Finance Bill 2021: Proposed Amendments to the Real Estate Gains Tax Act 1976
Malaysia’s 2022 budget (‘Budget 2022‘) was tabled by the Minister of Finance in the Malaysian Parliament on October 29, 2021. Our alert which highlights some of the measures proposed under the 2022 budget can be accessed here.
As an extension of the 2022 budget, the 2021 finance bill (“The law project‘) was presented for first reading in the Dewan Rakyat (House of Representatives) of the Malaysian Parliament on November 9, 2021.
This article describes the main amendments to be made to the Real Estate Gains Tax Act 1976 (‘the act‘) in accordance with the bill.
No RPGT on transfers by citizens and permanent residents in the 6and from the year
Gains of an individual who is a citizen and permanent resident of Malaysia from the disposal of real estate and shares in a real estate company (each being a ‘taxable asset‘) during the sixth and subsequent years from the date of acquisition of the taxable asset will be exempt real estate gains tax under a proposed amendment to Part I of Schedule 5 to the Act.
Expand eliminator categories under Part II of Schedule 5
Currently, Part II of Schedule 5 to the Act establishes the tax rates on taxable gains realized by the following eliminators:
- a company incorporated in Malaysia;
- a trustee of a trust; Where
- a company registered under the Companies Act 1966 [Act 335].
The categories of eliminators under Part II of Schedule 5 will be expanded by replacing the phrase ‘company registered under the Companies Act 1966 [Act 335]‘ with ‘group of persons registered under a written law in Malaysia”.
Increase in Retention Sum for Assignment by a Malaysian Company, Trustee or Registered Body
Section 21B(1) of the Act currently requires that the acquirer of a taxable asset from an eliminator under Part II of Schedule 5 of the Act (i.e. a corporation incorporated in Malaysia, a trustee of a trust or a body of persons registered under written law in Malaysia) (each a ‘Shredder concerned‘) to withhold all of the cash consideration or 3% of the total value of the consideration, whichever is less, and pay the amount withheld to the Director General of Revenue (“DGIR‘).
The Bill will introduce a new paragraph (a) to Section 21B(1A) which requires the acquirer of a taxable asset from a relevant eliminator retain all of the cash consideration or 5% of the total value of the consideration, whichever is less, if such disposal is made within three years of the date of acquisition of the taxable property by the Transferor Concerned and to pay the sum withheld to the DGIR.
Non-payment of money by a person leaving Malaysia
Where DGIR is of the opinion that a person is about or likely to leave Malaysia without paying:
- all taxes due by him (whether or not due or due and payable);
- all sums due by him under article 21, paragraph 4, of the law (tax imposed but not paid within 30 days or within any longer period authorized by the DGIR); Where
- the debt owed by him under Article 21B(2) of the law (failure to pay by the purchaser of the amount he must withhold plus interest),
the DGIR can issue a certificate under article 22 of the law (“section 22 certificate‘) to the Commissioner of Police or Director of Immigration requesting that the person concerned be prevented from leaving Malaysia unless he pays such taxes, sums or debts or provides security to the DGIR for the payment of these.
Currently, Section 32 of the Act makes it an offense for a person who knows that a Section 22 Certificate has been issued to them to voluntarily leave or attempt to leave Malaysia without paying the full of the tax it must pay or without providing security for its payment. . If convicted, such person shall be liable to imprisonment for a term not exceeding two years or a fine not exceeding RM5,000 or both.
The bill will amend section 32 on the following points:
- expand the offense under section 32 include non-payment of all sums or debts payable under section 22 of the Act; and
- replace the fine in an amount not exceeding RM5,000 with a fine of at least RM200 and not more than RM20,000.
The first of the proposed amendments will align the criminal provisions of section 32 with the grounds on which a certificate under section 22 may be issued against a person.
Expansion of the scope of the transaction without gain or loss
Paragraph 3 of Schedule 2 to the Act sets out various types of disposals where the disposal price is deemed to be equal to the acquisition price (ie no gain or loss).
Paragraph 3(1)(b) of Schedule 2 currently provides that the transfer of taxable property held:
- by an individual;
- by the wife of an individual;
- by an individual jointly with his wife; Where
- with a connected person,
to a company (whether or not resident in Malaysia) controlled by the individual, by his wife, by the individual jointly with his wife or with a related person, for consideration consisting of shares of the company or substantially shares of the company and the balance in monetary payment, is assimilated to a sale whose sale price is deemed to be equal to the acquisition price.
The bill seeks to amend paragraph 3(1)(b) of Schedule 2 to extend the above tax treatment to the transfer of a taxable asset by an agent or trustee for an individual, or for the individual’s spouse, or both, to a corporation controlled by the agent or trustee of the above-mentioned person, or his wife, or both.
It should be noted that paragraph 3(2) of Schedule 2 provides that any transfer of property between spouses or to a corporation referred to in paragraph 3(1)(b) must relate to property belonging to a citizen.
Paragraph 33 of Schedule 2 to the Act sets out various circumstances in which a loss incurred on the disposal of taxable property may not be offset against other taxable gains of a person in a tax year. ‘taxation.
The Bill will amend paragraph 33(d) of Schedule 2, which currently prohibits the deduction of losses arising from the disposition of shares of a real estate corporation (paragraph 34A of Schedule 2) to also prohibit the deduction of losses resulting from the disposal of shares issued to the acquirer as consideration or in part for the consideration for the acquisition of the taxable asset by a controlled corporation under paragraph 3(1)(b) of Schedule 2 (paragraph 34 of Schedule 2).1
Partial sale of shares
Paragraph 2 of Schedule 4 to the Act currently provides a formula for determining the taxable gain when a portion of a taxable asset including immovable property is disposed of. This paragraph will be amended under the bill introduce the following formula to determine the taxable gain when part of a taxable asset consisting of shares of a real estate company is disposed of:
All proposed changes will come into effect on January 1, 2022.