Gain on disposal of Real Property Company (RPC) shares is taxable?


Gain on dosposal of RPC shares is taxable effective from 21.10.1988 when Paragraph 34A of Schedule 2 RPGTA was introduced

Pursuant to Paragraph 34A of Schedule 2of RPGTA –

  • the acquisition or disposal of shares in a RPC is deemed to be an acquisition or disposal of chargeable assets; and
  • shares in RPC remain as chargeable assets even though the company is no longer a RPC at the time of disposal of the shares.
1. Determination Of Real Property Company (RPC)

a. RPC is –

  • a controlled company
  • owned property or RPC shares in another RPC or both; and
  • defined value of the property or shares in other RPC or both is not less than 75% of the value of its total tangible assets

b. Controlled company – interpreted under Section 2 Income Tax Act 1967 (ITA 1967) as a company having not more than fifty members and controlled by not more than five persons, in the manner described by Section 139 ITA 1967

c. Defined value (DV)

  • DV value for real property means market value of the real property; and
  • DV for RPC shares is the acquisition price of RPC shares as determined under Subparagraph 34A(3) of Schedule 2 of the RPGTA

d. Value Of Totat Tangible Asset Value (JAK) – is the aggregate of defined value of real property or RPC shares or both and the value of other tangible asset

Tangible asset consist of:

    • fixed / non-current assets such as land, buildings, vehicles, plants & machinery, equipment, furniture and other fixed assets;
    • current assets such as stocks, debtors, receivables, bank balances, cahs balances and other current assets; and
    • investment

Intangibles such as patents, copyrights and trademarks are not considered in determining JAK values.

2. Effect On RPC Shares Due To Changes In RPC Status

A real property company is no longer a RPC when the defined value becomes less than 75% of the value of its total tangible assets due to the disposal of the property or shares in another RPC or both. The effect of the company’s shares are:

  • RPC shares remain as chargeable assets in the hands of shareholders eventhough at the time of dispoasal of the shares by the shareholder the company is no longer a RPC.
  • Acquisition of shares during the period when a company is not a RPC, is not an acquisition of chargeable assets (non-RPC shares) until the company becomes a RPC.
3. Loss And Exemption
  • Loss on disposal of RPC shares is not allowed as deduction in the computation of chargeable gains on the disposal of other assets (including other RPC shares). Refer to Subparagraph 33(d) of Schedule 2 RPGTA
  • Exemption under Paragraph 2 of Schedule 4 of the RPGTA is only granted to individual on disposal of chargeable asset

To know more, please refer here.


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