Elaborate the following:

1. Chargeable gain
Chargeable gain = disposable price > acquisition price
A chargeable gain is a profit when the disposal price is more than the purchase price of the
property. Chargeable gain refers to a profitable change in the price of an asset measured
between the time when the assets were purchased, and the time when they are sold. When
applied to the financial markets, most profits whether they are a result of going long or going
short are subject to capital gains tax (CGT). Certain costs related to the purchase or maintenance
of the asset, such as stamp duty, are deducted from the chargeable gain.

2. Allowable Loss
Allowable loss = disposable price < acquisition price
When the disposal price is less than acquisition price in respect of chargeable asset there is an
allowable loss. Tax relief is given to such allowable loss. The amount of allowable loss is
computed by multiplying the tax rate applicable with the amount of net chargeable loss. The
resultant sum is then deducted against the total tax assessed in that year of assessment

3. No gain no loss
No chargeable gain or allowable loss where disposable price = acquisition price
When no chargeable gain or allowable loss where disposable price is same as the acquisition
price so that there is no gain no loss.

4. Basic principle of RPGT

According to the Real Property Gains Tax Act 1976, RPGT is a form of Capital Gains Tax levied by
the Inland Revenue (LHDN). It is chargeable upon profit made from the sale of your land or real
property, where the resale price is higher than the purchase price.

In Malaysia there is no capital gains tax until the introduction of Land Speculation Tax Act. 1974
on 6th December 1973. This tax was introduced to curb property speculation and the soaring
prices of immovable property especially residential houses during the years 1973 and 1974. The
Land speculation Tax was replaced on 6th November 1975 by the introduction of Real Property
Gains Tax Act, which is effective from 7th November 1975.
 5. Disposable Price
The disposal price is the amount of money, or the value of consideration in monetary terms
obtained from the disposal of any asset, less:
 The cost or expenditure incurred in upgrading or increasing the value of the asset;
 The cost or expenditure incurred at any time after the acquisition of the asset by the
purchaser to determine, maintain or defend his right over the asset; and
 The cost incurred by the vendor in selling the asset.

Consideration received for the disposal of real property

Less :

 Capital expenditure for the enhancement of the real property

- Renovation costs and cost of construction of building on land
 Legal fees in establishing, preserving or defending the title of the land; and
 Incidental costs of the disposal of real property
- Brokerage fees, valuation fees, legal fees and advertising cost

Computation of disposal price

Consideration received XX
Less: Permitted expenses
Cost of extension to bungalow XX
Legal fees for defending the title XX XX
Less: Incidental costs on disposal
Valuation fees XX
Brokerage fees XX XX
XXX
 
6. Acquisition Price
The acquisition price of an asset is the amount or value of the consideration in money or monies
worth paid or given for the acquisition of the asset (together with the incidental costs of
acquisition), less:
 Any sum received by way of compensation for any kind of damage or injury to the asset;
 Any sum received under a policy of insurance for any kind of damage or injury to or the
loss, destruction or depreciation of the asset; and
 Any sum forfeited as a deposit made in connection with an intended transfer of the
asset.
 Comprises of:
 Consideration paid wholly and exclusively for the acquisition of real property;
 Incidental costs on the acquisition of real property. stamp duty, legal fees, tax agent
fees, remuneration paid to land survey/ value for land valuation purposes,
advertising costs and interest expense from the signing of SP agreement to the
receipt of certificate of fitness
 Income tax and RPGT are mutually exclusive.
 The following capital receipts reduces the acquisition price:
 Compensation received for the damaged done on the property;
 Insurance recoveries for the loss or damaged to the real property;
 Deposit forfeited in connection to the disposal of real property

Computation of acquisition price

Consideration paid XX
Computation of acquisition price
Add : Stamp duty on transfer XX
XX
Less : Compensation received XX
Insurance recoveries XX
Deposit forfeited XX XX
Acquisition Price XXX

7. Chargeable person
Chargeable person is defined as any person whether resident or not resident in Malaysia is
chargeable to tax. A person may be an individual, a company, a partnership, a body of a person
or a corporate sole. For example, Administrators, Kartas of Hindu Joint Families. Furthermore,
executors and trustees are also chargeable persons.
According to the Real Property Gains Tax Act 1976 (Act 169), Section 6(1) states that subject to
this Act, every person whether or not resident in Malaysia for a year of assessment shall be
chargeable with the tax in respect of a chargeable gain accruing to him in that year on the
disposal of any chargeable asset. Section 6(2) states the supplementary provisions in Schedule 1
shall have effect with respect to persons chargeable with the tax.
8. Real Property
Real Property is defined as any land situated in Malaysia and any interest, option and other right
in and over such land. Land includes:
The surface of the earth and all the substances forming that surface;
The earth below the surface and the substances therein;
Building on land and anything attached to the land (whether on or below the surface);
Standing timber, trees, crops and other vegetation growing on the land; and
Land covered by water.
Real property is a less commonly used term and as such, is a less commonly understood
concept. Real property is a broader term and includes the land itself and also any buildings and
other improvements attached to the land. It also encompasses the rights of use and enjoyment
of certain land, as well as any of its improvements. Renters and leaseholders may have the right
to inhabit land or buildings, a real property consideration, but those things are not considered
real estate.

9. Disposal

The meaning of the disposal is to sell, convey, transfer, assign, settle or alienate whether by
agreement or by force of law.

For capital gains tax purposes, a disposal is therefore one of a number of transactions including a
sale, a gift, an exchange of assets, a part disposal, the loss or destruction of an asset, an option,
transfers into a trust, etc.

There are also transfers which are ‘deemed disposals’ for capital gains tax. Legislation
specifically provides that ‘disposal’ includes a part disposal.

The disposal proceeds will be the actual consideration received unless the disposal is not a
‘bargain at arm’s length’, for example a gift or sale below market value. In this case the disposal
is deemed to take place at open market value.

10. Acquisition

Acquisition by any of purchase, grant, exchange, gift, settlement or otherwise. An acquisition is

defined as a corporate transaction where one company purchases a portion or all of another
company’s shares or assets. Acquisitions are typically made in order to take control of, and build
on, the target company’s strengths and capture synergies.

The tax amounts are calculated from the invoice amount (base amount), the percentage rates
being country specific.
 11. Incidental cost for Acquisition

Incidental cost in the acquisition of real property includes stamp duty, legal fees, tax agent fees,
remuneration paid to land survey/value for the valuation purposes, advertising costs and
interest.

12. Incidental cost for disposal

The incidental costs to the person of making the disposal of the chargeable asset. Incidental cost
[Paragraph 6(1) & (2) schedule 2] consist of

i. Fees, commission or remuneration paid for the professional services of any surveyor,
valuer, accountant, agent, or legal adviser.
ii. Cost of transfer eg. Stamp duty
iii. Cost of advertising to find a buyer

13. Permitted expenses for disposal price

Permitted expenses refer to any expenses incurred wholly and exclusively on the asset after its
acquisition for the purpose of enhancing or preserving its value and expenses incurred in
established and defending title or right over the asset.

14. Disposal and Acquisition date

Both “acquisition date” and “disposal date” are important as the length of time the RPC shares
are held for will determine the tax rate the disposer is subject to.

Under the RPGT Act, “acquisition date” is the date the company becomes an RPC or the date of
acquisition of the chargeable asset. To illustrate, if a company issued shares to its shareholders
in year 2012 and subsequently acquired properties in year 2016 which results in the value of its
real property exceeding 75% of its tangible assets, the acquisition date will be deemed to be the
date the company becomes an RPC in year 2016.

Disposal date is the date the shareholder disposes his shares in RPC to another party. Disposal
date is defined as gift of asset on death, the disposal date shall be the date of transfer of
ownership.