Tax Issues During the COVID-19 Pandemic

• We pay taxes through all the services and products we pay for.
• The global pandemic has caused many to lose their source of income and paying such a high price for taxes can easily be someone’s nightmare.
• Richard Oon gives a few solutions to how taxpayers can navigate through this trying time. 

Staying afloat is everyone’s main goal during this time and for those who own property, own a business, and such, they, unfortunately, have more to think of aside from ensuring their families are safe. Those who fall under those categories will wonder – how can I afford to pay rent? How will I be able to sell off my properties? How much will I be able to earn after paying off all my taxes?

We understand the frustration but we may have a solution for you after watching a great sharing by Richard Oon during his Real Estate Summit talk. If you wish to watch it yourself, feel free to head on to the link. Else, here’s a summary of what was learnt.

Managing Tax Cash Flows 

Before going into much detail, we first have to understand our tax compliance obligations. Knowing this will help to prevent us from getting unnecessary penalties which will take up more of your cash flows. So here are some of the things you should know:

1. Payment of tax estimates: Form CP 500/502 for individuals and Form CP 204/CP204A for the company are due on the 15th of the month of the installment falls due.
2.   Submission of Income Tax Return Form.
3.   Payment of the balance of the tax (between the actual tax payable and the estimated tax payable).
4. Difference between the actual tax payable and the estimated tax payable of more than 30% of the actual tax payable (CP500/204), that’s due when noticed issued by IRB.

What we’ve gathered is that failure to pay on time will result in your or your company getting penalties. In order to make sure you’re doing the right thing, we’ll also talk about how to manage your tax cash flows. 

How do you manage your tax cash flows? 

1.   Take advantage of IRB’s MCO concessions to delay tax payments without incurring penalties.
2.   Make lower estimates (within the threshold) to defer payment of the bulk of tax when tax submission and payment are due.
3.   Apply to re-schedule tax payments.
4. Postpone tax payments and apply for installment payment of outstanding tax liabilities (penalties will be incurred).

Whatever you do, never neglect your tax payment because at the end of the day, the IRB will impose a 10% penalty and in the worst-case scenario, you might have to drag yourself to the court too.

That’s just a brief on how you can manage your tax cash flow. Moving on, we know that there has been so much leniency and alternatives are given to taxpayers since the beginning of the pandemic. But it’s also crucial for taxpayers to the tax changes arising from the pandemic? 

1. RPGT Exemption for Disposal of Residential Homes 

So as many might have already been notified of this, there’s an exemption of RPGT for disposal of up to 3 units of residential homes by an individual. It was stated that “SPA executed from 1 June 2020 to 31 December 2021 and duty stamped not later than 31 January 2022.”

Music to the homeowner’s ears but hold your horses! Don’t go and recklessly sell your houses just yet.  Because with any new initiatives or introduction of new legislation, there will always be implications. Plus, someone is always out there lurking trying to find even the tiniest faults! So be careful, make wise decisions only. In this particular situation, if you’re found to be at fault and you may be getting a higher Income Tax.

Like the character in Star Wars, Admiral Ackbar once said – “It’s A Trap!”

With that being said, it’s important for you to have a strong grasp of how properties are taxed in Malaysia.  So here’s my simple explanation to you:

1. When a property is sold, find out if there are any badges of trade. If there’s none, then RPGT will be imposed. 
2. If there is, then Income Tax will be imposed. 

2. Renovation and Refurbishment of Business Premises 

For those who are looking into renovating their office spaces, this is for you so pay attention!

At present, there’s a special tax deduction for the costs of renovation and refurbishment of business premises due to the MCO, in which many businesses aren’t able to operate as usual. Hence it’s a good time for you to do any renovation and refurbishment activities. Plus, if that’s to happen from 1 March 2020 until 31 December 2021, you’re entitled to a total amount of deduction allowed but subject to a maximum amount of RM300, 000. 

However, nothing exciting comes easy right? In order to be eligible for this deduction, your project will have to be certified by an external auditor to determine whether your claim is aligned with the terms and conditions set by the IRB.

Find the list of qualifying renovation and refurbishment expenditures here. 

3. Rental Reductions for Tenants of Business Premises 

The government has given landlords of business premises who provide reduction or relief of rental payment to tenants of business premises a special deduction equal to the amount of the rental reduction. But you’re only eligible for that if:

1. Any taxpayer (company, LLP, individual, etc.) renting out their business premises to any qualified tenants
2. The rented premises must be used by the tenant for purpose of carrying out his business
3. The landlord must be a taxpayer with rental income under section 4(a) and subsection 4(d) Income Tax Act (ITA) 1967
4. The rental reduction must be at least 30% of the existing rental rate

Nevertheless, the qualifying periods of SME and non-SME are different. Seeing that the period of rental reduction for SME is April 2020 to June 2021 and non-SME is January 2021 to June 2021. 

Recent Tax Changes You Should Be Aware of 

Just like our country’s SOPs in dealing with this current pandemic, there have been changes to the country’s taxation too. If you haven’t been notified of this, well now you will. 

1. Special Treatment of Acquisition (Purchase) Price

Under this updated information, it was said that the acquisition price for assets acquired prior to 1 January 2013 is equal to the market value as of 1 January 2013. Confusing but this essentially means, your calculation will now be – a price that you sell, replace the price that you bought with the market value that is seen to have a higher value now, which then leads you to a smaller gain. Conclusively, your RPGT value will be lesser.

In contrast to that, assets acquired on or after 1 January 2013, your acquisition price is your actual consideration paid; what you estimated your prices to be. A disclaimer though, this is effective only for the disposal of real properties made from 12 October 2019. On top of that, this special treatment is only applicable to individuals (citizens and permanent residents). Unfortunately,  this doesn’t apply the same for those who own a company as it will still follow the acquisition price as your SPA price. 

2. Preferential Tax Rate for Some Company/LLP 

In 2019 and prior, SMEs who paid up at beginning of basis period of RM2.5 million and below are entitled to a Preferential Tax Rate of 17% on the first RM500,000 of your Chargeable Income, which means whatever that you have as a balance is taxed at the rate of 24%.

However, from the year 2020 onwards, the law was changed to a certain degree but with two conditions given. The first one is, paid-up at the beginning of the basic period RM2.5 million and below; and Gross Income from business sources not exceeding RM50 million. If you fulfill those conditions, you’re given the advantage of 17% Preferential Tax Rate for the first RM600,000 and in excess of RM600,000 will also remain at 24%.

Sounds like good news but if you do not meet the two new requirements, then you’ll still be taxed at a flat rate of 24%.

Know Your Taxes! 

In a nutshell, we’ve discussed the various avenues available for you to delay or defer the payment of taxes without incurring penalties, the tax initiatives introduced due to the COVID-19 pandemic which can benefit property investors as well as the recent updates to the tax laws which affect property investment that everyone should be aware of.

If you’ve read until this far, we hope you’ve learnt something new and have a better understanding of your rights as a taxpayer when it comes to the buying and selling of property.