Understanding the Impact of Real Property Gains Tax on Your Return On Investment (ROI)

When it comes to selling a property, maximising profit stands as the primary objective. Achieving the optimal selling price is a delicate balance—set it too high, and potential buyers may be deterred, yet setting it too low could mean that you’ll miss out on profits.

Finding that sweet spot requires a well-informed approach. You’ll need to consider various factors, including the property's valuation, current market trends, and any renovations made.

You’ll also need to factor in potential expenses affecting the final profit margin, such as any outstanding loans and the Real Property Gains Tax (RPGT).

What is Real Property Gains Tax in Malaysia?

Property sales tax is levied in Malaysia by the Inland Revenue Board of Malaysia (LHDN) through the Real Property Gains Tax (RPGT).

RPGT was introduced in the Real Property Gains Tax Act 1976, an act that was passed by the Malaysian Parliament on November 7, 1975, and has been in effect since January 1, 1976. RPGT applies to anyone who profits from a property sale in Malaysia, including Malaysian citizens or permanent residents, foreigners, and companies.

This property gains tax is only applicable for profitable sales. If you made no profit or made a loss selling your property, RPGT will not apply.

However, if you made a loss on selling a property, this qualifies as an ‘allowable loss’. An allowable loss means you can roll over the loss into coming tax years and offset the loss against any profits made on future property sales.

How is Real Property Gains Tax calculated?

Since RPGT is a capital gains tax, you’ll only be taxed on your profit, not the total sales price. The following formula is used to calculate RPGT:

Read on to find out how this formula works in the RPGT calculation section below.

Chargeable gain

Chargeable gain is the taxable amount for RPGT. This taxable amount is based on your profit after deducting the sales price and allowable expenses from your sales price.

Allowable expenses include:

RPGT rate

The RPGT rate depends on the seller's citizenship, residency status, and ownership period. The ownership period is calculated from the date of the initial Sale and Purchase Agreement (SPA) to the date of the sale.

The different RPGT rates for all these varying factors are as follows.

RPGT calculation

To calculate the RPGT, you first need to calculate the chargeable gain based on the sale price, purchase price, and combined total of allowable expenses. Let’s say the figures for these factors are as follows.

Next, you need to multiply the chargeable gain by the relevant RPGT rate. Let’s take the RPGT rate for a Malaysian citizen with an ownership period of 4 years, which would be 20%.

First-time home buyer: Property tax exemptions

If you’re a first-time home buyer, you can take advantage of property tax exemptions. The law allows every Malaysian citizen and permanent resident to enjoy a once-in-a-lifetime RPGT exemption. You may choose to apply this exemption to the sale of your first home or save it for the future sale of other properties if you wish, but it has to be used for your very first property sale.

If you’re not a first-time home buyer, you may be able to benefit from other RPGT exemptions. Here’s a summary of all RPGT exemptions.

Assess your Real Property Gains Tax

If you have recently sold or are planning to sell your property soon, make sure to calculate how much RPGT you will need to pay. Remember to settle your RPGT within 60 days of the SPA selling date to avoid a 10% penalty from Lembaga Hasil Dalam Negeri Malaysia (LHDN).

Finally, be sure to check if you’re eligible for the aforementioned RPGT exemptions. Just as you want to steer clear of unnecessary penalties, you also want to make sure you're not overpaying property gains tax.

Are you a first-time home buyer or an investor looking to purchase property for investment? Use our home affordability calculator to determine the amount you can afford to invest. If you are satisfied with the terms, you can apply online immediately for a hassle-free experience.

💡 The information provided above is purely for educational purposes.