FROM January 2025, it is mandatory for taxpayers to self-assess Real Property Gains Tax (RPGT) on disposal of any real property and submit returns electronically to the Inland Revenue Board (IRB). There is no avenue to submit the RPGT returns manually.
The RPGT returns should be submitted within 60 days from the date of disposal which will usually be the date of the sale and purchase agreement, and the tax thereon will be payable within 90 days from the date of disposal.
Both buyer and seller are obligated to submit RPGT returns, and any failure to do so will result in penalties. Normally, the buyer will be expected to withhold 3%, 5% or 7% of the sale consideration, and hand it over to the IRB within 60 days from the date of disposal. The exception is where the disposer furnishes a notification to the IRB indicating that the disposal is not subject to tax or exempt from tax under the RPGT Act.
Be careful in calculating the RPGT liability
In a self-assessment regime, there is no opportunity for the taxpayer to engage with the IRB before you file your RPGT return. In the event your calculation is incorrect which results in an underpayment of RPGT, you will face additional taxes and penalties.
You must exercise diligence when filing your tax returns. The key items where errors can occur are the acquisition date, the disposal date, the acquisition price and disposal price, which will have a consequential effect on the rate of tax payable. For example, if the disposal date was determined to be in the sixth year instead of the fifth year after the date of acquisition, the rate of tax can change from 0% to 15%. If there are condition precedents in your sale and purchase agreements, and if these conditions are subject to approval from government or state government authorities, the date of disposal can move until the when the last of such conditions are satisfied.
There are also specific rules that should be understood in cases involving gift of assets on death, or devolving assets to legatees, and transactions involving the executor of the estate. These rules should be carefully understood before you file your tax returns.
Particular attention should be paid in determining the acquisition price and the disposal price. In determining the acquisition price, the disposer needs to take into account any compensation he has received in relation to the asset, or any insurance proceeds received for damage to the property, or any forfeited amounts received in connection with the transfer of the property prior to the disposal.
Similarly, when determining the disposal price, the seller must take into account any expenses incurred in enhancing or preserving the value of the property, the expenses incurred in establishing, preserving, or defending the title or the right over the asset, and incidental costs in relation to making the disposal.
The difficulty in determining acquisition dates, disposal dates, acquisition price or disposal price lies in the correct interpretation of the words in the legislation, which may not be easily understood by a layperson. It would be advisable for the disposer where the disposal will trigger RPGT to seek advice or review from a professional who understands the legislation to avoid any tax issues.
If the disposer has a series of disposals over a period of time, the IRB is likely to challenge the RPGT return and attempt to impose income tax on the disposal. In such a situation, filing an RPGT return is incorrect, and the time bar of five years will not protect the disposer from being subject to income tax on the grounds that the taxpayer has been negligent by filing the incorrect return.
Since the IRB will no longer be checking your RPGT computations when the return is submitted, you need to be extra careful before you file your RPGT return.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
