Homeowners in Malaysia must beware of Real Property Gains Tax (RPGT) when selling their homes. Otherwise, you might lose out on a massive amount of your profit to the government.
When putting your house on the market, the last thing you want is to be flummoxed by property-related taxes you never knew existed. So, read on as we explain everything you need to know about RPGT.
What is Real Property Gains Tax (RPGT)?
Real Property Gains Tax (RPGT) is a form of capital gains tax that homeowners and companies are liable to pay when selling a property. RPGT is chargeable if your resale price is higher than the purchase price and you gain profits from the sale.
In the world of real estate, it’s crucial to recognise all the costs associated with your transactions. On the other hand, if your property sale suffers a loss, you can claim tax relief.
Now, let’s go over a brief history of RPGT. The Real Property Gains Tax Act 1976 was established to limit property speculation resulting in residential prices skyrocketing. It also served to prevent a potential real estate bubble and property flips.
This act has undergone various changes throughout the years, but we’ll get to that later. In terms of who has to pay, RPGT is classified into three tiers:
- Malaysian Citizens and Permanent Residents (PR)
- Non-Malaysian Citizens or Foreigners
- Companies — local, foreign, private/public, listed/unlisted
RPGT As of December 2021
As depicted above, the best way to reduce capital gains tax is to sell your property after the five or six-year mark. And according to the years of ownership, these tax rates discourage investors from flipping houses within short periods.
RPGT Rates from 2019
In January 2019, RPGT rates from the sixth year onwards were taxed at a flat rate of 5%. Meanwhile, tax rates have increased to twice the amount for foreigners and companies disposing of a property after five years.
New Tax Exemptions for 2022
Good news! The Budget 2022 announcement states that RPGT is now void for individual owners selling properties in the sixth year after acquisition.
Whether you’re a citizen or foreigner, your RPGT rate for property sales from the sixth year onwards is now 0%. The new exemption has been in effect since 1 January 2022.
Unfortunately, companies are still subjected to a 10% capital gains tax for property disposals.
What is Allowable Loss?
You are also likely to come across the term “allowable loss” during your disposal of properties. It’s vital to understand what allowable loss means for you in terms of your tax calculations.
Let’s say you’re selling more than one real property in the same tax year. You can then apply an allowable loss to offset any losses to the profit gained from another sale.
For example, a homeowner sells a property with an RM30,000 loss while profiting RM100,000 from another transaction. Their total taxable amount would chalk up to RM70,000.
Furthermore, you can overturn an allowable loss in subsequent tax years. This means you can offset poor sales performance against future property transactions that yield a profit!
How to Calculate RPGT?
Allow us to simplify it for you. Citizens and foreigners can use the same formula for RPGT calculations, save for the varying rates based on residential status.
In a nutshell, your tax amount depends on your Chargeable Gains, which is the difference between the property’s acquisition price and selling price.
Here’s a general formula:
- Chargeable Gain: (Original Price) — (Disposal Price)
- Tax Payable = (RPGT Rate) x (Chargeable Gain)
Now here’s a hypothetical scenario:
Jane is a Malaysian citizen who purchased a house for RM500,000 and sold it for RM800,000 three years later. Her chargeable gain would then be RM300,000 with an RPGT rate of 30%.
RM300,000 x 30% = RM90,000 total tax payable
When to Pay RPGT?
Individuals selling a property must make payment within 60 days from the Sales and Purchase Agreement (SPA) date. Take note of this, as late payments will face a penalty that is 10% of the RPGT’s payable amount.
What Property Types are Liable?
Any real estate residing in the country or any interest, stake, and other rights over this land is subject to RPGT. Yes, this includes undeveloped lands as well.
So even if it’s agricultural land, industrial sites or commercial buildings, there’s no avoiding the capital gains tax. Unless, of course, you make a loss in sales, but who wants that?