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Richard Thornton dissects RPGT for RPC shares disposal
Posted Date: Feb 09, 2011
By: Richard Thornton

In the early days of real property gains tax, a common way to avoid the tax was to place the land interest inside a company. In that way the shares in the company could be sold instead of the asset itself and no tax would be payable. Of course if the company under its new ownership disposed of the land, it could become liable to tax itself. Usually, the objective was to ensure that the company would hold the land for long enough to reduce the tax rate to an acceptable level.

To overcome this form of avoidance, a new tax (share transfer tax) was introduced in 1984, although it was soon replaced by a modification of the RPGT which allowed the tax to be levied on a gain on the disposal of shares in a company which was a “real property company” (RPC). Under the present law, RPGT is levied at an effective rate of 5% on gains realised on the disposal of an asset held for more than five years.

Shares includes loan stock and debentures, a member's interest in a company not limited by shares and any option or other rights in, over or relating to shares.

It seems to make no difference whether the company holds real property as an investment or as trading stock. This interpretation has been challenged on appeal but so far with only limited success.


If a company is a controlled company and it satisfies the prescribed test as to ownership of real property and RPC shares it will be a RPC. A controlled company is one having not more than 50 members which is controlled by not more than 5 persons. Any two or more persons satisfying the requirements are taken to have control of the company.

The ownership test is based on the company owning real property and RPC shares to the extent of at least 75% of its ‘total tangible assets’. A controlled company becomes a RPC by meeting this test on 21st October 1988 or, if not then, at any later date on which it acquires real property or RPC shares or both.


Zenith Sdn Bhd, a controlled company, had the following net assets position on 21st October 1988:





Real property and RPC shares at defined value


Tangible assets


‘Total tangible assets’


Patents and trade marks






Net assets   


As the defined value of real property and RPC shares (RM1,200,000) is not less than 75% of the defined value of ‘total tangible assets’ (RM1,600,000), Zenith Sdn Bhd is a RPC as from 21st October 1988.

For real property, the 'defined value' is market value; for RPC shares it is the acquisition price as determined below.

The meaning of tangible assets is not given but it is regarded as including, in addition to items such as plant, machinery, stocks and cash, current assets such as debtors and prepayments. It does not include true intangibles like patents, trade marks, know-how and goodwill. Liabilities are not taken into account.


The date of acquisition of RPC shares and the determination of the acquisition price depends upon the timing of the acquisition.

All shares in a RPC held at the date when the company first becomes a RPC (whether 21st October 1988 or later) are deemed to have been acquired on that date. In that case the acquisition price is determined by the formula

A x C
B                     where

A =      the number of shares in the company which are deemed to be a chargeable asset
B =      the total number of shares issued by the company at the deemed date of acquisition
C =      the defined value of real property or RPC shares or both owned by the company at the deemed date of acquisition, determined in the same manner at that date.     

Where shares in a RPC are acquired after the date when the company first becomes a RPC, the normal rules about date of acquisition and acquisition price apply.


The process of becoming a RPC can be reversed. It happens when a RPC disposes of real property or RPC shares or both so that, after the disposal, the defined value of real property and RPC shares is less than 75% of its ‘total tangible assets’.  It will also happen if and when the company ceases to be a controlled company.

It should be noted that shares in a RPC do not cease to be RPC shares when the company ceases to be a RPC. So long as they are still held by the same person, a gain on disposal can be charged to real property gains tax.

Liquidation of a RPC will extinguish the asset, i.e. the shares, without any disposal taking place.

It should be noted that, except on 21st October 1988, a company can neither become nor cease to be a RPC merely by examining the value of its assets.


Tax on the chargeable gain is calculated in the normal way having regard to the period of ownership and to any exemptions or reliefs which may apply to the disposer.  However, for RPC shares:

  • the acquisition price is calculated by the formula if the shares are deemed to have been acquired on the company becoming a RPC
  • no further adjustment can be made to the disposal price for incidental or enhancement costs etc
  • no further adjustment can be made to the acquisition price if the shares are deemed to have been acquired when the company became a RPC.
  • a loss is not an allowable los


Ridzwan held 25,000 shares in Syarikat Bersih Sdn Bhd, which had been a RPC for many years. He purchased them from his brother on 30th September 2008 for RM5 each, paying stamp duty of RM1,200 on the transfer to himself. The market value at the time was RM15 each. On 16th October 2009, Syarikat Bersih Sdn Bhd gave a bonus issue of three shares for every one held. Ridzwan disposed of his 100,000 shares as follows:

  • 1st April 2010
      made a gift to his son of 50,000 shares
  • 1st May 2010
      sold 50,000 shares.

As Ridzwan’s acquisition from his brother was a non-arms length transaction, he is deemed to have acquired the shares at market value. He has the following disposals:

  • 1st April 2010:

              25,000 at deemed cost of RM15 each + RM1,200 = RM376,200
              25,000 at no cost

  • 1st May 2010

             50,000 at no cost

On the sale of his 50,000 shares, Ridzwan received RM450,000.

Ridzwan’s chargeable gain will be RM66,420 (RM450,000 – RM376,200 = 73,800 less the 10% exemption). The effective rate of tax will be 5% (Disposal within five years of acquisition). On the gift to his son, the disposal price is deemed to be equal to the acquisition price so Ridzwan will have no liability to RPGT.

This topic is dealt with in more detail in the books mentioned below.

Richard Thornton is author of 100 Ways to Save Tax in Malaysia for Property Investors (ISBN978-983-2631-83-5) and 100 Ways to Save Tax for Malaysian Investors (ISBN978-967-5040-42-9) published by Sweet & Maxwell Asia. See http://malaysiaauthorindex.com/wiki/Richard Thornton. He is also a Fellow of the Chartered Tax Institute of Malaysia.

The two works referred to immediately above contain some valuable insights on how to achieve legitimate tax savings for investors in property and other assets as well as dealing with complex issues such as “When can an investor be taxed as a dealer?” and “Is it a good idea to use a company?” Written in clear simple language, the books contain helpful examples to explain how the tax planning ideas can be put into action. They can be obtained from most book stores, or from the author at ricton100@gmail.com


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