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When does GST apply to individuals who own properties?

Posted by tammy on May 16, 2016
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IT has always been clear that it is the responsibility of those in business to register for GST and collect the tax. However, recent guidance released by the authorities could bring private individuals, who would not consider that they are in business, into the mix.

Under GST, the sale of commercial buildings and land zoned for commercial is usually subject to 6% GST, if sold by a person in business.

It was long thought that private individuals who owned property and did not actively manage or trade in that property in any way would fall outside of this net, on the basis that they were not necessarily in business and were merely holding the property as part of an investment or inheritance, unless the facts clearly indicated otherwise.

The Royal Malaysian Customs Department (Customs), which has responsibility for administering the GST, holds a different view.

In recent guidance published by Customs, the director-general (DG) took the view that if a person owns more than two commercial properties, more than one acre of commercial land or commercial property, or land with a market value of more than RM2mil and has an intention to sell, they are considered to be in business.

Whether the DG’s decision is correct under the law is another question.

However, one can sympathise with Customs as the lines between what is private and what is business can be blurred, especially in a property context which often involve large sums.

Despite this, taking a view that a certain level of property ownership automatically means that a person is undertaking a business may be too simplistic.

It does not take into consideration the person’s intention in owning the property and whether they have any business acumen or purpose as opposed to merely holding for investment, and certainly does not take account of whether the ‘holding’ of ownership bears any of the hallmarks of conducting a ‘business’.

Similarly, a person may have inherited, or owned property as a consequence of family dealings and over time the market value of that property has grown without any intention or action of the individual.


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