TaxPlanning: RPGT exemption

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on August 31, 2020 - September 06, 2020.
TaxPlanning: RPGT exemption
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The Penjana or National Economic Recovery Plan announced in June contained one very significant measure: the real property gains tax (RPGT) exemption was to be applicable for an extended period until Dec 31, 2021. The exemption was gazetted on July 28, 2020. Let us look at the fine print.

In a nutshell, a citizen of Malaysia is exempt from RPGT in respect of gains on the disposal of up to three residential properties from June 1, 2020, to Dec 31, 2021.

Who qualifies?

Only an individual who is a citizen of Malaysia is eligible for the RPGT exemption. Permanent residents (in the immigration sense) do not qualify. A citizen who is a non-resident (in the tax sense) qualifies. 

So an individual, who has been residing abroad, but who has retained his Malaysian citizenship status, is eligible for this exemption.

It means that all other persons do not qualify. They include companies, limited liability partnerships (LLPs), trusts, clubs and societies, co-operative societies, trade associations, bodies of persons, a deceased’s estate, business trusts, real estate investment trusts (REITs), unit trusts, charities and provident funds.

What is a residential property?

Only residential properties qualify for the RPGT exemption. A residential property is defined in the gazette order to mean a house, a condominium unit, an apartment or a flat in Malaysia, and includes a serviced apartment and a small office home office. It must be owned by an individual, solely or jointly, and must be used only as a dwelling house.

This means that vacant land (all types), agricultural land (whether planted or unplanted), industrial property (such as factories or warehouses) and commercial property (offices, shop lots or shop houses) do not qualify.

How many properties are exempted?

RPGT exemption will apply to up to three units of residential property. If more than three units are disposed of during the period, the disposer may irrevocably elect any three to be exempted. 

The period of exemption

The sale and purchase agreement (S&P) must be executed from June 1, 2020, to Dec 31, 2021. Additionally, it must be stamped by Jan 31, 2022. 

Where there is no S&P, the instrument of transfer (memorandum of transfer, or MoT) must be executed during the same period and must be duly stamped by Jan 31, 2022, as well. 

Where the disposal of the property is conditional upon the approval of the federal or state government, the S&P must be executed and stamped as above, and the approval must be obtained on or after June 1, 2020 (see table).


How long must the property have been held by the disposer?

There is no stipulation as to the holding period. So the property may have been held for six months or 16 years — the exemption applies, provided all the requisite conditions are fulfilled. 

There is one condition though: The residential property disposed of MUST NOT be one which is acquired from June 1, 2020, to Dec 31, 2021: 

•    by way of transfer between spouses; or 

•    by way of gift between spouses, parent and child, grandparent and grandchild, where the donor is a Malaysian citizen. 

This is anti-avoidance in nature to preclude the splitting of units between relatives who are citizens to maximise the number of units qualifying for exemption. 

This has two implications:

1.    A residential property acquired by a citizen before June 1, 2020, under the above scenarios will be eligible for exemption; and

2.    A citizen may buy a residential property from an unrelated third party during the period and dispose of it during the same period, and will still qualify for the RPGT exemption.  

What is the tax saving?

As there is no stipulation as to the holding period, the potential tax saving may range from the minimum 5% to the maximum 30% of the chargeable gains of the disposal of up to three residential properties.

What is the rationale for this exemption?

From the fine print, it appears that the government wants to stimulate the residential property segment of the industry by encouraging buying and selling of residential properties during the 19-month period. It also aims to give an incentive or a boost to citizens by exempting them from RPGT for disposals during this period.

Compliance requirements are still applicable

Although a disposal may be eligible for RPGT exemption, the disposer is still required to fulfil the compliance requirements with regard to submitting the RPGT return or furnishing any other information under the RPGT Act.