To be or not to be a GST registrant

When Malaysia moves into GST era, businesses, whether incorporated or personal, are required to assess their eligibility to register from time to time. While assessing GST registration status is rather straightforward for normal businesses, for individual property investors, it can be interesting as there are many variables to the equation.

Generally, there are two categories of property investors: those who invest using incorporated companies and those who use their individual names to do investments. For the purpose of this article, I will focus on property investors who invest using their individual names.

On 28 October 2015, the Director General of Royal Customs of Malaysia (DG of Customs) has made the following announcement:

•Any individual who is not a GST registered person is treated as carrying out a business if he at any one time owns – (wef 28/10/2015)
(a) more than 2 commercial properties;
(b) more than one acre of commercial land; OR
(c) commercial property or commercial land worth more than 2 million ringgit at market price;

•Any individual mentioned above is liable to be registered as a GST registered person if – (wef 28/10/2015)
(a) he has the intention to supply any of his commercial properties or commercial land; AND
(b) the total value of such supply exceeds the prescribed threshold in 12 months periods.

•‘At any one time’ means at any point of time in his lifetime commencing after the effective date. (wef 28/10/2015)

•Any individual is treated as carrying out a business and making a supply of taxable service if: (wef 28/10/2015)
(a) he is supplying any lease, tenancy, easement, licence to occupy or rent ; AND
(b) his annual turnover for such supply has exceeded the prescribed threshold in the period of 12 months.

This announcement has superseded the previous decision which said:

•Any individual owning commercial property at any one time –
(a) make a supply of two commercial properties or commercial land not exceeding 1 acre would be treated as not carrying out business even if the sale is more than RM500,000 in a 12 months period;
(b) would also be treated as not carrying out business if there is no intention of making a supply;
(c) make a supply of rental services on such property is liable to be registered when the turnover for such supply exceeded the threshold amount of RM500,000

The new announcement has potentially made many individual property investors to come within the ambit of GST registration threshold.

Interpretation of the New DG Decision

Two (2) tests to assess whether an individual property investor require to register for GST:

Test 1:- the Business test – Are you carrying out an activity that qualifies as business under GST Regime?

An individual property investor is considered carrying out a business when:

•At any point of time in his lifetime commencing after 01.04.2015 OWNS :-
(a) more than 2 commercial properties;
(b) more than 1 acre of commercial land; OR
(c) commercial property or commercial land worth more than 2 million ringgit at market price;

“Commercial Properties” under GST Regime carries the meaning of – A land or a building that is:-

(a) not occupied as a residence; or
(b) not intended to be occupied, and is capable of being occupied, as a residence of land; or
(c) designed for retail or wholesale trade, hotel, restaurant, offices, clinics, warehouses, light manufacturing, and other such uses but not for residential purposes

For properties that built for dual purposes, for example Small Office Home Office (SOHO), it will be considered as a commercial property if it does not come under the approval of the Housing Development (Control and Licensing) Act 1966 and Housing Development (Control and Licensing) Rules 1989. Under GST regime, it is important for the investors to review their S&P Agreement to find out the property type of their SOHOs.

Test 2:- The “Intention to Supply”

You are making a GST supply if that “supply” fulfill the following conditions:-

a) it is made in Malaysia;
b) it is a taxable supply of goods or services;
c) it is made by a taxable person; and
d) it is made in the course or furtherance of any business carried on by that taxable person

To decode the above, I would analyse it as follows:

A complete life cycle of a property investment involves: invest / acquire, rent out, dispose, then invest/acquire again.

Some investors invest in properties solely for the subsequent disposal upon collection of keys from the developers or upon refurbishments. Many investors restructure their investment portfolio actively throughout the year by constantly buying and selling properties. The number of properties transacted in the whole year of 2014 and first half of 2015 stood at 384,060* units valued at RM162 billion* and 186,661** units valued at RM76.6 billion** respectively.

For individual property investor, you are considered as making a supply when you rent, lease and sell your properties.Your value of supply when rent out a property is the rental amount and your value of supply when selling out a property is the selling price of the property. Once the total value of supply hitting the threshold of RM500,000, GST registration become compulsory.

When are you supposed to register?

The GST registration threshold is assessed by summing up the total value of supply for the historical 11 months plus current month supply (historical method) or current month plus anticipated future 11 months supply (future method). Hence, assessing GST registration status is a continuously affair until the day you become GST registrant. If you are an active property investor, self-assessing your GST status should be a monthly task or something you must do whenever you transact a commercial property transaction. Self-assessment is extremely important as you can become GST registrant on your second commercial property transaction while the first transaction still underway.

The challenges / the bad

From my observation, Malaysia property vendors have the tendency to go unrepresented and rely on the purchasers’ lawyers to carry out the legal documentation of a sales transaction. Purchaser’s lawyer will always provide clauses in the S&P Agreement to indemnify his client from any taxes (GST included) that may arise half way through the transaction. Under such circumstances, if the vendor fails to renegotiate on the payment of the GST, the GST would most likely be accounted for and paid by the vendor to the Customs. Situation like this will resulted in vendor’s costs of disposal to increase.

The advantages / the good

Becoming a GST registrant can be a cost saving tool for you as well. For instance, if you are a GST registrant, you can claim input tax on your GST incurred on your under-construction commercial property and GST is not your cost.

In the recent Budget 2016, it announced that an applicant is eligible for voluntary registration, if one can make the first taxable supply within 12 months from the date of application. Previously, you only can go for voluntary registration if your total taxable supply is expected to exceed the threshold within 12 months from the date of application.

While going for voluntary GST registrants allow you to eliminate your GST cost, it is important to note that you need to remain as a registrant for a minimum period of 2 years. And becoming a GST registrant, GST compliance is crucial and compulsory. The periodical submission of GST Return must be observed to avoid penalties under the regime.

The sticks

If you qualify for GST registration but fail to do so, you can face FINE not exceeding RM 50,000 or IMPRISONMENT for not more than 3 years or BOTH. After being a GST registrant, if you fail to account for the GST and remit the payment to the Customs, another sets of FINE is in the pipeline:

In conclusion

Regardless of whether you are a pakcik or a makcik, if property investment is your play, in addition to Income Tax, Real Property Gain Tax (RPGT) and Stamp Duty, GST is another tax you need to understand and learn up on. Understanding the different taxes that evolve around properties allow you to better plan your property investment positioning and strategy. Here I wish everyone happy Property Hunting in 2016! - By Agnes Wong (StarProperty)

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