SET 1 ANSWER FOR EXAM SEPTEMBER 2016 MIAQE TAXATION

ANSWER 1

Merci Engineering Sdn. Bhd.

Tax computation for the year of assessment 2016

Add (+) Ded (-)

Note RM’000 RM’000 RM’000

Business income

Profit before taxation

√160,10

3 Cost of sales

Less:

Dividends-single tier (local)

1

√18

Dividend (foreign)

√14

Interest received from debtors

2

√30

Insurance recovery

3

√0 62

160,041

Add/(Less):

Salaries and wages

4

Director's salary

√0

EPF (rest: [58 - (19% of 264k)]

√8

Overseas trip for director

√23

Loan interest

Interest on loan for investment

5 √26

Interest on loan for working capital

√0

Entertainment

6

Company annual dinner

√0

Staff disbursement (Disallow 50% of 120k)

√60

Promotion

√0

Depreciation

√80

Repairs and maintenance

7

Extending the sales office

√168

Other repairs

√0

Bad and doubtful debts

8

Bad debts written off

√0

General bad debts provision

√260

Specific loan debts provision

√143

Bad debts (advance to customer w/off)

√21

Bad debts (advance to supplier w/off)

√39

Motor vehicle expenses

9

Compound and fines

√14

Other maintenance charges

√0

Lease payments

10

Car [100k-50k max]

√50

Machine

√0

Advertisement

11

Advertising -patented product (DD)

√104

TV advertising

√0

Free gift

√0

Professional fees

12

Termination of supply contract

√0

Guarantee fee for loan

√18

Lease agreement

√0

New supply contract

√0

Secretarial fees [8k - 5k

max)

√3

Tax filing fees [16k-10k]

√6

GST appeal

√13

Transfer pricing advice

√0

Insurance

13

Local insurance-cargo import (Note 1]

√0

Foreign insurance-cargo export

√0

Insurance-company assets

√0

Foreign exchange loss

14

Realized loss- stock imports

√0

Realized loss-machinery spare parts

√0

Unrealized loss-machine

√13

Proprietary rights

Ded.for proprietary rights (20% of RM300k)

√60

Donation

15

Cash to the Selangor Government

√35

1,105 164 160,041

Add

1,015

161,056

Less

164

Adjusted income from business

160,892

Less: Capital allowance

Capital allowance on business assets

√48,000

Statutory business income

112,892

Add: Other income

Dividends (local - single tier)

√0

Dividend (foreign - exempted)

√0

Interest received from debtors

√30 30

112,922

Less: Donation

Cash donation to the Selangor State Government

√35

Total income and chargeable income

√112,88

7

50√=20 marks

ANSWER 2(A)

Determination of qualifying building expenditure RM

Cost of land

√0

Legal fee for transfer of land

√0

Cutting and leveling land

√0

Excavation and preparation of site for construction √37,327

Piling and foundation works

√624,394

Construction of building

√4,728,580

Construction of perimeter wall

√16,129

Architect fee-hospital building design

√64,515

Legal services for obtaining various building approval √29,954

Subcontract charges for installation of wiring and plumbing √34,101

Landscaping charges

√0

Qualifying building expenditure

√5,535,000

Constructed building

Year of assessment 2015

RM

Qualifying building expenditure

√5,535,00

0 Initial allowance

10%

√553,50

0 Annual allowance

3%

√166,05

0

719,550

Residual expenditure

4,815,450

Year of assessment 2016

Annual allowance

3%

√166,050

Residual expenditure

√4,649,40

0

Leased building

RM

Renovation expenditure

√760,448

Year of assessment 2015

Qualifying

Leased building - used as hospital

RM

Qualifying expenditure (80% of 760,448)

√608,358

Initial allowance

10%

√60,836

Annual allowance

3%

√18,251 79,087

529,271

Year of assessment 2016

Annual allowance

3%

√18,251

Residual expenditure c/f

√511,020

Leased building - used as administrative office

Year of assessment 2015

Non-

qualifying

RM

Non-qualifying expenditure (20% of 760,448)

√152,090

Initial allowance

10%

√0

Notional allowance

3%

√4,563 4,563

141,527

Year of assessment 2016

Notional allowance

3%

√4,563

Residual expenditure c/f

√142,964

28√=10 marks

ANSWER 2(B)

Disposal price

RM RM

Consideration received

√530,000

Less: Permitted expenses

Cost of enhancement

√57,755

Legal fees -defending title

√8,540 66,295

√463,705

Less: Incidental cost of disposal

Valuation fees

√8,183

Brokerage

√11,550

Legal fees

√4,000

Advertisement

√1,444 25,177

Disposal price

√438,528 (a)

Acquisition price

RM RM

Consideration paid

√413,000

Add: Incidental expenses

Stamp duty on transfer

√5,785

Legal fees

√3,446 9,231

422,231

Less: Para 4(1) receipts

Compensation received

√36,600

Insurance recoveries

√18,300

Deposit forfeited

√10,000 64,900

Acquisition price

√357,331 (b)

Chargeable gain [(a) - (b)]

√81,197

Less: Para 2 Sch 4 Exemption: Higher of

RM10,000; or

√10,000

10% of chargeable gain

√8,120 √ 10,000

Chargeable gain after exemption

√71,197

21√= 10 marks

ANSWER 3(A)

MD Shipping Lines Plc

Year of Assessment 2016

5% Method

RM

RM

Gross income derived from Malaysia.

√1,054,350

Deemed statutory income : 5% of 1,054,350

√52,718

Less: Donation

√4,500

Chargeable income

√48,218

Tax charged

RM

Tax on 48,218 at 24%

√11,572

Less: DTA relief at 50%

√5,786

Tax payable

√5,786

Ratio Certificate Method

RM

Adjusted income

2,811,600 x [1,054,350 /4,217,400]

√702,900

Less: Capital allowance

800,000 x [1,054,350/4,217,400]

√200,000

Statutory income

√502,900

Less: Donation

√4,500

Chargeable income

√498,400

Tax charged

Tax on 498,400 at 24%

√119,616

Less: DTA relief 50%

√59,808

Tax payable

√59,808

Rounding error: RM 1.00

15√ = 5 marks

ANSWER 3(B)

In the case of a bus operator, this risk is inherent in a business of this nature (i.e. of meeting

with an accident or causing some damage to third parties or properties , and it can be

reasonably foreseen that some form of compensation may need to be paid). Accordingly,

because such risk is sufficiently connected with the taxpayer’s income-generating activities,

the compensation would be deductible.

With regard to the legal fees, one needs to look at the nature of the legal expenses incurred

in this case. The company has resisted the payment of the compensation to the employee

and it may be argued that it is not incurred in the production of gross income.

However such decision (i.e. not to allow a deduction) could be considered as being a narrow

interpretation of the law and one that does not take into account the realities of conducting a

business.

One could cite the case of Port Elizabeth Electric Tramway Co v Commissioner for Inland

Revenue 1936 CPD 241, 8 SATC 13) in support of the argument to allow the compensation

and disallow the legal fees incurred by the company.

(5 marks)

ANSWER 3(C)

In this case one need to consider whether the advances made to the padi cultivators is one

in the nature of an investment or simply a trading arrangement. If it is investment in nature

then the losses incurred would be capital and therefore not deductible. But if it is one on

account of trading then it would be a trading loss and would fall to be deducted under

section 33 as being incurred wholly and exclusively in the production of gross income.

Based on the fact of the case, the relationship between the padi cultivators and the company

is one of a supply arrangement and not an investment arrangement. And the assistance

given is more in the nature of an advance payment for the crop to be supplied, done to

assist the padi cultivators. There being no investment element in this instance and the loss

arising from a natural disaster, it is one on revenue account and is quite similar to a case

where a payment has been made for a stock delivery that was not made for some reason.

The case of Commissioners of Income Tax v The Mysore Sugar Co., Ltd (1962) [1967 AIR

723] could be cited in support.

(5 marks)

ANSWER 4A

i) Filing of Malaysian personal tax returns:

Under S.77(1), for the year of assessment 2015 Miss Tina must inform IRBM of her

chargeability by completing the tax return form BE and submit the tax return to the

IRBM not later than 30 April in the following year of assessment. /

(1 x / = 1 mark)

ii) The penalties for failing to furnish the tax return for a year of assessment:

- S.112(1): if taxpayer fails to notify chargeability, without reasonable excuse, he will be guilty of an offence and shall on conviction be liable to a fine of not less than RM200 and not more than RM2,000 or to imprisonment for a term not exceeding 6 months or both. /

- S.112(3): if a taxpayer fails to furnish a return and notify chargeability and no prosecution was made, the DG may require that a person to pay a penalty equal to treble the amount of the tax payable for that year. /

(2/ x 1 = 2 marks)

iii) She intends to remit some of her income from Australia into Malaysian and she asked for your advice regarding the Malaysian personal tax implications on non-Malaysian income received in Malaysia:

Under S.3 of the ITA 1967, Malaysian income tax shall be charged on foreign income

received in Malaysia for that year of assessment /. However with effect from 1 January

2004, the income arising from sources outside Malaysia and received in Malaysia by an

individual, regardless of his resident status, will be exempted from income tax – para 28,

Sch 6 /.

(2/ x 1/2 = 1 mark)

ANSWER 4B

A taxable period for a taxable person—

i) In the case where the total value of all his taxable supplies in the period of twelve

months is five million ringgit or more, the first taxable period shall begin from the date

he should have been registered under section 21 and end on the last day of the

month he should have been registered and the subsequent taxable period shall be a

period of one month ending on the last day of any month of any calendar year; or

In the case where the total value of all his taxable supplies in the period of twelve

months is less than five million ringgit, the first taxable period shall begin from the

date he should have been registered under section 21 and end on the last day of the

two months period following the month in which he should have been registered

and the subsequent taxable period shall be a period of three months ending on the

last day of any month of any calendar year.

ii)

a) Sale by Pending to Tanjak

RM RM

Selling Price 10,000

GST 10,000 @ 6% = RM600

Output tax to Pending 600

Input tax to Tanjak 600

( x 1 = 2 marks)

Sale by Tanjak to customers RM RM

Selling Price 13,000

GST 13,000 @ 6% = 780

Output tax to Tanjak 780

b) Remittance to RMCD by:

Pending 600

Tanjak (Output tax – Input Tax) = 780 - 600

180

Total GST remitted to RMCD 780

( x ½ = 2 marks)

ANSWER 5A

Computation of Income Tax Payable for YA 2015

Encik Atef Puan Naimah

RM RM RM RM

Sec 4(a) business income

Adjusted income 160,000

+ Balancing charge 2,500

162,500

- Capital allowance (c/y + b/f)

(10,500)

Statutory business income 152,000

- Business loss b/f (12,500)

Net statutory business income

139,500 139,500

Section 4(b) employment income

Salary (12,600+1,250+3,400) x 12

207,000 47,000

Section 4(c)

Interest Income- bank rakyat

nil

Dividend – pioneer status nil

Section 4 (d)

Rental 24,000

(x 1/3 = 12 marks)

Less: Expenses

Quit rent 1,100

Repairs of broken window 1,800

Renovation of the kitchen Nil 21,100

Royalty income

Publication of books 40,000

Less: Exemption Para 32 (10,000) 30,000

Honorarium 10,000

Aggregate income 407,600 47,000

Less:

Donation to in kind NA

Total income 407,600 47,000

Less: Relief

Self (9,000) (9,000)

EPF/Life insurance (2,400) (5,170)

Education/Medical insurance

(3,000) (1,800)

Books/magazines (1,600-600 max)

(1,000)

Child relief

Afiq (6,000)

Afifah (6,000)

Ashriq (6,000)

Wheelchair mother disable (5,000)

Annual medical check up -Ashriq

(500)

Chargeable income 374,200 25,530

On the first RM150,000

Next (374,200 – 150,000) 47,900 900

224,200 x 24.5% 54,929 553

Less:

Zakat 14,400

Rebate 400

Net income tax payable 88,429 1,053

ANSWER 5B

Chargeable income for the year of assessment 2015

Deceased (R) ( 8 m)

Executor (R) (4 m)

RM RM

Business 1: Gross income 200,000 Less: allowable expenses (75,000 – 10,000) (65,000) ------------- Adjusted income 135,000 Less: capital allowance (24,500) --------------- Statutory income 110,500 -----------------

73,667

36,833

Business 2: Statutory income (foreign source) - Exempt

-

NIL

Less: business loss b/f from previous year (6,000) -

Statutory income from all business 67,667 36,833 Add: other sources of income Dividend (single tier) -exempt NIL - Interest - 20,000 Adjusted rental income 40,000 10,000

Aggregate income (AI) 107,667 66,833 Less: Current year business loss (10,000) (5,000) Annuity payable - (8,000) Approved donation (restricted to 7% of AI) (6,000) (4,678) OF

Total Income 91,667 49,155 Less:

Self relief/special relief (9,000) (9,000) Wife relief (3,000) - Medical expenses on serious disease (6,000) -

Chargeable income 73,667 40,155

Tax charge Scale rate Scale rate

On the first RM70,000 / RM35,000 5,600.00 900.00

On the next RM3,667@ 21% / RM5,155 @ 10% 770.07 505.50

Tax payable 6,370.07 1,405.50

16 x ½ mark = 8 marks

(Total: 20 marks)

ANSWER 6

SOLUTION 6 A.

2015 2016 2017 2018

RM’000 RM’000 RM’000 RM’000

Adjusted income NIL 1,500 3,200 5,000

(-) capital allowances (800) c/f (1,500) 200 c/f

(1,200) (1,800)

Statutory income (SI) Nil Nil 2,000 3,200

(-) 70% x SI Nil Nil (1,400) (2,240)

Chargeable income Nil Nil 600 960

2015 2016 2017 2018

RM’000 RM’000 RM’000 RM’000

70% x SI Nil Nil 1,400 2,240

(-) Pioneer loss b/f Nil Nil (1,000) -

Credited to Exempt income Nil Nil 400 2,240

14x ½ mark = 7 marks

Solution 2(B) - Investment Tax Allowance

2015 2016 2017 2018

RM’000 RM’000 RM’000 RM’000

Statutory income Nil Nil 2,000 3,200

(-) ITA utilized - - 1,400 2,240

Nil Nil 600 960

(-) business loss b/f - - (600) (400)

Chargeable income Nil Nil Nil 560

2015 2016 2017 2018

RM’000 RM’000 RM’000 RM’000

70% x SI Nil Nil 1,400 2,240

Set off against:

ITA: 60% x QCE 4,200 - - 300

: brought forward - 4,200 4,200 2,800

Total available 4,200 4,200 4,200 3,100

ITA utilized & credited to EIA Nil Nil 1,400 2,240

ITA unutilized b/f 4,200 4,200 2,800 860

16x ½ mark = 8 marks

ANSWER 6B i) The amount of withholding tax and penalties payable by BSB to IRB

Payment to APL on: WHT Penalty 1 May 2015 – Installation fees 10% X 100,000

= RM10,000 nil

1 May 2015 – Technical services 10% X 250,000 = RM25,000

10% X 25,000 = 2,500

1 June 2015 - Technical services 10% X 250,000 = RM25,000

nil

Total payable to IRB = RM62,500

(10X1/2 = 5 marks) (Total : 20 marks)