Question

Explain, with reasons, whether the gain of each scenario are assessable to Malaysian income tax.

Scenario 1: Annette, an entrepreneurs, acquired a bungalow lot costing RM400,000 at Ipoh in 2009, with intention to build a nice home for her family. She utilized her savings to settle the down payment of RM50,000. The balance of the acquisition price was financed by a 25-years bank loan. Since then, her business has not been good and the bungalow lot was left vacant. In 2019, she was approached by a real estate agent to sell the lot with very attractive price. She accepted the offer and sold the lot at a gain of RM170,000. This was her first sale transaction of real property.

SUBJECT: BUSINESS TAXATION

Answer 1

As per the Malaysian Income Tax Laws, Capital Gains are not taxable, except for gains derived from the disposal of real property or shares in a real property company.

For a citizens and Permanent Residents, such taxes are applicable at the rate of 30% on sale within 3 years after acquisition, 20% in the 4th year of acquisition, 15% in the 5th year of acquisition and 5% after 5 years of acquisition.

However following exemptions are available:

1. Exemption on gains from the disposal of one private residential property once-in-a-lifetime to an individual.
2. Exemption on gains arising from the disposal of real property between family members (e.g. husband and wife; parents and children; grandparents and grandchildren).
3. 10% of profits OR RM10,000 per transaction (whichever is higher) is not taxable.
4. Low cost, low-medium cost and affordable housing priced below RM200,000 will be exempted from RPGT.

In the given case, Annette acquired the Bunglow lot in 2009 and sold the same in 2019, that is, in the 10th year of acquisition. Hence, tax rate of 5% will be applicable on the transaction. However, if this is the first sale of residential property by Annette in her lifetime, she will not be taxed for thus transaction. But if she has undertook similar transaction in the past, she will be liable for tax as computed below:

Chargeable Gain = RM170,000

Exemption waiver = RM10,000 or 10% of Chargeable Gain, whichever is higher

   = RM10,000 or 10% of RM170,000, whichever is higher

= RM17,000

Net Chargeable Gain = RM170,000 - RM17,000

= RM153,000

Tax payable = RM153,000 * 5%

= RM7,650