A.Encik Noor purchased a bungalow house on 1 April 2000 for RM300,000 and has incurred legal fees of RM3,500. On 4 May 2006, he incurred renovation cost of RM55,000.
The bungalow was given to his daughter, Mizah, as a gift on 25 January 2008. On that date, the market value of the bungalow was RM600,000. Later, on 30 April 2011, due to financial constraint, Mizah sold the bungalow to Encik Ridwan for RM1,200,000. Mizah incurred brokerage fees of RM10,000 and valuation fees of RM40,000 on the disposal. An independent valuer valued the bungalow at RM1,600,000.
i.State, with reasons, whether the transfer of the bungalow by Encik Noor to his daughter on 25 January 2003 is subject to real property gains tax.
ii. Compute the real property gains tax payable (if any) on the disposal of the house to Encik Ridwan by Mizah on 30 April 2006.
iii. Explain the tax implication(s) should Mizah dispose the bungalow to her brother instead of to Encik Ridwan. (8 marks)
A (i) - transfer as a gift between father and child
- the disposal falls under para 12, Schedule 2 of RPGT 1976 the transfer is within 5 years Holding period (father) before giving to Mizah: 3 years (within 5 yrs) - that is a no gain no loss transfer
- DP is deemed AP.
- Therefore, no RPGT is liable by En. Noor on the transfer. - However the bungalow is chargeable assets and will subject to RPGT upon future disposal
AP (recipient) = AP (Donor) + PE (Donor)
(ii) Disposal of the bungalow house by Mizah to Encik Ridwan: Acquisition date: 25/1/08
Disposal date: 30/4/11 ( in the 4th year)
|Disposal price | | |Consideration received |1,200,000 | |Less: Brokerage fee |(10,000) | | Valuation fee |(40,000) | | |1,150,000 | |Acquisition price: | | |AP of Noor |300,000 | | Add: Legal fee |3,500 | | Extension and Renovation |55,000 | | |358,500 | |Chargeable Gain |791,500 | |Less: Exemption |79,150 | | |712,350 | |RPGT rate |5% | |RPGT payable | |
(iii) Mizah and her brother are connected persons; therefore, this is not an arm’s length transaction. The disposal price is deemed to be at market value i.e. RM1,600,000.
B. Mr. Rajoo purchased a 10 hectare agricultural land on 15 May 2007 for RM300,000. Mr Rajoo passed away on 16 May 2009. The market value of the land on that date was RM660,000. The land was transferred to the executor on 1 July 2009. Subsequently, on 31 December 2011, the executor sold the land to Encik Awang for RM990,000.
i.State and explain chargeability to real property gains tax on the transfer of the land to the executor.
ii. Compute the amount of real property gains tax, if any, payable by the executor on the disposal of the land to Encik Awang. (4 marks)
B (i) - this is a devolution of Mr. Rajoo’s asset to the executor - falls under para 3(a), Schedule 2 of RPGT 1976,