Can you escape the RPGT?

The rush is on. They are stampeding to sell whatever high-value property on their hands before the 5% real property gains tax (RPGT) kicks in on January 2010.

But the important thing is you must know what you are selling. If you have freehold titles, you may have less problems. But if it is a leasehold property you are trying to desperately sell off,your efforts will probably be in vain.

How will these property sellers' great hopes be shattered? If, these need government approval before a sale can be effected,that's how.

A tax specialist tells it like it is. Obtaining official approval could push the sale date to one after Dec 31 — the last day before the reintroduction of RPGT. So your efforts will come to naught!

KPMG Tax Services executive director Tai Lai Kok told the Singapore Business Times that many transactions involving property could require state approval.

Under the RPGT Act, where a contract for the disposal of an asset is conditional and the condition is satisfied (by the exercise of a right under an option or otherwise), the acquisition and disposal of the asset shall be regarded as taking place at the time the contract was made.

Sadly, there are two exceptions: where the acquisition or disposal requires the approval by the government or an authority or committee appointed by the government, the date of disposal shall be the date of such approval; and where the approval is conditional, the date of disposal shall be the date when the last of all such conditions is satisfied.

However, the RPGT Act does not define the term “government” — whether it refers to the state or federal government. In any event, because land matters come under state control, a number of these transactions could invariably require state approval. “Lawyers would need to review the individual title to see what restrictions and caveats there are to ascertain if government approvals are needed.”

Lawyers said that the time taken for states to give their approval varies, some reverting in a month, and some up to six months.

“If the property is already owned by a foreigner, it is likely the transaction would require state approval,” Tai said, adding that “conditional contracts” had become an issue only because of the short “window period” before RPGT is reintroduced.

He noted that the RPGT Act had introduced government approvals only in 2006.

Shortly after that, former prime minister Tun Abdullah Ahmad Badawi allowed a blanket exemption on RPGT effective April 2007 to boost the sector, so the issue was not fully explored.

Moreover, the Finance Ministry and Inland Revenue Board had not come up with a clear indication as to how the conditional contracts apply. “There is a bit of a question mark there,” Tai noted.

The government is expected to rake in RM500 million from RPGT next year when the tax is reintroduced at a flat 5 per cent, notwithstanding the holding period.. This is so sad as it hits the first time seller who are upgrading to better quarters.

This tax was supposed to curb speculation. However, its across-the-board application has upset many who have held their properties for a long time — some for decades, some stretching a few generations — as the value of their assets would have greatly appreciated.

Property players have also criticised the government’s reversal in policy after less than three years as inconsistent and a deterrent to foreign investors.

This week, Gerakan — a component party of the ruling federal coalition Barisan Nasional — urged the government to scrap the proposal to reintroduce RPGT as it is “unfair and inappropriate” since it would impinge on all transactions, including those not of a speculative nature. [I think Gerakan is right here.]

“In view of the serious consequences from the tax especially on the middle and low income groups, we appeal to the government to cancel the proposed 5 per cent RPGT under Budget 2010.”

Will the government listen? Not if the 13th General Election is still far off.