TAX517

TOPIC 6

REAL PROPERTY GAIN TAXES

AND REAL PROPERTY
COMPANY
 LEARNING
OUTCOME

Ability to:
• Compute Real Property Gain Tax (RPGT) for
individual.
• Identify the situations for No Gain No Loss
• Compute the RPGT for disposal of shares of Real
Property Company (RPC)
RPC
 WHAT IS REAL PROPERTY COMPANY
(RPC)?
• RPC – a controlled company (one having < 50 shareholders and which is controlled
by < 5 members) which owns real property or RPC shares or both where the defined
value of such assets is ≥ 75% of the value of the company’s total tangible asset (TTA)
• Defined value – market value of real properties +/or AP of shares in other RPC (if any)
• TTA = aggregate of defined value of real property or shares or both + value of other
tangible assets
• Other tangible assets – P&M, bank and cash, prepayments, investment in shares
(non RPC company) (not include goodwill & patents – IA)
 WHAT IS REAL PROPERTY COMPANY
(RPC)?
• Computations - A company would be termed as RPC if:

• Sch 34A (1) - Acquisition of shares in RPC is deemed to be an acquisition of chargeable asset.
Hence, the disposal of such shares – disposal of chargeable asset; notwithstanding that at the
time of disposal of such shares, the relevant company is not regarded as RPC anymore (apply
to existing S/H upon disposal of its shares)
 EXAMPLE 1
Cheers SdnBhd is a controlled company and owns
real property, the defined value of which is 65% of
its total tangible assets. The company acquired
additional real property on 15 September 2017. The
DV of the new acquisition together with the existing
real property has increased to 78% of its TTA.

Does Cheers SdnBhd a real property company for year of

assessment 2017?

Answer: Cheers SdnBhd became a RPC on 15 September

2017 as the DV of real property is more than 75% of its
TTA. Hence, the shares of Cheers SdnBhd are deemed to be
chargeable assets
EXAMPLE 2
A controlled company, ABC SdnBhd, had issued
shares of 500,000 units and owned real property
valued at RM800,000 as at 31 December 2016. Its
total tangible assets was RM1,000,000.

Does ABC SdnBhd a real property company for year of

assessment 2016?

Answer: ABC SdnBhd is an RPC as at 31 December 2016 as

the DV of real property is more than 75% of its TTA
(800,000/1,000,000 x 100% = 80%). Hence, the shares of
ABC SdnBhd are deemed to be chargeable assets
D.O.A OF SHARES IN RPC-PARA 34(A)
(2) SCH 2
 AP OF SHARES
• If the shares acquired when the company already become RPC (Situation 1), the AP
of the RPC shares would be the consideration paid for the RPC shares as
determined in the Sales & Purchase Agreement of the shares
• In the event when the company is not RPC at the time of shares acquisition (Situation 2), the AP
of shares would be calculated based on formula as per para 34A(3):
 AP OF SHARES
• A/B - % of control owned by each individual S/H
• C – MV of real properties which is used to determine whether the company is RPC or non RPC
• The above formula is used only once at the time the company turns into RPC. Once the
company becomes RPC, AP of shares will be based on situation 1
 EXAMPLE 3
Continue from Example 2. XYZ SdnBhd, a controlled company, held 50,000 units of shares in
ABC Sdn Bhd and owned real property valued at RM1.1 million as at 31 December 2016. Its
TTA as at that date was RM1.5 million.

Does XYZ SdnBhd a real property company for year of assessment 2016?

Answer:
AP of shares in ABC SdnBhd:
50,000/500,000 x RM800,000 (DV of ABC SdnBhd) = RM80,000

DV of XYZ = RM1.1 mil + RM80,000 = RM1,180,000

DV/TTA = RM1.18 million / RM1.5mil x 100% = 78.6%

Since DV of XYZ ≥ 75% of its TTA, XYZ SdnBhd is also an RPC.

DP OF SHARES -PARA 34(A)(4) SCH 2
DISPOSAL OF SHARES IN RPC
PARA 3(B) SHARES
 CESSATION OF RPC
• Once a company become RPC, subsequent acquisition of real properties has no
impact on the RPC status.
• However, the status of RPC may be changed upon disposal of any real properties in that
company.
• Assessment of
must be done on every disposal. If the DV of real properties is less than 75%
of TTA, the company is longer become RPC
 CESSATION OF RPC
• Existing S/H holding RPC shares would continue liable forRPGT despite of the
change of company’s status on any disposal (Sch 34A(1) applies)
• S/H acquiring shares when the company is no longer RPC (new shareholder) is said to be
acquiring a non RPC shares. Thus, the sale of such shares would not subject to RPGT
 EXAMPLE 4
• Harold SdnBhd was incorporated on 1 February 2010 with an issued and paid-up
capital of 500,000 unit shares of RM1.00 each. The shareholders are Harith and his
three brothers. Harold SdnBhd owns a building with a market value of RM300,000
and other tangible assets of RM200,000.
• On 3 March 2012, the company acquired a piece of land at a market value of RM300,000. MV of
the building as at that date was RM400,000
• On 25 October 2013, Harold SdnBhd disposed of the building for RM250,000, while the market
value for the land was RM450,000. The value of other tangible assets remains unchanged.
• Does Harold SdnBhd a real property company on 3 March 2012 and 25 October 2013
 EXAMPLE 4
• Answer for Harold SdnBhd:
 EXAMPLE 5
Sunrise SdnBhd is a controlled company, owning a piece of land in Klang at a cost of
RM600,000. The company is not RPC. Sunset is owned by Aiman (30%) and Hisham
(70%). On 1.1.2016, the company acquired a shophouse in Sentul at RM1.6 mil. Other
tangible assets are valued at RM820,000. MV of the Klang land as at 1.1.2016 is
RM980,000. On 1.4.2017, Ali acquired 10,000 shares in Sunrise SdnBhd for a
consideration of RM300,000

[Link] whether Sunrise Sdn Bhd is RPC on 1.1.2016

DV/TTA x 100% = (RM1.6mil + RM980,000)/(RM2.58mil +RM820,000)
=RM2.58mil/RM3.4mil
=75.88%
The company is RPC as at 1.1.2016 since it satisfy the 75% requirement of defined value over total
tangible assets
 EXAMPLE 5
2. Identify the AP of shares held by Aiman and Hisham
Aiman and Hisham would be deemed acquired the RPC shares on 1.1.2016 at the day the company
become RPC. The AP of shares acquired are:
A/B x C = Aiman = 30% x RM2.58mil = RM774,000
Hisham = 70% x RM2.58mil = RM1.806mil

3. Identify the DOA and AP of shares acquired by Ali

DOA will be on the day the Ali acquired the RPC shares, i.e. 1.4.2017. The AP of shares is
RM300,000. (The formula A/B x c will not be applied)
TAX ADMINISTRATION OF
RPGT & RPC
 SUBMISSION OF RPGT RETURN –
SEC 13
W.e.f 1.1.2010, the following forms are to be submitted to the IRB within 60 days from the date of
disposal of the real property:
1. Form CKHT 1A (by disposer of real property)
2. Form CKHT 1B (by disposer of shares in RPC)
3. Form CKHT 2A (by acquirer of real property/shares in RPC)
4. Payment Slip CKHT 501 (by disposer for payment of RPGT)

The disposer and acquirer shall make a return:

i. Stating in respect of asset disposed of; the AP, DP and any gain or loss on disposal
ii. Furnishing all information necessary to determine the AP and DP of the asset disposed of; and
iii. Where the MV of the asset is to be taken, submit a written valuation of the asset by a valuer
RPGT EXEMPTED OR NIL– SEC
13(6)
 RESPONSIBILITY ON
ACQUIRER– SEC 21(B)
• W.e.f 1.1.2010, collection of RPGT has been imposed on the acquirer.
• The acquirer shall retain the whole amount of money received or 3% of the value of consideration
(w.i.l) and within 60 days from the date of such disposal pay over to IRB
• The 3% retention requirement takes effect from 1.1.2015 onwards (prior to 1.1.2015 – 2%
retention)
• Non-compliance to this will result to a penalty of 10% being imposed as follows:
NOTICE OF ASSESSMENT
 PENALTY ON NON-SUBMISSION –
SEC 29
• Where a person fails to make a return on the disposal of real property, that person may be
prosecuted under sec 29(1) of RPGTA.
• The person could be liable to a fine not exceeding RM5,000 or imprisonment for a term not exceeding
12 months or both.
• Sec 29(3) - If the person is not charged under sec 29(1):
⚬ The IRB may require the person to pay a penalty equal to treble (3 times) the amount of tax charged
on CG excluding any allowable loss for that year;
⚬ If the person pays the penalty, he shall not be liable anymore to be charged under sec 29(1)
• W.e.f 31.12.2015, IRB is empowered to further impose additional penalty in respect of RPGT payable
(sec 29(5)
THANK YOU