CONFIDENTIAL & ACIMAR 2005/TAX320 - UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE 1 TAXATION 1 COURSE CODE > TAX320 DATE : 7 APRIL 2005 3 HOURS (2.15 P.M. - 5.15 P.M.) NOVEMBER 2004 — APRIL 2005 INSTRUCTIONS TO CANDIDATES 1 ‘Answer ALL questions. 2. Start each answer on a new page. 3a Do not bring any material into the examination room unless permission is given by the Invigliator. 4, Please check to make sure that this examination pack consists of: i) the Question Paper fan Answer Bookiet ~ provided by the Faculty a one-page Appendix 1 (Income Tax Rate Table) a two-page Appendix 2 (Benefit in Kind Guidelines) a one-page Appendix 3 (Capital Allowance Rate for Plant & Machinery) DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO D0 SO This examination paper consisis of 9 printed pages ‘GHak Cipta Universit Teknotog! MARA. CONFIDENTIAL COPYRIGHT © UiTMCONFIDENTIAL 2 AC/MAR 2005/TAX320 QUESTION 1 (@) Encik Amirul has just completed his income tax return for year of assessment 2004. He informs you that he did not include the taxable dividend income received by him during the year amounting to RM8,000. Encik Amirul said under self-assessment system, taxpayer is required to compute their own tax payable. So he has the right not to declare the dividend received in his income tax return, Required: Advice Encik Amirul whether his action of omitting the dividend received from his income tax retum is an offence. State four (4) other offences whether a taxpayer can be prosecuted under Section 114 of ITA 1967. (6 marks) (b) One of the methods of collecting payment of tax is through the Schedular Tax Deduction System. Briefly explain the meaning of the system. (4 marks) (©) Encik Kamri, a Thai national, arrived in Malaysia on 11 March 1999 and intends to leave Malaysia permanently on 31 August 2004. Details of his stay in Malaysia are as follows: Year Date 1999 11 March to 6 September 2000 4 July to 31 December 2001 1 January to 5 January 2002 3 June to 21 August 1 September to 10 October 2003 1 April to 10 April 2004 2 February to 30 June 80 July to 30 August Left Malaysia permanently on 31 August at noon Encik Kamri remitted to Malaysia foreign income of RM8,000 in 1999 and RM20,000 in 2002. Required: i) Determine the resident status of Encik Kamri for all the relevant years and quote the relevant sub-section(s). (7 marks) ii) State with reasons whether or not the foreign income remitted to Malaysia is ‘subject to Malaysian tax. (2marks) (© Hok Cipta Univeral Teknologi MARA CONFIDENTIAL COPYRIGHT © UiTMCONFIDENTIAL, 3 ACIMAR 2005/TAX320 iil) Differentiate the scope of charge for a resident and a non resident individual tax payer as specified under Section 3 of ITA 1967, for year of assessment 2004. (3 marks) (Total: 21 marks) QUESTION 2 Encik Salim is the owner of SALIM Enterprise, which sells kitchen utensils in Johor Bharu. The following is the Trading, Profit and Loss Account for the year ended 31 December 2004. ‘SALIM Enterprise ‘Trading, Profit and Loss Account for the year ended 31 December 2004 Note RM RM Sales 1,350,000 Less: Cost of goods sold 1 "780,000 Gross profit 570,000 Add: Other income 2 65,000 635,000 Less: Operating expenses Advertising 29,000 ‘Telephone 3 25,400 Water and electricity 4 4,300 Interest on loan 5 5,250 Fees 6 18,300 Repairs and maintenance 7 25,400 Entertainments 8 18,350 Remuneration 9 255,600 Provisions for bad debis 40 12,850 General expenses 9,870 Depreciation 7,300 Donations n 23,300 Purchase of computer 11,800 446,720 Net profit before taxation “188,260 Notes: 4 Included in the cost of goods sold was RM4,500 of goods taken by his wife for her own use. The market value of the goods was RM5,000. 2. Other income consists of: a) Compensations amounted to RM18,000 was paid by an insurance company, due to damage on the computers used in the business. {© Hak Cipta Universiti Teknologh MARA CONFIDENTIAL COPYRIGHT © UiTMCONFIDENTIAL, 4 AC/MAR 2005/TAX320 b) Compensation for damaged stock RMS0,000 was paid by insurance ‘company. ©) Gain on disposal of motorcar amounting to RM17,000. Balancing charge on the disposal was RM8,400. 3. It was agreed by the Inland Revenue Board (IRB) that 1/5 of the telephone bills was for personal use. 4. Water and electricity is related to the doubled storey shop lot. It was agreed that haif (1/2) of the expenses was used by Encik Salim and his family. 5. Interest pald.was based on a loan taken to purchase a doubled storey shop lot. His family occupied the first floor.and the ground floor was used for the business. 6. Fees consist of : RM Fees for income tax appeal 2,500 Fees for employee's training 4,200 Fire insurance for the shop house 9,100 Fees for bad debt recovery 2,500 7. Repairs and maintenance consist of: ‘Changing damaged tiles of the ground floor Repair of the business computer Renovation of the ground floor 8. _ Entertainments consist of: Special gifts to customers Family day for employees Diaries with business logo to customers Employees holiday trip to Singapore 9. Remuneration consists of: Encik Salim’s salary Staff salaries Staff bonuses EPF contributions (employees) 255,600 (© Hak Cipta Universiti Teknolog! MARA CONFIDENTIAL COPYRIGHT © UiTMCONFIDENTIAL, 5 ACIMAR 2005/TAX320 10. Included in the provision for bad debts are provision for generat bad debts of RMB,200 and specific bad debts of RM6,000. Included in the bad debts recovered ‘was recovery of non-trade debts of RM2,500. 11. Donations consist of: Donation to old folks home (approved) Contributions to public library Business zakat 12, Capital allowances for the year of assessment 2004 amounted to RM4,800. Required: Compute the statutory business income of SALIM Enterprise for the year of assessment 2004, (19 marks) QUESTION 3 Puan Sukami is an accountant, with Focus Sdn Bhd since September 1, 1993. On 30 June 2004 her employment was terminated due to disagreement with the management of the ‘company. During the period from 1 January to 30 June 2004, she received salary amounting FRM28,000 and RMS7,000 as compensation for loss of employment. She was also paid gratuity of RM72,000. Other benefits received from the company are as follows: RM Traveling allowance 300 per month Leave passage: Japan 5,000 China (includes 2 family members) 7,900 Langkawi 2,500 ‘She was also provided with a car (including fuel) costing RM125,000 which was bought in December 2000. ‘Three months after resignation from Focus Sdn Bhd (on 1 October 2004), Puan Sukarni was appointed as Senior Accountant at DOCH Bhd, a housing development company. As a ‘Senior Accountant, she was offered with the following remuneration and benefits: 1. Monthly salary of RM10,800 (gross). 2. Entertainment allowance and traveling allowance of RM1,000 each. ‘© Hak Cipte Universiti Teknotogl MARA CONFIDENTIAL, COPYRIGHT © UiTMCONFIDENTIAL, 6 ACIMAR 2005/TAX320 3. A fully furnished accommodation. The monthly rental paid by employer is RM4,000 (including the rental of furniture of RM1,200). The IRB agreed that the benefit in kind for the furniture is RM280. Puan Sukami has to pay RM800 per month to her employer for the accommodation provided. 4. Asix years old Mercedes car was provided to Puan Sukami together with fuel. The cost of the car was RM130,000. A driver was also provided and the company paid FM800 per month as salary of the driver. 5. Puan Sukami was also provided with a domestic servant and a gardener. Both of them were paid by the company with monthly salary of RM550 and RM580 respectively. During her service in DOCH Bhd, she incurred entertainment expenses of RMS5,700 to entertain the company’s clients and traveling expenses amounting to RM4,100 for official purpose. Puan Sukami was given an option to purchase 2,000 units of the company’s shares at a price of RM2.00 per share on 1 November 2004, which has the market value of RM3.00 per share. She exercises the option in December 2004 when the market value was RM3.75 per share. Required: Determine the adjusted and statutory income from employment of Puan Sukarni for the year of assessment 2004. (15 marks) QUESTION 4 (@) Encik Low runs_a printing business under the name of Low Printing and Stationary Enterprise. His business accounting period ends on 31 December each year. The following refers to the assets of Low Printing and Stationary Enterprise as stated in its fixed assets register on 1 January 2003. ‘Assets Cost | Date of Purchase | Annual Allowance (RM) Rate Wotorcar 760,000 | 7 January 2001 20% Van 80,000 15 May 2001 20% ‘Computer 34,000 | 1 September 2001 40% Printing machine 120,000 T April 2007 20% © Hak Cipta Universiti Teknologi MARA. CONFIDENTIAL COPYRIGHT © UiTMCONFIDENTIAL, 7 ACIMAR 2005/TAX320 4. The motorcar was not licensed as commercial vehicle. It was originally bought for Encik Low's private use and was later brought into the business in August 2002. The market value of the car was RM125,000 and the book value was RM128,000 on the date of transfer. 2. The van was used to transport completed printed materials to customers: Encik Low occasionally used the van for his own private use. It was agreed by the Inland Revenue Board that 1/10 of the van's usage was for private purpose. 3. The computer was purchased under a hire purchase scheme. The following was the details of the hire purchase: Hire purchase price RM40,000 Cash price RM34,000 Deposit RM10,000 (paid on 1 September 2001) Monthly instalment RM1,500 (1* instalment begins on 1 October 2001) instalment is paid on the 1% of every month. ‘The computer was traded-in on 1 April 2004 with another computer cost M50, 000 and the trade-in value of the old computer was RM10,000. 4. The printing machine was installed in 2001. The installation cost was RM20,000 of which RM15,000 was for site preparation. The installation cost ‘was included in the cost price in the fixed asset register. Required: Compute the capital allowance, balancing charge andior balancing allowance for all the Televant years of assessment up to the year of assessment 2004. (18 marks) (b) State the conditions that must be fulfilled to enable a person to claim annual allowance for plant and machinery. (3 marks) (Total 21 matks) © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL COPYRIGHT © UiTMCONFIDENTIAL, 8 ACIMAR 2005/TAX320 QUESTION 5 The following information is related to Encik Muneer Ali, a sole proprietor who is resident in Malaysia for tax purposes in the basis year for the year of assessment 2004, Business A: RM Business income 102,000 Capital allowance 30,000 Balancing charge 18,000 Business loss brought forward from year of assessment 2003 43,500 Current year business losses - Business B 5,000 Income from employment (parttime job as lecturer) 88,500 Dividend (gross) from Malaysian resident company 5,200 Interest from Maybank on fixed deposit (RM100,000) 2,750 Interest from Bank Bumiputera (net of 5% withholding tax) 1,500 Foreign income (RM7,000 remitted to Malaysia) 45,000 Encik Muneer is married to Puan Kamsiah (disabled) who is employed as an account executive in Global Sdn Bhd. Her employment income received during the year 2004 was RM64,000. Puan Kamsiah owns @ house in Bandar Tasik Puteri. She rented the house since January 2004. Rental received and expenses incurred for basis year 2004 are as follows: Income: Rental — RM900 per month Deposit —RM2,700 (refundable) Expenses: Repairs and maintenance RM1,200 Quit rent 300 Assessment rate 480 Interest on loan 120 per month (starting February 2004) Renovation of car porch 3,000 Advertising to find tenant 200 Encik Munner and wife have five (5) children: Mubiran - age 25, married and studying in Universiti Kebangsaan Malaysia. Amount spent RM10,000 per annum. Muri - age 28, single and studying in Universiti Teknologi Malaysia. Amount spent FIM12,000 per annum. © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL COPYRIGHT © UiTMCONFIDENTIAL 9 AGIMAR 2005/TAX320 Mumtaz - age 19, single and studying in Adelaide University, Australia. Amount spent RM25,000 per annum Mumtaza- age 16 and studying at Sekolah Menegah Kebangsaan Intan Payung. His parents paid RM 3,200 for his schooling. Kamatia age 6 (physically disabled) Puan Kamsiah makes an election to claim all the child relief. During the year Encik Muneer and his wife made the following donations: Encik Muneer Cash donation to charitable institution (approved) RM2,300 ‘Computer to welfare institution (approved) RM5,000 Cash donation to politcal party RM2,000 Puan Kamsiah Cash donation (approved) RM1,500 Encik Muneer paid RM2,900 to his life insurance policy. He also paid a premium of RM 4,000 for Kamialia’s education insurance policy and another RM2,800 premium for medical insurance policy. Other expenses paid by Encik Muneer and his wife: Encik Muneer A payment of RM8,500 of medical expenses for his parents’ treatments in specialist hospital (RM2,700 for his mother's treatment and RM5,800 for his father's treatment who suffered serious disease). The payments were supported with receipts. Bought a wheel chair for his daughter, Kamalia, cost RM5,700. Encik Muneer paid RM1,400 as zakat and during the year he bought a personal computer cost RM5,200 for family usage. Puan Kamsiah ‘A payment of RM6,000, for her parent's treatment during the year. However she can only produce the official receipts of RM5,520. Required: Compute the tax payable (if any) by Encik Muneer and his wife for the year of assessment 2004, (24 marks) END OF QUESTION PAPER (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL COPYRIGHT © UiTMCONFIDENTIAL APPENDIX 1 (1) ACIMAR 2005/TAX320 THE TAX RATES APPLICABLE WITH EFFECT FROM YA 2002 Chargeable Income (RM) Rate (%) Tax Payable (RM) On the first 2,500 Q 0 ‘On the next 1 25 On the first 2 On the next 3 150 On the first 175 ‘On the next 3 300 On the first 20,000 475 On the next 16,000 7 1,050 On the first 35,000 1,525 On the next 48,000 13 1,950 On the first 50,000 3,475 On the next 20,000 19 3,800 On the first 70,000 7,275 On the next 30,000 24 7,200 ‘On the first 100,000 14,475 On the next 50,000 27 13,500 On the first 150,000 27,975 On the next 100,000 a7 27,000 On the first 54,975 Above 250,000 28 ~ Selected Personal Deductions RM Seif 8,000 Wite/husband 3,000 Child — basie 1,000 Life insurance and approved schemes 5,000 maximum © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL. COPYRIGHT © UiTMCONFIDENTIAL, APPENDIX 2 (1) ACIMAR 2005/TAX320 TAXABLE VALUE OF MOTOR VEHICLES PROVIDED BY EMPLOYER New Vehicies Costing Annual Value Fuel (per annum) RM RM RM 50,000 and below 1,200 600 50,001 - 7,000 2,400 900 75,001 100,000 3,600 1,200 100,001 - 150,000 5,000 1,500 150,001 200,000 7,000 1,800 200,001 - 250,000 9,000 2,100 250,001 - 350,000 15,000 2,400 350,001 = 500,000 21,250 2,700 500,001 and above 25,000 3,000 Others ‘Types of BIK Annual value of BIK Mobile telephone (rental and charges) mo Gardener/driver 3,600 Domestic servant 4,800 Hak Cipta Universiti Teknotogh MARA CONFIDENTIAL, COPYRIGHT © UiTMCONFIDENTIAL, APPENDIX 2 (2) ACIMAR 2005/TAX320 PRESCRIBED AVERAGE LIFE SPAN Prescribed Asset average life span (1) Motor car 8 years (2) Furniture and fittings: Curtains, carpets 5 years Furniture, sewing machine 15 years Air-conditioner 8 years Refrigerator 10 years (3) Kitchen equipment (i.e. crockery, rice cooker, electric kettle, toaster, coffee-maker, gas cooker, dryer, food processor, etc) 6 years (4) Entertainment and Recreation Piano 20 years Organ 10 years Colour television, video player, stereo set 7 years Swimming poo! (detachable), sauna 16 years (®) Miscellaneous Mobile telephone 10 years VALUE OF BENEFITS () _ Semi-fumished with fumiture in the lounge, )_ RM70 per month dinning room, or bedrooms ) (RM840.per annum) (i) Semi-fumished with furniture as in (i) above and one or more of the following: Air-contitioners ) RMA40 per month Curtains ) (RIM1,680 per annum) Carpets ) (ii) Fully-furnished with benefits as in (i) and ) M280 per month (above plus one of more of kitchen 3 (RM3,360 per annum) ‘equipment, crockery, utensils and appliances (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL, COPYRIGHT © UiTMCONFIDENTIAL APPENDIX 3 (1) ACIMAR 2005/TAX320 Capital Allowances ~ Plant and machinery Assets Annual allowance rates Computers, information technology equipment and computer software 40% Motor vehicles, heavy machinery 20% Plant and machinery — general 14% Office equipment, furniture and fitings 10% @ Hak Cipta Universiti Teknologi MARA CONFIDENTIAL COPYRIGHT © UiTM