A Real Property Gains Tax (RPGT) is the imposition of tax on your profits from selling a property. In simpler terms, if you own a house and plan to sell it one day, you will have to pay tax to the government for the gains a.k.a profits you’re going to receive.
However, this tax will be imposed only when the disposal or selling price is greater than the purchase price of the property. If you’re not making a profit, you will not be charged RPGT.
This tax must be paid within 60 days of the sale of the property. However, it is advisable to get it done much sooner.
It is important to note that RPGT is not only applicable to residential properties, but also commercial properties, estates, and empty lands. In this article, we’re going to focus on the sale of residential properties.
How does RPGT work?
RPGT is only imposed on the net chargeable gain from your sale. It is charged on the profit you made, minus any waivers or deductible costs. It sounds complex, but is very easy to understand.
First, we need to know your chargeable gain amount.
Chargeable Gain = Disposal Price (Selling Price of Property) – Purchase Price
Budget 2020 also revised the base year of assessment from 2000 to 2013, changing how your chargeable gain is calculated if your property was bought before the base year. From 1 January 2020, the purchase price of your property is calculated starting from 2013; even if you bought it much earlier.
Due to the base year moving to 2013, your chargeable gain would only be RM200,000. As this is the difference between your Disposal Price and the value of the property in 2013.
The market value of your property in the year 2013 is set by the Inland Revenue Board (IRB) and the Valuation and Property Services Department (JPPH). If you disagree with this value, you can challenge it, but you’ll need to engage the services of an independent registered valuer.
Now, let’s move on to net chargeable gain:
Net Chargeable Gain = Chargeable Gain – Exemption Waiver [RM10,000 or 10% of Chargeable Gain; whichever is higher] – Allowable Costs
Hence, the total amount of RPGT you will be paying is as follows:
What you need to pay = RPGT Tax Rate (based on holding period) x Net Chargeable Gain
The only things you need to be concerned about are: the exemption waiver and allowable costs.
The exemption waiver is RM10,000 or 10% discount on the net chargeable gain (whichever is higher) to reduce the amount you’ll end up paying in taxes. There is also an exemption for those selling properties worth less than RM200,000.
Aside from the exemption waiver, you can also deduct allowable costs. These are things like stamp duty, legal fees and advertising fees, administrative fees, and repairs and renovations.
Finally, your tax rate will be determined by the holding period, which is the number of years you have owned the property. See the tables below for the tax rates:
From 1st of January 2019 onwards, the RPGT rates are as below (for individuals who are citizens or permanent residents of Malaysia):
|RPGT Tax Rate
Michael is a Malaysian. He bought an apartment for RM300,000. Seven years later, he wants to sell off the apartment for RM 600,000. Before selling, he also spends RM20,000 on lawyers’ fees and some minor repair works.
Chargeable Gain: RM600,000 – RM300,000 = RM300,000
Net Chargeable Gain: RM300,000 – RM30,000 (10% of chargeable gain waiver) – RM20,000 (allowable costs) = RM250,000
RPGT Rate (based on holding period) x Net Chargeable Gain
Since Michael has owned the property for more than six years, his RPGT rate will be 5%. Hence;
Total RPGT RM250,000 x 5% = RM12,500
Now that you have figured out how to calculate your RPGT tax rates, let’s look at how you can make the payments.
How to pay RPGT?
Generally, your lawyer will handle the details and calculations for you; but if you want to do it yourself, here’s where to get started:
- CKHT 1A – Disposal of Real Property (completed by the disposer aka You)
- CKHT 2A – Acquisition of Real Property (completed by the acquirer/buyer)
- CKHT 3 – Exemptions
2. Prepare relevant documents for RPGT like the sale and purchase agreement, as well as receipts from your legal fees, advertising costs, and renovation fees to justify your deduction of allowable costs.
3. Fill out the CKHT 1A form – disposal of real property.
4. For exemptions, fill out form CKHT 3 (Notification under Section 27 RPGTA 1976)
5. Get your buyer to fill out form CKHT 2A – the acquisition of real property. Yes, this is also needed.
6. Submit all the forms and documents to the IRB office.
7. Wait for your confirmation notice!
What if I want to get out of paying RPGT? Are there any RPGT reliefs or exemptions I can make use of?
Actually, there are four:
- The first exemption we’ve already applied above – which is 10% of profits OR RM10,000 per transaction. This applies to every transaction you make.
- There is also a once-in-a-lifetime exemption from RPGT. Bear in mind that this only applies to a single transaction across your entire life.
- You’re exempted from RPGT if the disposal of property happens between you and a spouse, between parents and children, grandparents or grandchildren by way of a gift. It will be assumed that you received no gain or suffered no loss from the transaction.
- If you own a medium or low-cost property that is RM200,000 or below, you are also exempted from RPGT when selling.
With this guide, we hope you have a better understanding of how RPGT works, and how to file for it in case you’re planning to sell a property in the near future.