THERE is a saying that there is no certainty in life except for death and taxes.
It is the same in the world of property investment. Every property investor knows that there is a whole range of taxes to be paid in the process of buying, owning and selling a property in Malaysia.
One of those taxes is the Real Property Gain Tax, or better known as RPGT.
RPGT is a tax imposed by the Lembaga Hasil Dalam Negeri (LHDN), to be paid by the vendor of a property when he sells the property and realise any capital gains from the sale. The RPGT is a tax that is based on the Finance Act 2014.
RPGT was introduced as a measure against property speculation; to prevent unreasonable and unsubstantial buying and selling of properties, which inevitably leads to the bursting of the proverbial bubble in the property market. It is, of course, a source of income to the government as well.
This tax can be increased or reduced accordingly by the government. These changes in the tax structure are usually announced during the annual budget announcement in October. This announcement is generally keenly anticipated and watched by property investors.
When the market slows down, the government usually reduces the RPGT to stimulate the industry and encourage investments. When the market is seen to be overheating or boiling over, the natural tendency is for the RPGT to be increased to slow the market down. Of course, other cooling measures may impact in tandem with the RPGT.
The current RPGT rates have been in force since January 1 2014. Properties sold within three years of their purchase will have to pay a whopping 30 per cent RPGT on any capital gains realised. This rate then comes down to 20 per cent for properties sold within four years of purchase and 15 per cent for fifth year. For an individual, any property sold after the fifth year will no longer attract any RPGT.
The tax you pay as RPGT is supplemented by allowable loss. This means a tax relief will be provided if the property is sold at less than what it was originally bought for.
From January 1 2015, the vendor’s lawyer will retain three per cent of the purchase price to be paid to the LHDN if the property is sold within five years of its purchase. LHDN will then assess the amount of RPGT to be paid and refund any balance of the three per cent to the vendor.
All Malaysian citizens and permanent residents are allowed a one-time exception of paying RPGT. This is however, only applicable for private residential properties. You may not want to exercise this option on your first sale, as subsequent sales may give you bigger gains, as your investment portfolio grows in size and value.
There are several expenses that can be offset against your gain than can be used to reduce the RPGT that you will need to pay. A good idea would be to seek the advice and assistance of your tax planner.
There are, of course, several other taxes associated with a property purchase that you will need to be aware of. We will discuss these in future articles.
Good luck on your property investment journey and may the force be with you.