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Preparing TaxationComputations(Malaysia)

ACCA CERTIFIED ACCOUNTING TECHNICIAN EXAMINATION

ADVANCED LEVEL

TUESDAY 12 DECEMBER 2006

QUESTION PAPER

Time allowed 3 hours

ALL FOUR questions are compulsory and MUST be answered

Tax rates and allowances are on pages 23

Do not open this paper until instructed by the supervisor

This question paper must not be removed from the examinationhall

The Association of Chartered Certified Accountants

P a p e r

T 9 ( M Y S )

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The following tax rates, allowances and values are to be used in answering the questions.

Rates of income tax

Resident companyPaid up capital Chargeable income

First RM500,000 In excess of RM500,000

RM2,500,000 or less 20% 28%More than RM2,500,000 28% 28%

Non-resident person (company and individual) 28%

Resident individuals

Chargeable income Rate Cumulative taxRM RM % RM

First 2,500 (02,500) 0 0Next 2,500 (2,5015,000) 1 25Next 15,000 (5,00120,000) 3 475Next 15,000 (20,00135,000) 7 1,525

Next 15,000 (35,00150,000) 13 3,475Next 20,000 (50,00170,000) 19 7,275Next 30,000 (70,001100,000) 24 14,475Next 150,000 (100,001250,000) 27 54,975Exceeding 250,000 28

Personal reliefs and allowances

RMSelf 8,000Disabled self 6,000

Medical expenses expended for parents 5,000 maximumMedical expenses expended on self, spouse or child with serious disease, includingup to RM500 for medical examination 5,000 maximumBasic supporting equipment for disabled self, spouse, child or parent 5,000 maximumFees expended for skills or qualifications 5,000 maximumExpenses on books for personal use 700 maximumSpouse relief 3,000Disabled spouse 3,500Child 1,000 eachDisabled child 5,000 eachLife insurance premiums and contributions to approved provident funds 6,000 maximumMedical or education insurance premiums for self, spouse or child 3,000 maximum

Rebates

RMResident individual chargeable income up to RM35,000 350Resident individual who has been given a deduction in respect of wife(or former wife) or husband chargeable income up to RM35,000 additional 350Purchase of personal computer 500

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Rates of real property gains tax

Disposal within the following Individual Companyperiod after acquisition Citizen or Non-citizen and

permanent non-permanentresident resident

% % %

Within two years 30 30 30In the third year 20 30 20In the fourth year 15 30 15In the fifth year 5 30 5In the sixth year and thereafter nil 5 5

Value of benefits in kindCar benefit scale

Cost of car Prescribed annual value of Fuel per(when new) private usage of car annum

RM RM RM

up to 50,000 1,200 6001 50,001 1 75,000 2,400 9001 75,001100,000 3,600 1,200100,001150,000 5,000 1,500150,001200,000 7,000 1,800200,001250,000 9,000 2,100250,001350,000 15,000 2,400350,001500,000 21,250 2,700500,001 and above 25,000 3,000

The value of the car benefit equal to half the prescribed annual value (above) is taken if the car provided is more thanfive years old, but the value of fuel provided remains unchanged.

Where a driver is provided by the employer, the value of the benefit is fixed at RM600 per month.

Other benefitsHousehold furnishings, apparatus & appliances

Semi-furnished with furniture in the loungedining room, or bedrooms RM70 per monthSemi-furnished with furniture as above and one ormore of the following:air-conditioners, curtains, carpets RM140 per monthFully furnished premises RM280 per month

Domestic servant RM400 per month

Gardener RM300 per month

Capital allowances

Initial Annualallowance allowance(%) rate (%) rate

Motor vehicles and heavy machinery 20 20Plant and machinery 20 14Office equipment, furniture and fittings 20 10Industrial building 10 3Computer, information technology

equipment & computer software 20 40

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ALL FOUR questions are compulsory and MUST be attempted

1 Alex and Zizah are husband and wife, and both are directors of AToZ Bhd, a public-listed company. Upon attaining55 years of age, Alex retired from the company on 30 June 2005. At his retirement, Alex had served 25 years of continuous service with AToZ Bhd.

During the period 1 January to 30 June 2005, Alex was provided with a company car (which had cost RM185,000

when new), free fuel and a driver. The car, fuel and the driver benefits ended when he retired.Zizah was provided with free accommodation by AToZ Bhd throughout the year 2005 in a fully-furnishedcondominium. The monthly rental was RM5,000 for the premises and RM1,000 for the furnishings.

Other information relating to Alex and Zizahs income and expenditure for the year ended 31 December 2005 is asfollows:

Alex ZizahRM RM

IncomeDirectors fees 100,000 120,000Retirement gratuity 850,790

Travelling allowance 36,000Malaysian dividend A (net of tax) 8,640 Malaysian dividend B (exempt) 10,000 UK dividend 5,250 Interest on fixed deposits in Maybank 2,700 Interest on a personal loan to a friend 1,800

ExpenditureEPF contributions 11,000 13,200Medical insurance 5,900 Books and magazines 650 1,200First personal computer for home use 3,900

Heart by-pass surgery 42,390 Full medical check-up 950 670

The travelling allowance was fully expended by Zizah on company business.

Alex has a share in a restaurant business. For the year of assessment 2005, Alexs partnership share of thepartnership loss amounted to RM73,135.

Alex and Zizah have a twenty-year-old daughter attending university in Kuala Lumpur and a two-year-old legally-adopted son.

Required:

Assuming that there is no election for combined assessment and that Zizah claims for child relief, compute theincome tax payable/repayable for the year of assessment 2005 by:

(a) Alex; and (19 marks)

(b) Zizah (14 marks)

Give brief reasons for your treatment of Alexs retirement gratuity; the UK dividend; and the interest on the fixeddeposits in Maybank.

Indicate by the use of nil any item referred to in the question for which no adjusting entry needs to be made inthe tax computation. Show all workings.

Marks will be awarded for the use of accurate technical terms to describe the figures calculated at various stagesof the computation.

(33 marks)

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2 On 2 January 2005, Pedro and Liam commenced a car repair business under the partnership name of PedroliamMekanik. They each hold a half share in the partnership business.

The statement of profit and loss for the year ended 31 December 2005 in respect of Pedroliam Mekanik is as follows:

RM RMSales & service charges 149,500

Less:Expenditure

Salary for Pedro 48,000Salary for Liam 48,000Workshop rental 10,800Van fuel, upkeep and maintenance 16,782Interest on capital to Pedro 3,475Spares, lubricants etc 21,052Workshop utilities 9,741Depreciation 6,950

(164,800)

Net loss (15,300)

The van, which is the only fixed asset of the partnership, was acquired on 8 January 2005 for RM69,500.

Required:

(a) Compute the capital allowance in respect of the van for the year of assessment 2005 and state the residualexpenditure for the van at the end of the year of assessment 2005. (4 marks)

(b) Compute the provisional adjusted income/(loss) and divisible income/(loss) of the partnership. (5 marks)

(c) Compute the statutory income from Pedroliam Mekanik for Pedro and Liam for the year of assessment 2005.(7 marks)

Marks will be awarded for the use of accurate technical terms to describe the figures calculated at various stagesof the computations in parts (a) to (c).

(d) (i) State, giving reasons, whether Pedroliam Mekanik is subject to the service tax provisions in the year2005; (4 marks)

(ii) State the prevailing rate of service tax and the duration of a taxable period. (2 marks)

(22 marks)

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3 Mr A, a Malaysian citizen, incurred the following costs when he acquired a piece of land on 1 December 2001:

RMCost of land 356,000Legal fees 2,478Stamp duty 6,122

Thereafter he incurred RM518,000 on building a house on the land.

Mr A placed an advertisement to sell the land and house in January 2005. A prospective buyer paid Mr A a depositof RM14,600 but could not raise the funds to complete the purchase. Mr A then forfeited the deposit in April 2005.

On 28 November 2005, Mr A agreed with Mr B to sell the land and house for RM1,800,000. The sale and purchaseagreement was signed on 5 December 2005. In selling the land and house, Mr A incurred the following expenses:

RMAdvertisement 4,500Valuation fees 1,750Real estate agents fee 36,000

Required:

(a) Compute the real property gains tax liability of Mr A, clearly identifying the date of disposal.

Marks will be awarded for the use of accurate technical terms to describe the figures calculated at variousstages of the computations. (13 marks)

(b) State the date by which Mr A must submit the disposers return to the Director General of Inland Revenue.(2 marks)

(c) Explain, for the purposes of real property gains tax, the responsibilities of Mr B (as acquirer of the realproperty) with regard to:

(i) the filing of a return; and (2 marks)

(ii) the retention of money. (2 marks)

(19 marks)

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4 Dee Sdn Bhd commenced manufacturing natural fibres in February 2005. By the end of its first financial year, on31 December 2005, it had:

employed managerial and production employees;

paid a royalty to the American patent holder;

paid interest to a Malaysian bank in respect of a loan; and

paid technical fees to experts who came from America to transfer their expertise to Dees Malaysian employees.

Required:

(a) Explain the requirements under the Income Tax Act 1967 that Dee Sdn Bhd, as an employer, must complywith in respect of its employees

(i) when they are newly recruited; (2 marks)

(ii) when paying their monthly salaries; and (2 marks)

(iii) at the end of the calendar year 2005. (3 marks)

(b) In respect of each of the payments of royalty, interest and technical fees:

(i) explain briefly whether the withholding tax provisions are applicable; (9 marks)

(ii) assuming the withholding tax provisions are applicable, state the rate of withholding; and (2 marks)

(iii) state the consequences of non-compliance with the withholding tax provisions. (4 marks)

(c) State the due date by which Dee Sdn Bhd should:

(i) submit its tax return and settle the balance of tax payable for the year of assessment 2005; and(2 marks)

(ii) provide the estimate of tax for the year of assessment 2006. (2 marks)

(26 marks)

End of Question Paper

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Answers

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ACCA Technician Examination Paper T9(MYS) December 2006 Answers andPreparing Taxation Computations (Malaysia) Marking Scheme

Marks

1 (a) AlexTax computation for the year of assessment 2005

RM RM RMEmployment incomeDirectors fees 100,000 1 / 2Gratuity nil 1 / 2(Exempted: retirement at 55 years and served more than 10 years) 1Car benefit (7,000 1 / 2) 3,500 1Driver benefit (600 6) 3,600 1Fuel (1,800 1 / 2) 900 1Statutory income from employment 108,000

DividendsMalaysian dividend A (8,640/72 100) 12,000 1Malaysian dividend B (exempt) nil 1 / 2UK dividend(foreign remittance exempt) nil 1 / 2 +

1 / 2Statutory income from dividends 12,000Interest from bank fixed deposit(exempt or tax already deducted) nil 1 / 2 +

1 / 2Aggregate income 120,000 1 / 2*Less

Current year business loss from the partnership (73,135) 1

Total income 46,865 1 / 2*

Less reliefs:Personal relief 8,000 1 / 2EPF contribution (restricted to maximum) 6,000 1Medical insurance (restricted to maximum) 3,000 1Medical expenses for serious disease

Heart surgery 42,390Full medical check-up 950

Total 43,340

Restricted to maximum 5,000 1Books and magazines 650 1 / 2

22,650

Chargeable income 24,215 1 / 2*

Tax on first 20,000 47500Tax on next 4,215 at 7% 29505

Tax charged 77005 1 / 2Less

rebates:Individual chargeable income less than RM35,000 350 1 / 2Purchase of personal computer 500 1 / 2

850Restricted to amount of tax charged 77005 1

nil

Less s.110 set-off (8,640/72 28%) (3,36000) 1

Tax refund (3,36000) 1 / 2* 19

Note: Marks indicated with a * are awarded for the allocation of the appropriate description to the figurecalculated, not for the figure itself.

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Marks

(b) ZizahTax computation for the year of assessment 2005

RM RMEmployment incomeDirectors fee 120,000 1 / 2Travelling allowance 36,000 1 / 2Section 13(1)(a) income 156,000Benefit in kind: house furnishings (280 x 12) 3,360 1Living accommodation [(s.13(1)(c)]:Defined value: 5,000 x 12 = 60,000 130% of section 13(1)(a) income = 30% x 156,000 = 46,800 1The lower 46,800 1

Gross income from employment 206,160Less allowable deductions:Travelling (fully expended) (36,000) 1

Adjusted/statutory income from employment 170,160

Interest income 1,800 1

Aggregate/total income 171,960 1 / 2*

Personal reliefsSelf 8,000 1 / 220-year-old child 4,000 1Adopted child 1,000 1EPF contribution (restricted to maximum) 6,000 1Books and magazines (restricted to maximum) 700 1Full medical check-up (restricted to maximum) 500 1

(20,200)

Chargeable income 151,760 1 / 2*

Tax on first RM100,000 14,47500On next RM51,760 at 27% 13,97520

Tax charged 28,45020 1 / 2 14

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Marks

2 (a) Capital allowance for the vanRM RM

Qualifying plant expenditure 69,500 1Initial allowance 20% 13,900 1Annual allowance 20% 13,900 1

27,800

Residual expenditure 41,700 1 4

(b) Partnership businessNet loss (15,300) 1 / 2 Add

Salary to Pedro 48,000 1 / 2Salary to Liam 48,000 1 / 2Interest to Pedro 3,475 1 / 2Depreciation 6,950 1 / 2

106,425

Provisional adjusted income 91,125 1 / 2*Less partners benefitsSalary to Pedro 48,000 1 / 2Salary to Liam 48,000 1 / 2Interest to Pedro 3,475 1 / 2

(99,475)

Divisible income/(loss) (8,350) 1 / 2* 5

(c) Partners statutory incomePedro1 / 2 share of divisible loss from Pedroliam Mekanik

1 / 2 x 8,350 (4,175) 1 Add

Partners salary 48,000 1 / 2Interest on capital 3,475 1

51,475

Adjusted income 47,300Less 1 / 2 of capital allowance on the van (13,900) 1Statutory income from Pedroliam Mekanik 33,400 1 / 2*

Liam1 / 2 share of divisible loss from Pedroliam Mekanik

1 / 2 x 8,350 (4,175) 1 Add

Partners salary (48,000) 1 / 2

Adjusted income 43,825Less 1 / 2 of capital allowance on the van (13,900) 1Statutory income from Pedroliam Mekanik 29,925 1 / 2*

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(d) Service tax

(i) Whether service tax provisions are applicableAn operator of motor vehicle service and/or repair centres is a taxable person providing a taxable servicefor the purposes of service tax. 1 + 1However, the annual sales turnover must exceed RM150,000 for the service tax provisions to apply. 1As Pedroliam Mekaniks annual turnover for 2005 was less than RM150,000, the service tax provisionsare not applicable to Pedroliam Mekanik for the year 2005. 1

4

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Marks

(ii) The rate of service tax and the duration of a taxable periodThe prevailing rate of service tax is 5%. 1The taxable period is normally two calendar months. 1

2

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3 (a) Computation of real property gains tax for Mr ARM RM

Disposal date: 5 December 2005 date of written agreement 1Sale consideration 1,800,000 1 / 2Less Enhancement cost construction of house 518,000 1

1,282,000

Less incidental costsAdvertisement 4,500 1Valuation fee 1,750 1Real estate agents fee 36,000 1

42,250

Disposal price 1,239,750 1 / 2*Acquisition date: 1 December 2001Purchase consideration of land 356,000 1 / 2Legal fees 2,478 1Stamp duty 6,122 1

364,600

Less deposit forfeited 14,600 1

Acquisition price 350,000 1 / 2*Chargeable gain 889,750 1 / 2*Schedule 4 exemptionGreater of 10% of 889,750 or 5,000 88,975 1

800,775Disposal in the 5th year 1 / 2RPGT at 5% 40,03875 1

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(b) State the date by which Mr A must submit the disposers returnThe return by the disposer must be submitted within 1 month of the date of the disposal. 1Therefore Mr A must submit the return by 4 January 2006. 1

2

(c) Responsibilities of the acquirer Mr B(i) Mr B must file a return notifying the acquisition of the real property 1 /

2within 1 month of the date of acquisition i.e. by 4 January 2006. 1 1 / 22

(ii) Mr B must retain 5% of the sale consideration i.e. RM90,000 (1,800,000 5%) and 1await instructions from the Director General i.e. to pay over to the DGIR 1 / 2or to release the money to the disposer upon receipt of the certificate of clearancefrom the DGIR. 1 / 2

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Marks

4 (a) Compliance requirements re the employees(i) At recruitment

Within one month of the recruitment of the new employees, 1Dee is required to notify the DGIR by providing their full names and addresses. 1

2

(ii) Payment of monthly salariesDee must make schedular tax deductions according to the prevailing tax deductions table 1prescribed by the DGIR, andpay over the tax deducted to the DGIR by the 10th day of the following month. 1

2

(iii) At the end of the calendar yearDee must prepare the annual statement of income in the prescribed form (Form EA) for 1each employee who has been employed by the company during the basis year. 1It also must furnish the employers return in the prescribed form (Form E) ot the DGIR. 1

3

(b) Withholding tax(i) Whether withholding tax provisions applicable

Royalty Paid to a non-resident, and 1Royalty Royalty is derived from Malaysia because it was paid by a resident 1Royalty Therefore withholding tax provisions are applicable 1

Interest Paid to a resident, 1Interest Therefore withholding tax provisions are not applicable 1

Technical fees Paid to a non-resident, and 1Interest Technical fees are derived from Malaysia because it was paid by a resident; and 1Interest The services were performed in Malaysia. 1Interest Therefore withholding tax provisions are applicable 1

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(ii) Rate of withholding taxRoyalty 10% of gross 1Technical fees 10% of gross 1

2

(iii) Consequences of non-compliance with the withholding tax provisionsThe payer would have to bear the withholding tax 1There would be a penalty of 10% of the gross payment 1The payment (royalty or technical fees) would not be tax deductible 1until and unless the withholding tax and the 10% penalty have been paid by the payer 1

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(c) Due dates(i) Tax return and balance of tax for YA2005As Dee closed its accounts on 31 December 2005, 1 / 2the due date for submitting its tax return and payment of the balance of taxis seven months after the close of accounts 1i.e. 31 July 2006 1 / 2

2

(ii) Tax estimate for YA2006The tax estimate must be provided to the DGIR not later than 30 days 1 / 2before the beginning of the basis period for the year of assessment 2006. 1 / 2As the basis period for the year of assessment 2006 began on 1 January 2006,30 days before that date was 2 December 2005. 1

2

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