Calculation of RPGT Payment for a Property Investment Company
Question:
Hi, I’m Lee, a director of Lee Estate Sdn Bhd, property investment company that was established to hold onto a piece of land in Kampar, which I had bought on 1 March 2015 for RM 800,000. The transaction cost for the land was RM 40,000. I transferred its ownership title from my name to Lee Estate Sdn Bhd on 1 August 2019, when its market value was RM 1,000,000. I’m the sole owner of the property investment company.
On 11 July 2020, my property investment company disposed of the land for RM 1,300,000. I’d incurred RM 60,000 in allowable expenses relating to the disposal of land. As such, my question is:
‘What is the payment and calculation of RPGT for my investment property company on the sale of the land?’
Read also: 6 Steps to Calculate Your [RPGT] Real Property Gains Tax in Malaysia
Answer:
Before we discuss Lee’s case I want to point out some important obligations a company director must be aware of when disposing of substantial valued assets (exceeding 25% of the total assets) for an investment company holding properties in Malaysia.
If you don’t fall under that category you can skip this section and go straight to the answer. On the other hand, if this is you it is necessary to remember that, under section 223(1) of the Companies Act 2016 (formerly known as s 132C of the Companies Act 1965), you as the director has had a legal responsibility to guarantee that the disposal of the property is informed and resolution circulated to the board of directors before any disposal of property can be completed lawfully. For a more in-depth explanation, read; What Directors Must Keep In Mind When Dealing with Substantial Assets and a few questions you should ask yourself before disposing of the company property to be sure you are following what is stated in the companies act 2016
Does your company offer a director loan? If yes, read this: Is Interest Income Taxable on a Director Loan From a Company? – What You Need to Know.
For Lee’s case, first, he had transferred the ownership of his land to his property investment company (Lee Estate Sdn Bhd). In his case there is no calculation of RPGT 2019 that must be paid by Lee for the transfer of land ownership was considered to be a no-gain-no-loss (NGNL) transaction. Lee Estate Sdn Bhd, Lee’s property investment company, shall be deemed to have purchased this piece of land at RM 800,000 and had spent RM 40,000 in related expenses on 1 August 2019. Thus,
| Owner | Lee | Lee Estate Sdn Bhd |
|---|---|---|
| Purchase Price (Inclusive Transaction Costs) | RM 840,000 | RM 840,000 |
| Date of Purchase | 1 March 2015 | 1 August 2019 |
The purchase price remains the same. However, Lee had moved the land’s date of acquisition (DOA) forward from 1 March 2015 to 1 August 2019.
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Second, Lee, via his property investment company, has conducted his property sale for RM 1.3 million and thus, received a net amounting RM 1.24 million from RM 60,000 in allowable expenses. This is again that is subjected to the calculation of RPGT payments is as follows:
RPGT Table Calculation
| Year Assessment (YA) 2020 | Amount (RM) |
|---|---|
| Gross Disposal Price | 1,300,000 |
| Less: Allowable Expenses | (60,000) |
| Net Disposal Price | 1,240,000 |
| Less: Gross Purchase Price | (800,000) |
| Less: Allowable Expenses (Transaction Costs) | (40,000) |
| Gross Chargeable Gain | 400,000 |
| Less: Exemption (Paragraph 4, Schedule 2)The Higher of: a. RM 10,000 b. 10% of Gross Chargeable Gain (RM 400,000 x 10%) | (40,000) |
| Net Chargeable Gain | 360,000 |
| RPGT Rate Applicable: Date of Disposal: 1 August 2019 Date of Acquisition: 11 July 2020 | 30% (Within 1 Year) |
| RPGT Payable | 108,000 |
Here are a few questions:
What would the calculation of RPGT be like if Lee did not transfer his land to his property investment company?
If Lee sells off his land under his own name to a buyer, he would have saved RM 90,000 in RPGT payments as his calculation of RPGT rate applicable will be 5%, instead of 30% as stated above.
RPGT Table Calculation
| Year Assessment (YA) 2020 | Amount (RM) |
|---|---|
| Net Chargeable Gain | 360,000 |
| RPGT Rate Applicable: Date of Disposal: 1 March 2015 Date of Acquisition: 11 July 2020 | 5% (Above 5 Years) |
| RPGT Payable | 18,000 |
You may also want to read: How to Calculate RPGT in 2020 for Sale of an Inherited Property
Conclusion:
It is common for real estate investors to hold onto a property under investment property companies, instead of their own name. This is especially for investors who are either business owners and serial investors who wish to buy commercial property by leveraging on the financial strength of their businesses or investment partners or transfer ownership from individual to company
However, it is important for investors to use property investment companies wisely as having them set up to hold investments will result in different tax implications or the calculation of RPGT payable that you will have to declare to LHDN. Hence, if you like to enquire how to get the best tax strategies and get the calculation of RPGT payment available for your investments, you may use Joolah.my service, a platform that quickly refers you to the very best tax, audit and accounting experts in Malaysia.
