Capital or Revenue Tax
The conceptual difference between capital and revenue tax is that tax paid on income earned from wages, rent, interest and business are termed as revenue tax whereas capital tax is generally referred to tax paid on sale or exchange of an asset such as stock or property.
There is no clear definition that stated in the act to distinguishing capital tax and revenue tax. Malaysian courts laid down various guidelines or tests to distinguish gains arising from the disposal of an investment and gains from trade or an adventure or concern in the nature of trade. The test is known as Badges of Trade.
Badges of Trade
Badges of trade is a test to ascertain whether the disposal of certain goods is subject to income tax, real property gain tax or not taxable at all.
Badges of trade tend to look into:-
- Subject matter
- Period of ownership
- Is there any formation of a company for profit making intention
- Frequency of transaction
- Circumstance responsible to realisation
- Long-term or short term intention
- Method of disposal
- Financing agreement
- Accounting classification
If you own several properties and depending on the frequency of disposal of the property you own, the disposal may be regarded as revenue disposal instead of capital disposal. If you are having a difficult time distinguishing between capital and revenue tax, feel free to reach out to us at 011-1217 8183.