One of the major cost for property investment would be taxes. And to allow young investors to tabulate the risk accurately, I’ve list out 5 different taxes that we need to pay attention during our investment journey.
Real Property Gain Tax (RPGT)
First would be the tax that is imposed on gains we get from selling our property. This is also one of the key measures that our government use to control the real estate market and the rates are revised almost every year. Back in 2008 when the government decides to drive the property market, they implemented zero tax for RPGT and that stirred the whole property market insane. As the supply couldn’t keep up with the demand and many property ‘flippers’ were born, the property price just got out of hand leading to a property bubble. The government then implemented several cooling measures which includes increasing the RPGT rates to prevent the bubble from bursting.
A tip is to declare RPGT yourself and you can deduct out fees such as legislative fees, agent fees, renovation cost and etc to save on tax. If you fail to make gains from your property investment, then you don’t have to pay.
Next would be income tax where you are gauged and evaluated before the banks decide to provide you with the loan facility. This may sound harsh but I strongly encourage young investors to focus on increasing your income for year 2020 because they require individuals to provide proof of constant income stream as credibility for them to lend us money.
However, some self-employed business people may choose to avoid paying income tax, but I strongly disagree. Because they will later find that their income declaration becomes a hindrance for them to get financing for the bank. Even paying upfront cash will be a problem as the government Inland Revenue Department will then query the source of them.
Another ‘luxury’ problem faced by serial property investors would be selling too many properties too fast and the Inland Revenue Board impose the income tax tariff of 24% on their gain instead of the 5% RPGT. They will treat your transactions and business conducts and most of the time, there won’t be any room for negotiation.
Following would be the buzz word of 2019, stamp duty which is used in transfer instruments such as SPA (Sales & Purchase agreement), MOT (memorandum of transfer), loan agreement as etc. Personally I really appreciate this movement by the government from an awareness perspective. Many property agents or sales person now will need to deal with smarter property purchasers as stamp duty is often neglected. Most of the time, purchasers are caught off guard by hefty request of payment few years later after the signing of documents.
Property Assessment (Cukai Pintu)
This is paid to local councils for the purpose of maintaining the infrastructure of your property such as street lights, road maintenance, rubbish collections and etc. If you’re in KL, you’ll pay DBKL. If you’re in PJ, you’ll pay to MBPJ. If you’re in Shah Alam, you’ll pay to MBSA. The rates is usually a percentage of the annual rental of a particular property type, for eg: DBKL imposes 7% on serviced apartments and if the rental is RM 3000 every month, the calculation would be 7% x RM 36,000 = RM 2520.
Quit Rent (Cukai Tanah)
This is payable to separate state government and the rate differs in accordance to land type, whether freehold or leasehold, as well as property type. However, this fee is relatively low in comparison with the different taxes mentioned above.
That’s all for the last blog for 2019 and I wish this will tightened the game plan for our audience to own their first property in 2020.