Difference between Capital Gains Tax and Revenue Tax in Malaysia
In general, Malaysia does not have any capital gains tax, except for gains from property disposals under the Real Property Gains Tax.
Mainly, Malaysia only taxes revenue that is income in nature, derived from Malaysia.
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What is Capital Gains
The capital transaction is usually one-off in nature. Example of a capital gain as the following:
- Personal gift
- Profit from the disposal of long-term investments (properties, shares)
- Speculation, windfall gains
- Gambling
- Sales of capital assets, (motor vehicle, factory, plant, and machinery)
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What is Revenue
The revenue transactions are recurring in nature. Example as the following:
- Provision of services
- Sales of goods/stock in trade
- Trading or adventure in the nature of trade
- Sales of short-term investment
.Example 1 : Tree is Capital in nature (not taxable under Income Tax Act 1967), while the produce is revenue in nature (taxable under Income Tax Act 1967).
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Example 2 : Machinery is Capital in nature (not taxable under Income Tax Act 1967), while the manufacturer goods is revenue in nature (taxable under Income Tax Act 1967).
How to Differentiate ?
Every year, companies and businesses are being challenged in Court, to ascertain whether the transactions fall within capital gains or adventure in the nature of trade (taxable under income tax).
For example a land owner had a swap deal with a developer. The consideration for the right of use of land is 10 fully completed properties. After the development completed, land owner received 10 completed properties and start selling them. Inland Revenue Board of Malaysia may challenge such transaction takes place is too high in frequency, and subjected the properties to income tax with the viewpoint they are his inventories.
Businesses under such circumstance can only rely on the Special Commissioners of Income Tax or the subsequent courts to decide whether the transaction will fall into which of the above-mentioned. The methodology and series of test put in place is the Badges of Trade.
| Badges of Trade | Adventure in the Nature of Trade (Taxable under Income Tax Act 1967) |
Capital Gains (Not Taxable under Income Tax Act 1967) |
|---|---|---|
| Subject Matter | Income Generating | Personal Enjoyment / Hobby |
| Period of Ownership | Short holding period | long holding period |
| Frequency of Transactions | Very frequent | Very low |
| Supplementary Work or Expertise in Field | Additional work done to make the asset more marketable or extra effort to attract buyers |
No additional work done |
| Circumstances of Realisation | Incorporation of Company or method to disposal |
Unanticipated needs for fund, for instance family medical or education fee |
| Intention and Motive | Intention to make short term profit | Intention for investment |
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ANC Group – Your Personal Tax Advisor
Tax consulting is the core service of ANC Group. Our tax professionals provide clients with comprehensive tax support and guidance. We offer tax consulting and compliance services for expatriates, entrepreneurs, and listed and non-listed companies.
Our tax consulting services include business tax, transaction tax, personal tax, and corporate income tax. We don’t just guide you in interpreting and applying complicated taxation rules, but to explore new opportunities and business trends.
We keep you abreast with Malaysia tax updates and any changes in the local regulations.
We work closely with industry specialists, authorities, and associated professionals within ANC Group to provide the best-in-class integrated tax planning solutions. ANC specialists coordinate the accounting and taxation services to bring your business to success.
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