What is Capital Gains Tax (CGT)?
Capital Gains Tax (CGT) is an income chargeable in respect of the gains and profits from the disposal of capital asset
When did CGT come into force?
The CGT came into force on 01.01.2024 under the Finance (No.2) Act 2023 (Act 851).
Definition of “capital asset”, “share” and “stock exchange”
“Capital asset” means:
Movable or immovable property situated outside Malaysia including any rights or interests thereof; or
Movable property situated in Malaysia which is a share of a company incorporated in Malaysia not listed on the stock exchange (including any rights or interest thereof) owned by a company, limited liability partnership, trust body or co-operative society.
“Share” means
In relation to a company, includes stock other than debenture stock
“Stock exchange” has the meaning assigned to it in the Capital Markets and Services Act 2007
Definition of “disposal” of capital asset
The definition of “disposal” means to sell, convey, transfer, assign, settle or alienate whether by agreement or by force of law and includes a reduction of share capital and purchase by a company of its own shares.
Inclusion of section 4(aa) into Act 53
Under Clause 5 of the Finance (No. 2) Act 2023 (Act 851), para 4(aa) was inserted into section 4 of Act 52 to provide that the gains and profits from the disposal of capital asset to be included as income chargeable to tax under Act 53.
The amendment came into force on 01.01.2024.
When does disposal takes place?
(i) with written agreement - on the date of the agreement ;
(ii) without written agreement - on the date of disposal of the capital asset.
(aa) the date of disposal means the date of transfer of ownership;
(bb) the date on which the whole of the amount or value of the consideration (in money or money’s worth) for the transfer has been received by the person who disposes the capital asset; or
(cc) last date of all such things have been done under any written law as are necessary for the transfer of ownership of the capital asset.
Disposal for Conditional Contract
For Conditional contract, it is upon the condition being satisfied and if there are more than one conditions, it shall be the satisfaction of all conditions thereof.
For conditional contract/condition precedent, it can be by way of the date of the approval of the State Authority or the date as agreed being the condition precedent within the contract.
As sale of share is a commercial contract, parties are free to agree on the condition timeline until the contract becomes unconditional.
What is the impact to business?
The income tax chargeable under section 4(aa) read together with Schedule 1, Part XXI states that:
sale of company shares prior to 01.01.2024 - to be subjected to:
(i) at the rate of 10 per cent on every ringgit of the chargeable income from such disposal; or
(ii) at the rate of 2 per cent of gross on the disposal price of such movable property or shares;
OR
sale of company shares after 01.01.2024 - to be subjected to 10 per cent on every ringgit of the chargeable income from such disposal
What are exempted under CGT?
PUA 410/2023 - power of minister to exempt a company, LLP, trust body or co-operative society from the payment of income tax in respect of any gains or profits received from the disposal of shares of a company incorporated in Malaysia not listed on the stock exchange. Disposal of shares shall be made on or after 01.01.2024 - 29.02.2024. There is a prerequisite; this exemption does not apply to gains and profits derived under section 4(a) - business income under Income Tax Act 1967.
PUA 57/2024 - power of minister to exempt disposal of shares under section 15C. Section 15C refers to disposal of capital shares by controlled company incorporated outside Malaysia that owns property situated in Malaysia or shares of another controlled company.
What is the difference between Real Property Company (RPC) with CGT?
CGT is charged on the gains and profits derived from the disposal of shares while Real Property Gains Tax is charged on the gains derived from the disposal of real property.
Gains or Profits from the disposal of capital asset
The gains and profits from the disposal of capital asset shall be ascertained by reference to each disposal separately.
Ie:
January 2024 - Company A - RM100,000.00 , sale of share
March 2024 - Company B - RM80,000.00 - sale of share
The 2nd reading for Finance Bill 2023 (DR 4/2023)
The 2nd reading of the Finance Bill 2023 was held on the 03.04.2023, however, there is no much debate on the concept of "capital gains tax".
The Changes in PUA Orders 2023 & 2024
Income Tax (Exemption) (No.7) Order 2023 [PUA 410/2023]
Income Tax (Exemption) (No.2) Order 2024 [PUA 57/2024]
Income Tax (Exemption) (No.3) Order 2024 [PUA 75/2024]
Income Tax (Unit Trust) (Exemption) Order 2024 [PUA 249/2024]
Income Tax (Unit Trust in relation to Income received in Malaysia from Outside Malaysia) (Exemption) Order 2024 [PUA 250/2024]
Income Tax (Restructuring of Companies Scheme) (Exemption) Order 2024 [PUA 289/2024]
Income Tax (Initial Public Offering) (Exemption) Order 2024 [PUA 290/2024]
Conclusion
CGT imposes of the duty of the disposal to pay 10% of the gains or profits derived from the sale of the shares. This includes reduction of share capital, and also redemption of preference shares. It is vital for business owner to consult a tax lawyer to verify the computation of the taxation, and the submission of the tax return form.
