Answer 1 Menara Manufacturing Sdn Bhd Tax computation for the year of assessment 2016 Add (+) Deduct(-) Note 000 000 000 Business income Profit before taxation 232,850 Cost of sales Less: Dividends-single tier (local) 1 25 Dividend (foreign) 20 Interest received from trade debtors 2 40 Insurance recovery 3 85 232,765 Add/(Less): Salaries and wages 4 Director's salary EPF (rest: [84 - (19% of 384k)] [84-72.96] 11 Overseas trip for director 32 Loan interest Interest on loan for investment 5 38 Interest on loan for working capital Entertainment 6 Company annual dinner Staff disbursement (Disallow 50% of 174k) 87 Promotion Depreciation 119 Repairs and maintenance 7 Extending the showroom 273 Other repairs Bad and doubtful debts 8 Bad debts written off General bad debts provision 400 Specific loan debts provision 208 Bad debts (advance to customer w/off) 30 Bad debts (advance to supplier w/off) 56 Motor vehicle expenses 9 Compound and fines 20 Other maintenance charges Lease payments 10 Car [150k-50k max] 100 Machine 1
Advertisement and publicity 11 Advertisement in local dailies Free gift to customers on festive occasions Ded.for proprietary rights (20% of 600k) 120 Advertising -patented product (DD) 151 Professional fees 12 Termination of supply contract Guarantee fee for loan 25 Lease agreement New supply contract Secretarial fees[10k - 5k max) 5 Tax filing fees [18k-10k] 8 GST appeal 15 Transfer pricing audit run 50 Insurance 13 Local insurance-cargo import (DD) Foreign insurance-cargo export Insurance-company assets Foreign exchange loss 14 Realized loss- stock imports Realized loss-machinery spare parts Unrealized loss-machine 18 Proprietary rights Donation 15 Cash to the Selangor State Government TAX MARCH 2017 200 1695 271 232,765 Add: 1,695 234,460 Less: 271 234,189 Adjusted income from business Less: Capital allowance Capital allowance on business assets 46,024 Statutory business income 188,165 Add: Other income Dividends (local - single tier) Dividend (foreign - exempted) Interest received from debtors [Sec 4(c)] 40 40 188,205 Less: Donation Cash donation to the Selangor State Government 200 2
Total income and chargeable income 188,005 51 = 20 marks Answer 2(a) Disposal price Consideration received 322,000 Less: Permitted expenses Cost of enhancement 34,410 Legal fees -defending title 7,000 41,410 280,590 Less: Incidental cost of disposal Valuation fees 4,995 Brokerage 6,993 Advertisement 888 12,876 Disposal price (a) 267,714 Acquisition price Consideration paid 249,750 Add: Incidental expenses Stamp duty on transfer 3,885 Legal fees 2,089 Interest Nil 5,974 255,724 Less: Para 4(1) receipts Compensation received 22,000 Insurance recoveries 10,989 Deposit forfeited 6,000 38,989 Acquisition price (b) 216,735 Chargeable gain [(a) - (b)] 50,979 Less: Para 2 Sch 4 Exemption: Higher of 10,000; or 10,000 10% of chargeable gain 5,098 10,000 Chargeable gain after exemption 40,979 20 = 10 marks 3
Answer 2 (b) MGR Holdings Sdn Bhd Year of assessment 2016 Interest 80,000 Rent from a retail lot 65,000 Less: Expenses Prop of interest expenses 50,000 x 850,000/3,300,000 12,879 Quit rent and assessment 2,568 15,447 49,553 Dividends - single tier Investment 1 0 Investment 2 0 0 Aggregate of statutory income 129,553 Less: Fraction of permitted expenses 7,250 Total income and chargeable income 97,215 Income tax Income tax 97,215 at 24% 23,331.60 Fraction of permitted expenses allowable A x [B / (4 x C)] 243,937 x [145,000 /(4 x 361,840] 24,438 Or 5% of gross income chargeable to income tax 7,250 [ 5% x 145,000] Lower of the two 7,250 MGR Holdings Sdn Bhd Computation of permitted fraction Permitted expenses Director's remuneration Employee's salary Accounting and secretarial fee Audit fee Printing and stationary Management expenses Office rent 4 64,223 38,534 12,847 25,688 2,568 35,963 64,114 243,937 A
Gross income chargeable to tax Interest Rent Gross income chargeable to tax 80,000 65,000 145,000 B Gross income whether chargeable or not and gains from realization of investments Interest Rent Gain from realization of investment Dividend-investment 1 Dividend-investment 2 80,000 65,000 C 100,000 21,840 95,000 361,840 32 =10 marks Answer 3(a) The issue is whether the sum is merely a provision or an accrued liability. In this case while the sum is not immediately payable to the employee at the time the provision is made in the accounts, it is nevertheless an entitlement that accrues to the employee, barring some unfortunate instances. The company is under an obligation to pay the money to the staff at the time of retirement (that being the attractiveness of the scheme to the staff), and the fact that the money was not paid in the relevant year the provision is made is not relevant The bottom line is that the incentive was conceived as a commercially expedient solution to overcome a serious business problem of retaining the talents of a very mobile staff in an internationally competitive environment. 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 Exxon Chemical (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri. The case of Lo & Lo v CIR could also be useful. (5 marks) 5
Answer 3(b) The amount would be deductible if it falls within the meaning of section 39(1) (g) of the Income Tax Act 1967 (as amended) i.e. it is a payment payable to the State Government or with the approval of the Minister, it is payable to a statutory authority or other body the capital or fund of which is wholly or substantially owned by a State Government or statutory authority, for the use of a license or permit to extract timber from a forest in Malaysia. However this agreement has specified two sets of payment. The first payment is an upfront payment of 20 million payable immediately upon signing of the agreement; and the second part being an installment payment to be paid in equal installment over a period of ten years. It would appear that the upfront payment of 20 million would be a capital payment securing the right to the extraction of the timber from the State Government land. In that case, being capital in nature, it may not qualify for a deduction in arriving at the adjusted income. The balance payable by installment over the ten years appears to be a payment for the timber extracted; furthermore, the condition that should the specified tonnage of timber is not extracted within the specified period there will be no refund for the balance of the tonnage not extracted lends weight to the possibility that the payment of the 60 million is tied to the extraction logs and as such would qualify as a revenue expenditure wholly and exclusively incurred in the production of gross income. There is support for this line of thinking in the case of Piramid Intan Sdn Bhd v Ketua Pengarah HDN. SOLUTION 4 Computation of Income Tax Payable for YA 2016 S4(a) Business in Ampang AI 38,000/ + BC 8,000/ - CA (14,000)/ Randall Ashmita SI 32,000 Business in Vietnam Section 13(1)(a)/ Salary (30,000 + 1,000) x 9/ 279,000// months) bonus 31,000/ Reimbursement of taxi fares Reimbursement of medical expenses Service excellence award 10,000 Less: Exempt (para 25C, Sch 6) (2,000) 8,000/ 6
318,000 Section 13 (1)(b)/ Furnishing (280 x 9) 2,520/ Entrance fees- corporate membership Monthly subscription (400 x 9) 3,600/ Leave passage (4,200 1,200/ 3,000)/ Hotel for family 4,580/ 11,900 Section 13 (1)(c )/ Living accommodation 30% x Section 13(1)(a)(30%/ x 95,400// 318,000)/ Defined value (5,500 500) x 9/ 45,000// Whichever is lower/ 45,000 Gross employment income 374,900 Rent paid by Randall (5,000 x 9) x (3,682)// (450 x 9) (5,500 x 9) TAX MARCH 2017 S 4(c) Interest income (Public Bank) Dividend (single tier) (-) interest on loan (300 280) x 11 S 4(d) Rental income (1,500 x 3) Jan - 4,500/ March Rental income (1,600 x 6) 9,600/ -) Fire insurance (110 x 12) (1,320)/ Interest on loan (150 x 12) (1,800)/ Installation of kitchen cabinet Repairs of broken window (500)/ Quit rent (350)/ 10,130 10,130 Aggregate income/ 371,218 42,130 Less: Cash donation (2,000)/ (3,000)/ Hamper Total income/ 369,218 39,130 Less: Relief Personal / (9,000)/ (9,000)/ 7
Child relief: Sharon Bishop 2,000/ TAX MARCH 2017 Medical examination 500/ Computer 3,000/ Sport equipment 300/ Life insurance Randall 1,800/ Books and magazine 1,000/ Chargeable income/ 354,618 27,130 First 150,000 47,900/ 150/ Next 204,618@24.5 50,131/ 356.50/ Income tax payable / (own figure) 98,031 506.50 Less: Rebate - - (400)/ Net income tax payable 98,031/ 106.50/ SOLUTION 5 (/60 x 1/3 = 20 marks) A. Provisional Adjusted Income 480,000/ Less: Salary per annum Salima 90,000 Farhani 75,000 Alisya 60,000 Interest on Capital 225,000/ Salima (7% x 210,000 x 9/12) + (8% x 210,000 x 3/12) 15,225// Farhani (7% x 180,000 x 9/12) 9,450/ Alisya (7% x 150,000 x 9/12) + (8% x 150,000 x 3/12) 10,875// 8 35,550 Partners private expenses Salima 11,000 Farhani 10,000 Alisya 8,450 29,450/ Divisible Income 190,000 /
Divisible income (Jan Sept) 142,500 Divisible income (Oct Dec) 47,500 Salima 47,500/ Farhani Alisya 47,500/ 47,500/ 23,750/ 23,750/ Salary 90,000/ 75,000/ 60,000/ Interest on capital 15,225/ 9,450/ 10,875/ Partners Private Expenses 11,000/ 10,000/ 8,450/ Adjusted Income/ 187,475 141,950 150,575 Less: Capital Allowance (4,000)/ (4,000)/ SI/Aggregate Income/ 183,475 141,950 146,575 Less: Donation (3,000)/ (3,000)/ (3,000)/ Total Income 180,475 138,950 143,575 (30 / x 1/3 = 10 marks) B. a) As a GST registered trader, Tan Enterprise must charge output tax on all taxable supplies made to its customers, whether the customers are GST registered or not. Therefore, Tan Enterprise must charge GST to each of Beng Ho Sdn Bhd, Mail and Simon & Co as all the goods supplied were taxable goods. / (1 mark) The GST output tax chargeable is: Beng Ho Sdn Bhd (15,000 x 6%) 900/ Azlan (2,000 x 6%) 120/ Simon & Co (6,000 x 6%) 360/ 1,380/ (/ x 1 mark each = 4 marks) b) Tan Enterprise eligible to claim the input tax of 720/ on the purchase and it can be claimed in the GST return for November 2016/, the month the invoice is received from Alberto Sdn Bhd. (/ 2x ½ mark = 1 mark) (Total: 15 marks) 9
Solution 6 A. Kerisik Sdn Bhd and Kelapa Muda Sdn Bhd qualify/ for group relief because: B. a) They are both resident in Malaysia and incorporated in Malaysia/ b) They are related companies as defined, as they are 100% (more than the minimum 70% ) held by a third company which is resident in Malaysia./ c) They have been related companies throughout the basis period for the current year of assessment and for the immediately preceding 12 months./ d) They each have a paid up ordinary share capital of 20 million, greater than /stipulated minimum threshold of 2.5 million at the beginning of the basis period. e) They have a 12 month basis period ending on the same day, 31 December./ f) They have current year business loss and defined aggregate income./ g) Neither company has enjoyed any tax incentives./ i. Computation of withholding tax and penalties The amount of withholding tax and penalties payable by PSB to IRB Payment to BPL on: WHT Penalty (/ x ½ = 4 marks) 1 May 2016 Installation fees 10% / x 150,000 = 15,000 10% x 15,000 = 1,500 1 May 2016 Technical services 1 st instalment 10% / x 375,000 = 37,500 10% / x 37,500/ = 3,750 1 June 2016 Technical services 10% / x 375,000 = 37,500 Total payable to IRB = 93,750/ (8 / x ½ =4 marks) 10
C. a. Year of Assessment 2017 2018 2019 Total 000 000 000 000 SI Nil Nil 5,300 Less: Nil Nil (3,710) 70% of SI/ Deemed TI/ Nil Nil 1,590 Interest 80 80 80 Agg Income/ 80 80 1,670 Less: Nil Nil (8)/ Donation/ (restricted to 10%/ of AI Chargeable Income/ 80 80 1,662 1,822 Exempt Income Account: 70% of SI/ (-) Pioneer loss b/f Nil (c/f 900) Nil (c/f 1,100) 3,710 (1,100)/ [900+200] To EIA Nil Nil 2,610/ 2,610 (/10 x ½ = 5 marks) b. If Tropicana Sdn Bhd is to be located in Kelantan instead of Melaka, it will lower/ the chargeable income of the company since the exemption is 100%/, thus, lower the income tax/ payable and the amount credited to tax exempt income account will be higher/. (/ 4x ½ = 2 marks) (Total : 15 marks) END OF SOLUTION 11