UKAT3043 Taxation lll

TUTORIAL 3 : RPGT

Real Property Gains Tax Rates

1.Co 2.Ind 3.Ind

Note: 1. Company.
2. Individual who is a citizen and permanent resident
3. Individual who is not a citizen and not permanent resident

Question 1

Tommy acquired his first property in 2020 and sold it in 2022. He had elected for and was
granted the private exemption in respect of the transaction in 2022. Tommy acquired an
apartment on 1 April 2021 and sold it on 15 June 2022. The acquisition price was
RM218,000 and the disposal price was RM209,000. On 3 October 2018, Tommy had
acquired a piece of land for RM150,000. Other expenses were legal fees and stamp duty
amounting to RM2,800. A house was constructed on the land at a cost of RM400,000. Upon
its completion on 30 June 2019, the house was let out for rent. On 8 June 2022, he sold the
land together with the house for RM650,000 and incurred real estate agent’s fees of
RM19,500 and legal fees of RM1,500. Jane and Tommy, both citizens of Malaysia, got
married on 1 September 2019. On 2 June 2022, Jane disposed of her residential property
which she had owned before her marriage and which she had let out for 3 years and 1 month.
As this was her first and only property, she wants to elect for the private residence exemption,
if possible.

REQUIRED:

(a) Compute the allowable loss in respect of the sale of Tommy’s apartment.

(b) Compute the real property gains tax liability of Tommy in respect of the sale of the
land together with the house.

(c) State how and when Tommy must notify the Director General of Inland Revenue
regarding his disposal of the land together with the house, and state when the tax
liability calculated in (b) will be payable.

(d) State, with reasons, whether Jane is entitled to elect for the private residence
exemption, in respect of the disposal of her rental property.

1
UKAT3043 Taxation lll

Question 2

Mr Gopinath (‘Gopi’) signed an agreement on 15 January 2020 to buy a piece of land for
RM328,835. He settled the full payment on 26 January 2020 when he obtained a mortgage
loan on the land. The vendor transferred the land to him on 14 February 2020. He incurred
stamp duty of RM3,288 and legal fees of RM6,576 on the purchase. Mr Gopi wanted to
cultivate mango trees on the land. He spent RM46,976 on leveling, drainage and fencing of
the land to facilitate the cultivation. In November 2020, the cultivated trees were partially
damaged by fire set by a neighbour and he received compensation of RM28,750 for the
damages. And in March 2022, he received insurance recovery of RM10,520 for damages due
to flood. The cultivation of the mango did not go too well and Mr Gopi advertised to sell the
land. A buyer responded and paid a deposit RM9,076 while waiting for his bank loan to be
approved. The bank turned down the loan application and Mr Gopi retained the deposit. A
dispute arose regarding the title to the land and Mr Gopi engaged a lawyer to defend his right
to the land. The legal fee was RM3,852.
Another buyer agreed to buy the land for RM470,842 and he signed an agreement with Mr
Gopi on 14 October 2022. The payment was settled on 13 November 2022 and the title was
transferred to the buyer on 15 December 2022. In securing a buyer for the land, Mr Gopi had
incurred the following expenditure:
(i) valuation fee : RM6,292;
(ii) advertisement: RM1,222;
(iii) brokerage fee : RM11,744;
(iv) legal fees : RM9,400.

Mr Gopi had earlier bought and sold another piece of land in 2019 and has a loss of RM9,000
available to him.

Required:

(a) Determine, with reason, the date of acquisition and disposal of the land, giving reason for
the choice you made.
(2 marks)
(b) Compute the chargeable gain or loss for Mr Gopi in respect of the property disposed.

Question 3

Lekas Sdn Bhd (LSB), an investment holding company, has a paid up ordinary share capital
of RM6 million and holds several real properties in Malaysia and Thailand for investment
purposes.
On 8 August 2022, LSB disposed of a commercial shop lot acquired in 2020 and incurred an
allowable loss of RM87,000.
On 2 March 2019, LSB acquired a piece of vacant land in the city; details regarding this
transaction are as follows:
RM
Purchase price of land, per sale and purchase agreement 2,000,000
Legal fees and stamp duty on acquisition 70,000
Construction cost (in 2020) of a building used as a factory 935,000

2
UKAT3043 Taxation lll

In 2021, the factory building had completely burned down in a fire and insurance
compensation of RM1,000,000 was received for the loss of the building.

On 1 May 2022, one-tenth of the now vacant land was compulsorily acquired by the
Government for the construction of a flyover. LSB received compensation of RM450,000.

On 21 November 2022, LSB disposed of the remaining vacant land in the city for
RM3,500,000. LSB’s real property in Thailand had been acquired in 2014 for RM1,000,000.
Three months ago, LSB accepted an offer of RM4,000,000 for this property. The sales
transaction will be completed before the end of 2022 and the gain will be immediately
remitted to Malaysia.

Required:

Prepare a letter from the company’s tax adviser to the chairman of the board of directors of
Lekas Sdn Bhd which:
(a) Explains the real property gains tax (RPGT) treatment of the following:
(i) the allowable loss on the sale of the commercial shop lot;
(ii) the construction and destruction of the factory building and the insurance
compensation thus received;
(iii) the proceeds from the compulsory disposal of one-tenth of the land to the
Government; and
(iv) the disposal of the property in Thailand and remittance of the proceeds to
Malaysia.
(b) Advises, supported by a detailed computation using accurate technical terms, on
Lekas Sdn Bhd’s liability to RPGT for the year of assessment 2022.

Self study

Question 4

Siblings, Aishwarya, Dhanya and Ganesh own properties around Malaysia and derive rental
income from these properties. Listed below are the properties owned by them with the market
value as at 31 December 2020:
Market value
RM
Condominium in Penang – owned by Aishwarya 1,200,000
Terrace house in Seremban – owned by Dhanya 450,000
Bungalow in Kuala Lumpur – owned by Ganesh 1,900,000
Shophouse in Ipoh– owned by Aishwarya 1,000,000
4,550,000

All the properties were purchased without any external borrowings. The siblings decided to
set up a company, ADG Properties Sdn. Bhd. (ADG), transferred all the properties owned by
them to that company. Their intention is for the company to manage the rental collection and
to acquire further properties for rental purpose. They do not intend to provide ancillary
services for any of the rental properties.

3
UKAT3043 Taxation lll

ADG will acquire the properties by issuing ordinary shares equal to the value of the
properties to the siblings. They will transfer the properties to ADG on 31 December 2020 and
ADG will start to collect all rentals from January 2021.

On 31st August 20212, ADG disposed off the condominium in Penang for a sum of RM
2,000,000 and incurred agent fees of RM25,000 for the disposal.

Required

(a) Discuss the RPGT exposure for the disposal of the properties by the siblings to ADG
Properties Sdn. Bhd.
(b) Calculate the RPGT exposure on the disposal of the condominium by ADG Properties
Sdn. Bhd.

Question 5

PQR Sdn Bhd (PQR) was incorporated on 13 March 2006 with Alison and Bert each holding
50% of the ordinary share capital. On 1 April 2006, RM500,000 was injected into the
company and the money was placed in fixed term deposits held in PQR’s name with a
Malaysian bank. On 10 October 2006, RM100,000 was withdrawn by PQR to be used as the
deposit upon the signing of an agreement to acquire a ten-acre plot of land for RM300,000. In
2017, a dispute arose between PQR and the owner of the neighbouring land, Mr T.
Eventually, Mr T was ordered by the court to pay compensation of RM200,000 to PQR for
causing damage to PQR’s land. As settlement of the RM200,000 compensation, Mr T
transferred legal title to a piece of adjoining land worth RM200,000 to PQR on 4 July 2019.
On this date, the original ten-acre plot of land was valued at RM3 million, while PQR’s bank
deposits stood at RM50,000. As PQR has never actively traded, it held no other assets. Alison
died on 31 December 2019 and her holding of shares in PQR was transferred to her son on 2
June 2020, at which date the market value of her shares was RM2 million. In 2021, Bert
migrated overseas and renounced his Malaysian citizenship. On 1 December 2022, an offer of
RM6 million was made for PQR’s ten acres of land together with the adjoining land. As an
alternative, the potential buyer has agreed to purchase 100% of the shares in PQR for RM6
million.

Required:

(a) Compute the real property gains tax (RPGT) payable by PQR Sdn Bhd if it were to
dispose of the land for RM6 million on 31 December 2022

(b) Determine the real property company status of PQR Sdn Bhd on 10 October 2004 and
4 July 2019 respectively

(c) Compute the RPGT payable by Alison’s son and Bert if they were to dispose of the
PQR Sdn Bhd shares for RM6 million on 1 December 2022. In each case, provide an
explanation of the respective acquisition date and price