ESTATE TAX PLANNING IN MALAYSIA
Blenheim Palace was the home of Winston Churchill’s family for many generations, but like so many other English stately homes which are now open to the public, it owes its present status to the ravages of estate duty. Taxed at rates of up to 80% on the value of assets passing on death, inheritors often had no choice but to allow public access to their family estates. Necessity is the mother of invention, and other ways were also found to deal with the problem such as avoiding tax by making well-timed lifetime gifts or settling property in trust so as to skip several generations. Predictably, this led to increasing complications in the law as governments tried to close perceived loopholes.(許多西方國家對於房地產遺產皆有徵收高額稅金的問題)
Malaysians never had much need for tax planning to mitigate taxes payable on death or lifetime transfers of wealth. Since estate duty was abolished in 1991, no death duty or inheritance tax has been levied and Malaysians have been left free to transfer their wealth untrammelled by any kind of tax or levy. Undoubtedly this has contributed to the spectacular growth of the Malaysian economy over the last two or three decades. (馬來西亞自1991年廢除遺產稅,如果與台灣進行比較,台灣目前是10%遺產稅)
Nevertheless, affluent Malaysians have found it expedient to use estate planning techniques to cope with some non-tax problems. They are often brought into play to handle the complexities of inheritance within an extended family where there are children with different parents. Setting up lifetime arrangements for succession may help to prevent disputes about the disposition of a person’s estate on his death.
Sometimes, the founder of a successful business wants to ensure that it will continue to be controlled by person(s) he considers to be competent. Although death and inheritance taxes can now be ignored, there are some other tax issues that Malaysians should beware of in passing on their wealth.(雖然馬來西亞沒有遺產稅,但是依然必須注意下面的其他稅制,可能會影響到你的財產移轉)
MAKING GIFTS OF PROPERTY
Changing the ownership of a property is neither simple nor cheap. Aside from the legal costs of dealing with the transfer, you will need to reckon with stamp duty and possibly real property gains tax (RPGT). Careful planning will ensure that a property is registered in the right ownership at the time of acquisition so that expensive title transfers do not have to be made later.(如果你要改變房地產持有人身份,必須注意到移轉房地產時的律師費用,印花稅與資本利得稅)
Stamp duty can be costly at 1% on the first RM100,000 of value, 2% on the next RM400,000 and 3% on the remainder(印花稅最高是3%). Generally, it applies based on the market value of a property when a gift is made(印花稅是根據你目前的市場行情房價決定的), but the good news is that a remission is available for certain family dispositions. Transfers between husband and wife qualify for complete remission of the duty payable and transfers from father and/or mother to a child attract a 50% remission.(先生轉移給太太免印花稅,但是父母轉移給小孩是1.5%印花稅)
RPGT may also apply on the disposal of a property by way of gift within five years of the date of acquisition. The market value is deemed to be the disposal price but, as the effective tax rate is currently only 5%, it need not be a costly impost. (資本利得稅是5%)
Furthermore, no tax will be payable at all where the donor and the recipient are husband and wife, parent and child or grandparent and grandchild. (另外,夫妻,父母與子女,祖父母與祖孫之間的贈與是免稅的,但是資本利得稅依然存在)What happens then is that the asset is deemed to have been disposed of on a no gain/no loss basis. This is fine for the donor but it might not always be good for the recipient, the reason being that the recipient is deemed to have acquired the asset on the date of the gift at the same acquisition price together with permitted expenses as incurred by the donor. This can present a trap for the unwary as illustrated by the following example:
Alex Chea bought a bungalow from a developer on 30 June 2005 at a price of RM800,000. His permitted (incidental) expenses amounted to RM50,000. He made a gift of the bungalow to his son Peter on 5 May 2010 when the market value was RM2,000,000. Peter promptly put the bungalow on the market and sold it on 15 August 2010 for RM1,800,000 net of selling costs.
Although Alex owned the bungalow for less than five years, his disposal by way of a gift to his son is treated as a no gain/no loss transaction so the current market value is not relevant and no tax is payable. Peter’s period of ownership is also less than five years but he is liable to RPGT. Even though he made a loss by comparison with the market value at the date of the gift, he has a chargeable gain of RM950,000 (RM1,800,000 – RM800,000 – RM50,000). After allowing for a 10% exemption, the tax at 5% is RM42,750. There is no provision for the donee’s acquisition date to be related back to the acquisition date of the donor.
A more tax-efficient arrangement would have been for Alex to sell the bungalow after 30 June 2010 and then make a cash gift to Peter but such an alternative is not always possible.
THE BEST PROPERTY-OWNING VEHICLE – A COMPANY OR A TRUST?
Traditionally, companies have been used for fragmenting the ownership of property assets in Malaysia but some of the tax advantages of using a company no longer apply. A company tagged as an investment holding company may suffer a severe restriction on deductibility of directors’ fees. Furthermore, with the switch to the single-tier dividend system, there is no advantage in paying dividends to different shareholders as the dividend tax credit is no longer available. For some investors, it might make some sense to use a family trust rather than a family company.
A trust is liable to tax on its income in much the same way as a company but a trust is still allowed to pass on the benefit of the tax paid by the trustees as tax credits. This means that income can be spread around and placed in the hands of beneficiaries enjoying relatively low tax rates who can benefit from the tax credits, as illustrated by the following example:
James Happy has negotiated to purchase a commercial complex at his own expense and he intends to put it into shared ownership (25% each) by himself, his wife Mary, their son Justin and James’s widowed mother Alice. The complex will produce a net annual income of RM300,000. They have considered using either a company or a discretionary trust as the investment vehicle. In each case, the expected annual tax liability will be about RM75,000 (assuming tax at 25%).
Neither Mary, Justin nor Alice have any other income. Best tax planning seems to point to the use of a trust as each beneficiary would expect to have the benefit of a tax credit of RM18,750 per annum whereas the company situation means that there would be no tax credits for shareholders. With a taxable income of RM75,000, each of them except James could expect to have an annual tax repayment of about RM12,000.
This is a much simplified example and other tax and commercial implications would need to be taken into account before any decision is made.
FAMILY SETTLEMENTS AND TAX PITFALLS
Although little use has been made of trusts for tax planning in Malaysia, anti-avoidance provisions designed to combat aggressive tax planning still exist. The objective of the provisions is achieved by deeming the income concerned to be income of the settlor and not of any other person.
One situation in which such deeming applies is where, by virtue of a settlement, income for a year of assessment is payable or applicable for the benefit of any relative of the settlor who at the beginning of that year is under the age of 21 and unmarried. The obvious intention is to prevent wealthy individuals from passing over their assets or income to family members who have nil or low tax rates.
A relative includes a child of the settlor and this could have implications for the Happy family in the above example. James is the settlor and Justin is his child. Provided that Justin has attained the age of 21, there is no problem. However, for any year in which Justin is under 21 at the beginning of that year, Justin’s share of the trust income is deemed to be James’s income and there will be no entitlement to a tax repayment.
Readers who wish to know more may refer to the two books mentioned below as well as to 100 Ways to Save Tax in Malaysia for Individuals (ISBN978-967-5040-43-6) by the same author
Richard Thornton is author of 100 Ways to Save Tax in Malaysia for Property Investors (ISBN978-983-2631-83-5) and 100 Ways to Save Tax for Malaysian Investors (ISBN978-967-5040-42-9) published by Sweet & Maxwell Asia. See https://malaysiaauthorindex.com/wiki/Richard Thornton. He is also a Fellow of the Chartered Tax Institute of Malaysia.
The two works referred to immediately above contain some valuable insights on how to achieve legitimate tax savings for investors in property and other assets as well as dealing with complex issues such as “When can an investor be taxed as a dealer?” and “Is it a good idea to use a company?” Written in clear simple language, the books contain helpful examples to explain how the tax planning ideas can be put into action. They can be obtained from most book stores, or from the author at ricton100@gmail.com
|
