Following the implementation of the capital gains tax with effect from 1 March 2024, the Income Tax (Amendment) Act 2024 (the Amendment Act) was gazetted recently.
This alert aims to provide an overview of the amendments.
A. CGT regime
There are 5 amendments made to the principal act, i.e. the Income Tax Act 1967 (ITA) in relation to the capital gains tax (CGT) regime. All these amendments came into effect on 21 May 2024.
Notably, there has been no amendment to the taxing provision for CGT. Section 4(aa) of the ITA states that:
“Subject to this Act, the income upon which tax is chargeable under this Act is income in respect of –
(aa) gains or profits from the disposal of capital asset..”
In order to determine whether a disposal of a capital asset is subject to CGT, one should first determine whether the capital asset falls within the ambit of “capital asset” under Section 2 of the ITA.
Amendment of Section 2 of the ITA
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Prior to the amendment, “capital asset” was broadly defined as “movable or immovable property including any rights or interests thereof”. However, gains or profits from the disposal of a capital asset situated in Malaysia were exempted from CGT under Schedule 6. Additionally, the previous Schedule 6 also stated that the CGT exemption was not applicable to the disposal of unlisted shares of a company and the disposal of capital assets (i.e. real property and shares) in Malaysia.
The new definition of “capital asset” specifies the types of assets that are subject to CGT. Under the current regime, CGT is now applicable to:
(i) Disposal of movable or immovable property located outside Malaysia; and
(ii) Disposal of unlisted shares in Malaysia (including any rights or interests thereof) owned by a company, limited liability partnership, trust body or co-operative.
Amendment of Schedule 6 of the ITA
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With this new definition of “capital asset”, paragraph 38 of Schedule 6 has been deleted.
Amendment of Section 15C(1) and Section 15C(5) of the ITA
Before amendment | After amendment |
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Previously, Section 15C provided that the gains or profits accruing to a “person” on the disposal of shares of a controlled company incorporated outside Malaysia shall be deemed to be derived from Malaysia where the relevant company owns real property/ shares/ both situated in Malaysia of another company. The meaning of person under Section 2 of the ITA refers to:
““person” includes a company, a body of persons, a limited liability partnership and a corporation sole.”
The categories of entities subject to CGT on the disposal of shares under Section 15C have also been modified under the Amended Act. The word “person” has been substituted with “company, limited liability partnership, trust body or co-operative society”.
The amendment to Section 15C(5) that the defined value means the market value of real property/ acquisition price of shares of another controlled company as specified in Section 15C(4). For completeness, Section 15C(4) stipulates that:
Amendment of Section 65C of the ITA
Before amendment | After amendment |
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The major amendment is the removal of the specific definition of “shares”. This provides the much-needed clarification as the previous definition of “shares” under Section 65C was different from the definition of “shares” under Section 2 which reads:
“share”, in relation to a company, includes stock other than debenture stock
In other words, the definition of “shares” under Section 2 is now applicable. This change aligns the concept of "shares" across different provisions of the ITA.
Amendment of Schedule 1 of the ITA
Before amendment | After amendment |
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The amendment made to Schedule 1 clarifies that only the disposal of unlisted shares and shares referred to Section 15C which were acquired before 1.1.2024 are eligible for the following tax rate:
(a) At the rate of 10% on every ringgit of chargeable income from such disposal; or
(b) At the rate of 2% of gross on the disposal price of shares.
In the event the disposal of unlisted shares was acquired on/after 1.1.2024, the tax rate applicable is 10% on every ringgit on the chargeable income from such disposal.
7 June 2024