Capital Gain Issue. Investor vs Seller. Which one is better?

Week 8.3 Capital Gain Issue. Investor vs Seller. Which one is better?

 I have spoken to an accountant recently he told me there is no tax for capital gain since it is an investment. For example UOB gold, you brought at RM3000/- now sold at RM4300/- you have made a gain of RM1300/- and this gain is not taxable. There is no capital gain tax in Malaysia other than Real Estate. Since you are buying and selling through via a company e.g

Buy and sell gold /silver bar via Public Gold

Buy and sell gold physical or paper gold via Maybank, UOB, Kuwait Finance House etc.

This has clearly distinguished you that you are an investor thus the gain should not be taxable.

However, the story is different in the case of silver, you need to buy from someone like silvermalaysia who is selling in ebay.  To make a profit you have to sell off your silver right. Thus, you are indirectly involved in buying and selling. How do you convince LHDN (inland revenue department) that you are investing and not involved in buying and selling.

Here are a few suggestions to assist you on this matter.

1.      Your recorded transaction amount should not exceed your annual salary lah. Otherwise it is buy and sell already. For example your salary only RM5000.00 per month but monthly bank statement show an activity of RM25,000 or monthly bank wire exceed RM25000/- month.

2.      You should keep your goods maybe for 1 – 2 year before you sell it off. Just like a collector selling off his old coin collection for years. Is it taxable?

Mathematic calculation

Investor

Assume you are an investor, you invested in RM10,000.00 of silver. After paying the 15% tax RM1500, you then keep the goods for 3 years. The price of silver gone up 4x, the goods can now be sold at RM40,000.00. You have made a nett gain of RM30,000 – RM1500 = RM28,500.

Seller

Assume you are an seller, you invested in RM10,000.00 of silver. After paying the 15% tax RM1500, you then keep the goods for 3 years as a backup inventory. These inventories are used whenever you run out of goods for sales. The tax is negligible for you since you can always treat it as an expense nevertheless you can include in this calculation.  The price of silver gone up 4x, the goods can now be sold at RM40,000. You have made a pre-tax gain of RM28,500. However, since you are a trader, you need to pay the capital gain tax of 26% of RM28500 which amounted to RM7410. Your actual nett gain is RM21,090. The RM7410 hopefully can be off-set by other business expenses. Why 26% and not 10% or 15%? It is because precious metal are high capital business, thus those who involved are in higher income bracket.

Thus if your business is just making a slight profit, you may need to make a distinction at the first place when you purchase your goods on whether it is for buy and sell or for investing.

You decide what you want! So that is not need to clear the mesh when the times come. I already screw up long time back. That’s part and parcel of learning.