1 TAX SEPTEMBER 2017

Transcription

1 1 TAX SEPTEMBER 2017 SUGGESTED SOLUTION SET1 SOLUTION 1 MM Manufacturing Sdn Bhd Tax computation for the year of assessment 2017 Add (+) Ded (-) Note Business income Profit before taxation 235,723 Cost of sales Less: Dividends-single tier (local) 1 30 Dividend (foreign) 25 Interest received from debtors 2 48 Insurance recovery 3 0 (103) 235,620 Add/(Less): Remuneration 4 Director's salary 0 EPF (rest: [93 - (19% of 422k)] 13 Overseas trip for director 35 Compensation to a director 5 Lump sum 100 Pension 24 Loan interest 6 Interest on loan for investment 40 Interest on loan for working capital 0 Entertainment 7 Entertainment of suppliers [50% disallowed] 75 Ent allowance to marketing staff [50% disallowed] 90 Annual dinner for staff 0 Gift to customers for purchases above Launching a new sofa 0 Depreciation 119 Repairs and maintenance 8 Extending the admin office 300 Replacement of the roof 0 Other repairs 0 Bad and doubtful debts 9 General trade bad debts written off 0 General trade bad debts provision 440 Specific loan debts provision 230 Motor vehicle expenses 10 Compound and fines 22

2 2 TAX SEPTEMBER 2017 Damaged lorry repair 40 Other maintenance charges 0 Lease charges Car [70k-50k max] Machine 0 Negotiated lease compensation payment 100 Advertisement, publicity and patent 12 Advertisement in local dailies 0 Advertising -own brand (DD) 150 Ded. for proprietary rights (20% of 500k) (DD) 100 Professional fees Damages for breach of agreement 40 Legal fees 8 Secretarial fees [10k - 5k max) 5 Tax filing fees [15k-10k] 5 GST appeal 5 Insurance 13 Local insurance-cargo import 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 20 Cash donation to the Federal Government , ,620 Add 1, ,551 Less (250) Adjusted income from business 237,301 Less: Capital allowance 45,600 Qualifying expenditure 40,000 Less: Initial allowance 8,000 Annual allowance 8,000 16,000 16,000 (61,600) Statutory business income 175,701 Add: Other income Dividends (local - single tier) 0 Dividend (foreign - exempted) 0 Interest received from debtors [Sec 4(c)] ,749 Less: Donation Cash donation to the Federal Government 200 Total income and chargeable income 175,549 (20 marks)

3 3 TAX SEPTEMBER 2017 SOLUTION 2(a) En Segar Computation of chargeable gain Disposal price Consideration received 354,200 Less: Permitted expenses Cost of enhancement 37,851 Legal fees -defending title 7,700 45, ,649 Less: Incidental cost of disposal Valuation fees 5,495 Brokerage 7,692 Advertisement ,164 Disposal price 294,485 (a) Acquisition price Consideration paid 274,725 Add: Incidental expenses Stamp duty on transfer 4,495 Legal fees 2,373 Interest on loan 0 6, ,593 Less: Para 4(1) receipts Compensation received : Fire damage 48,420 Insurance recoveries 12,088 Deposit forfeited 6,600 67,108 Acquisition price 214,485 (b) Chargeable gain [(a) - (b)] 80,000 Less: Para 2 Sch 4 Exemption: Higher of 10,000; or 10,000 10% of chargeable gain 8,000 10,000 Chargeable gain after exemption 70,000 (10 marks)

4 4 TAX SEPTEMBER 2017 SOLUTION 2(b) Puncak Co-operative Society Tax computation for the year of assessment 2016 Business Audited net profits 697,732 Less: Member's entrance fee (exempted) 21,130 Member's subscription (exempted) 78,887 Rental of farm machinery to non-members 5,600 Interest from loan to members (exempted) 12, , ,437 Add: Disallowable expenses Secretarial fees (23,166 5,000) 18,166 Depreciation 3,739 Donation 56,448 Zakat 33, ,953 Adjusted income 691,390 Less: Capital allowance 10,000 Statutory income from business 681,390 Add: Other income Rental of machinery to non-members 5,600 Aggregate income 686,990 Less: Donation-Restricted to 7% of agg income 48,089 Less: 638,901 Zakat-Restricted to 2.5% of agg income 17, ,726 Less: Sec 65A(a) deduction Lower of : Amount paid (Note 1); or 75,040 25% of audited net profit 174,433 75, ,686 Less: Sec 65A(b) deduction 8% of member's fund (Note 2) 124,560 Chargeable income 422,126 Note 1 Statutory contribution Contribution to Universiti Malaya 19,040 Co-op Development Trust Fund 16,800 Statutory reserve fund 39,200 75,040

5 5 TAX SEPTEMBER 2017 Note 2 Member's fund as at 1 Jan 2014 [Para 12 Schedule 6] Paid up share capital 1,200,000 Share premium account 50,000 Statutory reserve fund 122,000 Reserves from revaluation of assets (excluded) 0 Balance of profit and loss appropriation account b/f 185,000 Member's funds as the first day of the BP 1,557,000 8% of member's funds 124,560 SOLUTION 3(a) (10 marks) The issue is whether the sum paid is capital or revenue in nature and if revenue in nature whether it is deductible for the purposes of the Income Tax Act 1967 (as amended). The payment would have been capital and therefore not allowable for the purposes of the Income Tax Act 1967 (as amended) if it is connected with the closing down of the business. However in this case, the retrenchment was undertaken as part of an attempt cut costs and to remain in business. It is therefore an expense wholly and exclusively incurred in the production of gross income and the company is entitled to the deduction under section 33(1) of the Income Tax Act 1967 (as amended). There is sufficient support for this line of thinking in the decision of Ampat Tin Dredging Ltd v DGIR and IRC v Patrick Thompson Ltd. (5 marks) SOLUTION 3(b) It is a loss that arose out of the defalcation of the director. In other words, amount is an embezzlement of funds by an officer of the company who has some control over the operations and administration of the business. This is therefore not an expense wholly and exclusively incurred in the production of gross income within the meaning of section 33. It should be disallowed in arriving at the adjusted income of the company. There is support for this treatment in the case of Curtis v J&G Oldfield Ltd. (5 marks)

6 6 TAX SEPTEMBER 2017 SOLUTION 4 A. Computation of income tax payable for Encik Badrul and Puan Sofia under separate assesement for YA 2016 Section 4 a Business 1() Business 2() Business income Gross income less Deductibe expenses Adjusted income NIL 80,000 add Balancing charge 1,800-1,800 80,000 Encik Badrul Puan Sofia (1,800) (8,000) less Capital allowances c/f 1,000 Statutory income NIL 72,000 72,000 UNABSORBED LOSS B/F NIL (5,000) 67,000 Section 4 b Employment Income 220,000 Section 13(1)(a)Salary 145,200 Employers provident fund (EPF) 19,800 Personal gift computer 3, ,000 Section 13(1)(c) Hotel accomodation 3% x Section 13(1)(a) 3% x 168,000x1/ Gross employment income/adjusted/statutory 168,420 income 287,000 Section 4 c: Dividend and Interest income Dynamic Bhd Exempted NIL Aloyy Sdn Bhd (Pioneer S) Exempted NIL Amanah Saham Wawasan Exempted NIL Interest Exempted NIL - Taman Taman Section 4d: Rental income Cahaya Desa Rental 24,000 36,000

7 7 TAX SEPTEMBER 2017 Air Cond. NQ Q R & A (1,600) (2,000) Repairs (4,000) (3,000) Adjusted Rental Income 18,400 31,000 49,400 AGGREGATE INCOME 336, ,420 CURRENT YEAR BUSINESS LOSS (20,000) DONATIONS to APPROVED INSTITUTIONS Cash (restricted to 7% of aggregate income) (2,000) Benefits in kind - books (NIL) TOTAL INCOME 314, ,420 Less RELIEF Self 9,000 9,000 Employers provident fund (EPF)/life insurance 6,000 6,000 Books Internet subscription 2500 Parents Medical Expenses 2,379 Full Medical Check up Computer Books 2,200 Child-Yusmira NQ Ariel 8,000 Delima 2,000 Medical/Education 3,000 1,738 Medical Expenses-Children NQ TAXABLE INCOME 281, ,798 COMPUTATION OF TAX 281,321 On the first 250,000 31,321 47,900 11,900 On the next 47,900 7, ,798@24% TAX CHARGED 55, , LessZakat 40,000 TAX PAYABLE/(REFUNDABLE) 15, , (14 marks) B. a. A taxable person means any person who is registered under sec 2 GST Act Persons include an individual, sole-proprietor, partnership, company, trustee, society, trade union, club and association. (1 mark)

8 8 TAX SEPTEMBER 2017 b. Titi Tinggi Sdn Bhd Transaction Value () GST() i) Supplied tinted glasses 6% x 400,000 24,000 ii) Rental of forklift 6% x 10, iii) Disposal of tables 6% x 3, iv) Cash rewards nil nil Total output tax 24,780 Less: input tax (18,000) GST payable 6,780 (5 marks) SOLUTION 5 A. Deceased Executor R / D [6/12] R [6/12] Adjusted income 160,000 (+) balancing charge 2,000 (-) capital allowance (18,000) Statutory income 144,000 72,000 72,000 Dividend (exempt) Nil - Interest - 10,000 Royalty (exempt) Nil Adjusted rental income 8,000 12,000 Aggregate income 80,000 94,000 less: Approved donation (restricted to 7% of AI) (5,600) - Annuity payable - (20,400) Total income 74,400 73,600 less: self relief/special relief (9,000) (9,000) child relief (2,000 x 2) (4,000) - Chargeable income 61,400 64,600 Tax charge scale rate on the 1 st 50,000 2,400 2,400 On the next 11,400 x16% 1,824 2,336 /14,600 x 16% 4,736 Income tax payable 4,224 4,736 (10 marks)

9 9 TAX SEPTEMBER 2017 B. a. Interest paid to Bank of Thailand i. Interest of 320,000 is subject to withholding tax as the payment is deemed to be derived from Malaysia as the responsibility of payment lies with a person who is resident in Malaysia and the money borrowed to finance the project in Malaysia. ii. Interest of 480,000 is not subject to withholding tax as the money borrowed to finance the project outside Malaysia. Rental of plant and machinery The 440,000 payment is subject to withholding tax under sec. 4A(iii) special classes of income. It is deemed to be derived from Malaysia as the responsibility of payment lies with a person who is resident in Malaysia paid to a non-resident recipient and the project is in Malaysia. Supply of materials The 3,900,000 payment is not subject to withholding tax as it is related to the purchase of materials and not related to services rendered. Technical advice The 270,000 payment is not subject to withholding tax because the services rendered outside Malaysia. (video conference) Public entertainer remuneration The 70,000 paid to a non-resident public entertainer to perform in Kedah, Malaysia is subject to withholding tax under s 109A. it is deemed to be derived from Malaysia because the employment is exercised in Malaysia. The 100,000 paid to a non-resident public entertainer to perform in Bangkok, Thailand is not subject to withholding tax under s 109 because the performance was not performed in Malaysia. (8 marks) ii. Tax implications: A penalty of 10% will be imposed on the payer if the company failed to pay the amount of withholding tax to the tax authorities within 1 month after crediting or paying the interest amount to the non-resident. Since TP Sdn Bhd paid the WHT on 28 August 2016; the following will be the debt due by TP Sdn Bhd. Interest paid 320,000 ====== 15% 48,000 Add: 10% x 48,000 4, Debt due to the tax authority 52,800 ======= (2 marks) Total: 20 marks

10 10 TAX SEPTEMBER 2017 SOLUTION 6 A. Investment Tax Allowance QCE: Factory bulding 2,220,000 - Plant and machinery 260,000 1,600,000 Total QCE 2,480,000 1,600,000 60%x QCE 1,488, ,000 ITA b/f - 1,488,000 ITA available 1,488, ,000 Total ITA available 1,488,000 2,448,000 Less: ITA utilized Nil (1,162,000) Unutilised ITA c/f 1,488,000 1,286,000 Adjusted Income 300,000 2,000,000 Add: Balancing Charge 30,000 Less: CA b/f - (40,000) CA c/y (330,000) (300,000) Statutory income Nil 1,660,000 Less: ITA 70%x SI Nil (1,162,000) Statutory income after abatement Nil 498,000 Less: Unabsorbed business Nil (120,000) losses b/f Total/Chargeable income Nil 378,000 Amount credited to the exempt Nil 1,162,000 income a/c Pioneer Status Adjusted Income 300,000 2,000,000 Add: Balancing Charge 30,000 Less: CA b/f - (40,000) CA c/y (330,000) (300,000) Statutory income Nil 1,660,000 Less: 70%x SI Nil (1,162,000) Total/Chargeable income Nil 498,000 Exempt income account: 70% x SI Nil 1,162,000 Less: Unabsorbed business Nil (120,000) losses b/f Amount credited to the exempt income account Nil 1,042,000 (8 marks)

11 11 TAX SEPTEMBER 2017 ii. Decision: Investment incentives Chargeable Income Exempt Income account Pioneer status 498,000 1,042,000 Investment Tax Allowances 378,000 1,162,000 Kelly Castle Sdn Bhd should apply for Investment Tax Allowances since the amount of chargeable income is lower while the amount of exempt income account is higher compared to Pioneer Status Incentives. (2 marks) (Total marks: 10 marks)