APRIL 2007
Question 5

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.

Required:

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)

Question 5:

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.

Required:

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, - this is a no gain no loss transfer. - DP = AP - The transfer of land by Mr. Rajoo to his executor is not liable to RPGT.

AP (executor) = MV (Date of death) – Cap Receipts AP (beneficiaries) = MV (Date of transfer) – Cap Receipts

ii) Executor disposal to Mr. Awang:
|Acquisition date |16/5/09 |
|Disposal date |31/12/11 |
| | |
| |RM |
|Disposal price |990,000 |
|Acquisition price |(660,000) |
|Chargeable gain |330,000 |
|Less: Schedule 4 exemption |nil |
|Less : Exemption |? |
|RPGT Payable |? |

On 1 September 2005, Encik Fairuz transferred a cocoa estate land to Perkasa Holdings Sdn Bhd for a consideration consisting of 300,000 ordinary shares of RM1 each in Perkasa Sdn Bhd. The market value of the estate on that date was RM300,000.

The cocoa estate was given to Encik Fairuz as a gift from his father, Encik Harun, on 1 September 2000. Encik Harun purchased the land on 3 January 1998 for RM200,000. The market value of the estate on 1 September 2000 was RM240,000.

The paid up capital of Perkasa Holdings Sdn Bhd as held by the following persons immediately prior to the transfer of the cocoa estate from Encik Fairuz to Perkasa Holdings Sdn Bhd is as follows:

Number of ordinary shares @ RM1 each En. Fairuz 50,000 En. Musa ( Fairuz’s brother ) 200,000 En. Harun ( Fairuz’s father) 150,000 400,000

On 1 October 2005, Encik Fairuz sold his entire shareholding in Perkasa Holdings Sdn Bhd for RM700,000. Perkasa Holdings Sdn Bhd is not a real property company.

Required:

i) State and explain whether the transfer of the cocoa estate land to Perkasa Holding Sdn Bhd is liable to real property gains tax. (3 marks)

ii) Compute the real property gains tax payable (if any) on the sale of the 350,000 shares in Perkasa Holdings Sdn Bhd by Encik Fairuz. (5 marks) (Total: 20 marks)

C (i) There is no RPGT liability on Fairuz’s land disposal to Perkasa Holding Sdn Bhd because the transfer falls under no gain no loss provision [paragraph 3(b), Schedule 2 of RPGT 1976]: - The transfer is between individual to controlled company ( Perkasa Holdings Sdn Bhd is a company controlled by Fairuz and his connected persons (Musa and Huran) - The transfer is for a consideration consisting substantially (at least 75%) in shares of Perkasa Holdings Sdn Bhd.

- that is a no gain no loss transfer (paragraph 3(b), Schedule 2 of RPGT 1976]) - DP is deemed AP. - Therefore, no RPGT is liable by En. Fairuz on the transfer. - However the shares is chargeable assets and will subject to RPGT upon future disposal

i) AP of Real Property by controlled company AP (R/Property) = AP (Transferor) + PE (Transferor) – capital receipt ii) AP of share by individual AP (Share) = AP(Transferor) + PE (transferor) – capital receipt – cash received from controlled company

ii) The disposal of entire shareholdings of Encik Fairuz in Perkasa Holdings SB

50,000 shares The 50,000 existing shares that are not chargeable assets because: - the shares was not transfered by virtue para 3(b) - Perkasa Holdings Sdn Bhd is not a real property company

300,000 shares The 300,000 shares are shares transferred by virtue of para 3(b), therefore, shares are chargeable assets. The disposal is subjected to RPGT.

|Acquisition date | | | |01/09/05 |
|Disposal date | | | |01/10/05 |
| | | | | |
| | | | |RM |
|Disposal price |300,000 |X |700,000 |600,000 |
| |350,000 | | | |
|Acquisition price | | | |(200,000) |
|Chargeable gain | | | |400,000 |
|Less: Schedule 4 exemption | | |(40,000) |
| | | | |360,000 |
|Less : Exemption | | | |? |
|RPGT Payable | | | |? |

DP (SP-ICs- CAP EXP)=AP