When shares change hands, the price stated in the sale agreement is not always the full picture. This case illustrates how LHDN treated a director's advances settlement, made as part of the same transaction, as part of the taxable disposal price.

𝐁𝐚𝐜𝐤𝐠𝐫𝐨𝐮𝐧𝐝 𝐨𝐟 𝐭𝐡𝐞 𝐜𝐚𝐬𝐞 The Taxpayers were directors and shareholders of BSKCHSB, each holding an equal 50 percent stake. Under a Share Sale Agreement dated 5 June 2017 between the Taxpayers and TISB, the Taxpayers disposed of 250,000 ordinary shares in the Company to TISB for a stated consideration of RM500,000. Under the same agreement, the Taxpayers also assigned their director's advances to TISB, amounting to RM11,153,527.96. On the same day, the Taxpayers filed their Real Property Gains Tax returns for the disposal of shares in a Real Property Company, declaring the disposal price for all 250,000 shares at RM500,000 only. LHDN later raised a Notice of Assessment dated 3 December 2021, taking the position that the director's advances formed part of the actual disposal price.

𝐏𝐨𝐬𝐢𝐭𝐢𝐨𝐧 𝐨𝐟 𝐭𝐡𝐞 𝐭𝐚𝐱𝐩𝐚𝐲𝐞𝐫 The Taxpayers maintained that RM500,000 was the true and only consideration for the shares, reflecting what was mutually agreed with TISB and matching the actual value of the shares at the time. They pointed out that each of them only received RM250,000 from the sale. They further argued that the director's advances did not represent any gain to them personally, and therefore should not be brought into the RPGT calculation at all.

𝐏𝐨𝐬𝐢𝐭𝐢𝐨𝐧 𝐨𝐟 𝐋𝐇𝐃𝐍 LHDN's position was that the parties never disputed that the Company was a Real Property Company under the Real Property Gains Tax Act 1976. On that basis, LHDN treated the acquisition of the 250,000 shares as an acquisition of a chargeable asset. LHDN argued that the terms of the Share Sale Agreement showed the settlement of the director's advances was an integral part of the overall transaction, meaning the RM11,153,527.96 should be counted as part of the disposal price, not treated as a separate or unrelated matter.

𝐃𝐞𝐜𝐢𝐬𝐢𝐨𝐧 𝐨𝐟 𝐭𝐡𝐞 𝐂𝐨𝐮𝐫𝐭 The Special Commissioners of Income Tax dismissed the Taxpayers' appeal on 30 June 2026. The Commissioners held that the Notices of Assessment for the Year of Assessment 2017 were reasonable and justified, and found that LHDN had both legal and factual basis to raise the additional assessment. The penalty imposed was also held to be justified. Per the editorial note accompanying this case, the Taxpayers retain the right to file an appeal against this decision within 21 days from the date of the decision.

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