Adnan acquired 15 acres of land on 15th September 2012 on the same date of agree
ID: 2815168 • Letter: A
Question
Adnan acquired 15 acres of land on 15th September 2012 on the same date of
agreement for RM2,625,000 (inclusive of incidental costs) and, subsequently sold
five acres of the land for RM1,800,000 on 1st April 2014. Details of income and
expenditure from 15th September 2014 to 1st Aril 2014 of the five acres of land sold
are as follows:
Income RM
Rental received from a tenant for a land lease as a car park 72,000
Rental deposit forfeited 10,000
Compensation received from Majlis Bandaraya for partial damage of land 25,000
Expenditure
Cost of building retaining wall 20,000
Legal fees incurred on sale of land 20,000
Cost of evicting squatters 10,000
Quit rent 5,000
On 1st July 2015, the balance of the land (10acres) was transferred to AM Sdn.
Bhd. (AM). AM is wholly owned by Adnan and his wife, Nisha. The consideration
received was RM 4, 500,00 which was satisfied by the issuance of 4,500,000
shares of RM1 each in ASB. Adnan sold the 4,500,000 shares in ASB on 1st
September 2016 for RM3,000,000.
Required:
Compute the real property gains tax payable (if any) by Adnan for the relevant
years of assessment.
Explanation / Answer
Computation of real property gains tax payable by Adnan for the relevant years of assesment:
Adnan acquired 15 acres of land in the previous year 2012-13 for RM 2,625,000 on 15.09.2012 out of which 5 acres of land was sold for RM 1,800,000 on 01.04.2014. The cost of 5 acres of land can be calculated as follows, assuming the the cost of 15 acres of land was divisible proportionately:
Cost of 5 acres of land = 2,625,000 * 5/15 = RM 875,000
Cost of 10 acres of land = 2,625,000 * 10/15 = RM 1,750,000
Also, from 15th September 2014 to 1st April 2014, the income and expenditure were incurred on 5 acres of land.
As on 01.04.2014, the total income received amounted to RM 107,000, and the total expenditure incurred amounted to RM 55000, the net of which comes out to :
Net Income from 15th September 2014 to 1st Aril 2014 on 5 acres of land = RM (107000 - 55,000) = RM 52,000.
Now, for the previous year 2014-15, the property gains earned by Adnan will be calculated as follows:
Sale Consideration of 5 acres of land on 01.04.2014 = RM 1,800,000
Less: Cost of Acquisition of 5 acres of land = RM 875,000
Net Property Gains earned on 5 acres of land = RM ( 1,800,000 - 875,000 ) = RM 925,000
The income earned amounting to RM 52,000 shall be treated as revenue income and shall not be capitalised to Property Gains.
In the previous year 2014-15, the property gains earned by Adnan on the remaining 10 acres of land will be calculated as follows:
Sale Consideration of 10 acres of land on 01.07.2014 = RM 4,500,000
Less: Cost of Acquisition of 10 acres of land { RM 2,625,000 * 10/15} = RM 1,750,000
Net Property Gains earned on 10 acres of land = RM ( 4,500,000 - 1,750,000 ) = RM 2,750,000
Therefore, total property gains earned by Adnan in Previous Year 2014-15 = RM 925,000 + RM 2,750,000 = RM 3,675,000
For Previous Year 2016-17, where Adnan sold 4,500,000 shares in ASB on 01.09.2016 for RM 3,000,000, the property gains shall be computed as follows:
Sale Consideration of shares on 01.09.2014 = RM 3,000,000
Less: Cost of Acquisition of shares = RM 4,500,000
Net Loss on sale of shares = RM ( 3,000,000 - 4,500,000 ) = (RM 1,500,000).
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