Real Property Gains Tax (“RPGT”) - Part II

This is the second part of the article by Group Finance Division - Tax that was published in the May/June 2010 issue of Lion Today.

CHANGES THAT TOOK EFFECT FROM 1 JANUARY 2010

1. RPGT at a flat rate of 5% for disposals within 5 years
RPGT is a fiscal policy adopted by the Government to curb speculation in the property market. Hence, a gain on disposal is subject to a higher rate of RPGT where period of ownership is shorter (i.e. RPGT of 30% is imposed where the disposal takes place within 2 years of acquisition). However, there were 2 periods (1 June 2003 to 31 May 2004 and 1 April 2007 to 31 December 2009) where an exemption of RPGT was given by the Government in its move to spur the growth of the construction and housing industries.

The Government’s decision to re-impose RPGT at a flat rate of 5% seems to indicate that it is a measure to increase revenue collection without dampening the property market. Whilst taxpayers may rejoice at the prospect of paying only 5% (instead of higher rates) on any gain made from disposal of real property which are held for less than 5 years, the Inland Revenue Board (“IRB”) could regard the gain as revenue in nature and impose tax at the rate of 25% (for corporate taxpayer) or up to 26% (for non-corporate taxpayer). Where the period of ownership is short or the disposer has a history of such transactions on a regular basis, the IRB will have the incentive to do so as it will increase the tax revenue.

2. Extended time to file RPGT return
Previously, the acquirer and disposer of the real property are required to file the RPGT return within one month from the date of disposal. The disposer, in most cases would request the IRB for an extension of time to file the RPGT return (due to the need to retrieve documents/information relating to the cost of acquisition) which will be approved by the IRB. The extension of the filing period to 60 days from the date of disposal has eliminated this administrative process.

3. RPGT retention sum
The table below summarises the changes to the provisions on RPGT retention sum.

4. Financing cost
Under the previous provisions, interest incurred on borrowings obtained to finance the purchase of the real property is allowed as deduction (provided the interest is not allowed a deduction for income tax purposes) in the calculation of chargeable gain. The change in the law to disallow financing cost will result in a higher RPGT payable by the disposer.

DATE OF DISPOSAL

The date of disposal has been mentioned many times in both parts of this article. This date is of significance as it is the reference date in which the obligations of both the acquirer and disposer have to be fulfilled. If you have a transaction which is subject to RPGT, please refer to the charts below to find out when is the date of disposal and the respective deadlines to fulfill the obligations as an acquirer or disposer.