Conditional Contract – Date of Disposal of Real Property Gains Tax Act 1976

The High Court in Tahir, Roslan and Tasariff Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri & Other Cases [2023] 1 LNS 1521 held that, amongst others, when conditional approval is required under Paragraph 16, Schedule 2 to the Real Property Gains Tax Act 1976 (“RPGTA”), the date of disposal shall be the date when last of all such conditions are satisfied.

The salient facts of Tahir (supra) are as follows:

(a) This appeal was heard together with two other appeals that emanated from the decision of the Special Commissioners of Income Tax (“SCIT”) as the issue was similar.

(b) The issue concerned the appropriate tax rate under Part II, Schedule 5 to the RPGTA which derived from the Finance Act 2018’s amendment (effective from 1.1.2019). The tax rate for disposal in the sixth year after the date of acquisition is 10% (prior to the amendment – 5%).

(c) In these cases, the Taxpayers had entered into the sale and purchase agreements (“SPAs”) with the vendors in 2018. However, the approvals from the Government and State Government were only obtained in May 2019.

(d) Consequently, the Taxpayers filed their RPGT returns in July 2019.

(e) The Inland Revenue Board of Malaysia (“IRB”) issued the notices of assessment (i.e. Forms K) at the RPGT rate of 10%.

(f) The Taxpayers appealed against the Forms K to the SCIT as they took the view that the previous RPGT rate of 5% ought to be applied given that the SPAs were entered in 2018.

(g) The SCIT ruled in favour of the IRB and held that the RPGT rate of 10% is applicable as the date of disposal was May 2019 given that the last approval was obtained at that point in time.

The High Court held that, amongst others:

(a) The RPGT rate of 10% is applicable and not the previous RPGT rate of 5% given that the date of disposal was May 2019.

(b) The common law rule of construction set out in Yew Bon Tew & Anor v Kenderaan Bas Mara [1982] 1 MLRA 425 (refd) – a vested right cannot be taken away or impaired by retrospective operation of the amendment and that a status should not be interpreted retrospectively so as to impair an existing right or obligation unless that result is unavoidable on the language used (“Vest Right”), does not apply here because the Taxpayers’ tax liability does not arise when the amendment to Part II, Schedule 5 to the RPGTA came into force.

(c) In other words, the Taxpayers had not acquired any right when the amendment to Part II, Schedule 5 to the RPGTA came into force.

(d) Further, the amendment by way of the Finance Act 2018 was prospective in application and not retrospective.

Comments

This is an interesting case where the High Court discussed the application of Vest Right principle and elucidated the interpretation and application of conditional approval provision, namely, Paragraph 16, Schedule 2 to the RPGTA.

However, one needs to be clear with the scope of Paragraph 16, Schedule 2 to the RPGTA. The conditional approval in Paragraph 16, Schedule 2 to the RPGTA is only confined to “the acquisition or disposal requires the approval by the Government or a State Government”.

Any other approvals which are not in relation to the approval by the Government or a State Government fall outside the ambit of Paragraph 16, Schedule 2 to the RPGTA and the date of disposal is regarded as taking place at the time the contract is made.

About the Author

Desmond Liew Zhi Hong
Partner
Tax
Halim Hong & Quek
desmond.liew@hhq.com.my