the amount of gains tax he has to pay. It is calculated by subtracting the buyers agreed purchase price with the following expenses:
a. Capital expenditures that enhance or preserve the value of the property.
b. Legal fees to defend the title deed of the property.
c. Cost relating to the sale of the property.
In Larry’s case, to find out the amount of RPGT in Malaysia, he can deduct his renovation cost of RM 45,000 and agent’s fees of RM 24,000 from his property sale price of RM 800,000 to get his net selling price, which is RM 731,000.
| No. | Transactions | Amount (RM) |
|---|---|---|
| 1 | Larry’s Agreed Property Disposal (selling) Price | 800,000 |
| 2 | Less: – Renovation Costs (RM 45,000) – Agent’s Fees (RM 24,000) | 69,000 |
| 3 | Larry’s Net Disposal (selling) Price | 731,000 |
#2:Final Acquisition Price
The second step of finding out the amount of Real Property Gains Tax (RPGT) is by calculating the amount of the final acquisition price. It is calculated by including the following transactions into the gross acquisition price of the 2-storey terrace house:
Add:
a. Legal fees to prepare the sales & purchase agreement (SPA)
b. Stamp duty on the SPA.
c. Valuation report for the purchase of the property.
d. Advertising cost for seeking the seller of the property.
Minus:
a. Compensations received for any kinds of damages to the property.
b. Insurance receipts for losses or damages to the property.
c. Deposit forfeited from an aborted purchase deal from a potential buyer.
In Larry’s case, he needs to add the legal fee and stamp duty incurred when he prepared the SPA to buy his property and his valuation report bought some ten years ago into his gross price of purchasing the property as the part of the steps to calculate his RPGT in Malaysia.
Then, he has to minus off the deposit forfeited by him. As such, his final acquisition price works out to be RM 384,000 and the calculation is as follows:
| No. | Transactions | Amount (RM) |
|---|---|---|
| 1 | Larry’s Gross Purchase Price | 400,000 |
| 2 | Add: – Legal Fees on SPA (RM 7,000) – Stamp Duty on SPA (RM 4,000) – Valuation Report (RM 1,000) | 12,000 |
| 3 | Less: – Deposit Forfeited (RM 28,000) | (28,000) |
| 4 | Larry’s Final Acquisition Price | 384,000 |
#3: Schedule for Exemption
The third step is to figure out the schedule for exemption in order to find out the amount of RPGT that Larry has to pay. With effect from 1 January 2010, an individual is entitled to an exemption that amounts to the higher of:
a. 10% of the Gross Chargeable Gain
b. RM 10,000
This amount shall be deducted from the individual’s gross chargeable gain that arises from his disposal of a property.
As the part of the steps on how to calculate the RPGT, in Larry’s case, the amount of gross chargeable gain is the difference between his net disposal (selling) price (Note #1) and his final acquisition price (Note #2) of his 2-storey terrace house as calculated above.
Hence, Larry’s net chargeable gain is computed as follows:
| No. | Transactions | Amount (RM) |
|---|---|---|
| 1 | Larry’s Net Disposal (Selling) Price (Note #1) | 731,000 |
| 2 | Less: Larry’s Final Acquisition Price (Note #2) | (384,000) |
| 3 | Gross Chargeable Gain | 347,000 |
| 4 | Less: Schedule 4 Exemption which is higher of: – 10% of Gross Chargeable Gain of RM 347,000 (RM 34,700) – RM 10,000 | (34,700) |
| 5 | Net Chargeable Gain | 312,300 |
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#4: Existence of Allowable Losses
Here, the question is this – “Has Larry sold any properties with losses prior to the disposal of his 2-storey terrace house?’ If he did, to get the amount of RPGT he has to pay, he could utilise his amount of allowable losses to offset the net chargeable gain as calculated in Note #3. If not, the amount of Larry’s final net chargeable gain would be RM 312,300.
Are you incurring losses from your property investment? Read this: How to Offset Losses From Your Property Investment
#5: Rate of Real Property Gains Tax (RPGT) Applicable
With effect from 1 January 2020, the rate of RPGT in Malaysia applicable for the sale of a property by an individual citizen or permanent resident (PR) is as follows:
| Holding Period | ≤ 3 Years | 4th year | 5th year | ≥ 5 Years |
|---|---|---|---|---|
| Rate of RPGT | 30% | 20% | 15% | 5% |
In Larry’s case, the applicable rate of RPGT in Malaysia is 5% for he had owned the property for ten years, which is above six years. Hence, Larry’s RPGT payable would be as low as RM 15,615.
Real Property Gains Tax (RPGT) Payable:
= Larry’s Net Final Chargeable Gain x Applicable Rate of Real Property Gains Tax (RPGT)
= RM 312,300 x 5%
= RM 15,615
#6: Private Residence Exemption For Real Property Gains Tax (RPGT)
So, should Larry pay RM 15,615 in RPGT in Malaysia after disposing of his property?
Well, it depends.
This is because individuals who are either a citizen or a permanent resident will be entitled to exercise a ‘once-in-a-lifetime’ exemption on Real Property Gains Tax payments in Malaysia for a residential property during the submission of CKHT 1A
In other words, if Larry has not exercised this exemption, he may exercise his right and thus, have the full Real Property Gains Tax of RM 15,615 waived by the government.
Upon exercising his right, Larry shall be liable to pay Real Property Gains Tax if he is to sell off his other properties in the future if any.
What if My Situation is a Little Different:
In this case, you’ll need professional assistance from a qualified tax professional who will help you figure out what Real Property Gains Tax you have to pay in Malaysia or any other tax matters. If that is you, you may use Joolah.my , a platform that quickly refers you to the very best tax, audit and accounting experts in Malaysia.
