Question

b) Two sisters, Mary and Jane, jointly purchased an apartment using their own savings. The apartment was rented out, but because the rental rate was considered too low, they decided to sell the apartment after 12 months. They made a gain of RM200,000 from this sale. No improvement was made to the apartment prior to the sale. Mary has been involved in at least ten property transactions over the past five years, either by herself or on jointly with others. On the other hand, this is the first disposal of property for Jane. Required: With reference to the badges of trade, set your arguments FOR and AGAINST the assessability to income tax of the RM200,000 gain arising from the sale of the apartment. (6 marks)

Answer 1

It is pertinent to note in the question that Mary has been a part of these kind of property sales frequently since last 5 years. Whereas, this is the first disposal of property for Jane.

Arguments in FAVOUR of assessability of gain arising from sale of apartment:

1. The motive here is to earn profit 2. There are many such transactions over a period of 5 years 3. The apartment was sold after just 12 months of purchase

Arguments AGAINST the assessability of gain arising from sale of apartment:

1. The motive here is to earn rent initially. However, due to inadequate rate they chose to sell off the apartment.    2. For Jane, it was only her first such transaction. 3. There should be capital gain on sale of apartment.