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CONFIDENTIAL 1 MIA QE MARCH 2012

QUESTION 1

Add (+) Deduct(-)


Set 4(a) Note RM’000 RM’000 RM’000
Business income
Profit before taxation √ 103,133
Cost of sales
Less:
Dividends 1 √5
Interest –
Late payment √Nil
FD interest 2 √4
Rent 3 √90
Insurance recovery (keyman policy on director) 4 √ 36
Insurance recovery of fixed assets 4 √ Nil
Insurance recovery (stocks) 4 √0 (135)
102,998
Add/Less:
Salaries and wages 5
Disabled employees √ 24
Interest on borrowings for investment 6 √3
Interest for working capital √ Nil
Late payment charges for goods √ Nil
Entertainment 7
Company annual dinner √ Nil
Entertainment expenditure disbursement √ 90
Family day √ Nil
Entertainment expenditure wholly for sales √ Nil
Depreciation √ 609
Repair and maintenance 8 √ Nil
Bad and doubtful debts 9
Bad debts written off √ Nil
General bad debts provision √ 987
Specific provision √ Nil
Motor vehicle expenses 10
Repairs and maintenance √ Nil
Compound and fines √ 30
Lease charges
Trailer √ Nil
Motor car (max= RM50,000) √ 15
Advertisement (billboards) 11 √ 800
Others √Nil
Professional fees 12
Termination of supply contract √ Nil
Bad debts recovery √ Nil
Lease arrangement for motor vehicles √ Nil
Promotion expenses √ Nil
CONFIDENTIAL 2 MIA QE MARCH 2012

Insurance 14
Key man policy (endowment) √2
Key man policy (life) √Nil
Marine insurance of cargo import √5
Others √ Nil
Foreign exchange loss 15
Unrealized loss √3
Realized loss √ Nil
Donation -library facilities 16 √ Nil
Library facilities √5
Other donations √5
2,549 29 102,998
Add √ 2,549
105,547
Less √ (29)
Adjusted income from business 105,518
Less: Capital allowance √ (640)
Statutory income 104,878
Add: Other income
Dividend - deemed total income (see below) √ Nil
Interest - exempted √ Nil
Rent (net) √ 90 90
Aggregate
income 104,968
Less: Donation (restricted to 10% of Aggregate income) √5
Total income 104,963
Add: Dividend √5
Less: Interest √3
[Deemed total income-Sec 53 Transitional provisions) √2 √2
Chargeable income 104,965
(46√ = 13 marks)

Explanation of tax treatment

1(b)(i) Insurance recovery (Note 4)

• Insurance policies taken to cover any possible losses that may arise in the course of
carrying on a business would be allowable and the recoveries taxed accordingly [Section
22 Income Tax Act 1967 (as amended) ]. √

• In the case of an individual in the employ of the company and whose disablement or
death would result in a significant reduction of the company’s income and/or profit would
be allowable, if it has no element of investment, and the recoveries, if any, would be
taxable. √
CONFIDENTIAL 3 MIA QE MARCH 2012

• The premium payable on a term life policy or an accident policy of “key-man” insurance is
allowable as a deduction against gross income from a business since it has no element of
investment. On the other hand, the premium payable on a whole life or an endowment
policy or on the director of a controlled company is NOT allowable in arriving at the
adjusted income from a business of a company as it has an element of investment.√

• The proceeds receivable on a term life policy or an accident policy is taxable on the
employer or the company. On the other hand, the proceeds receivable in connection with
a whole life or an endowment policy is not taxable as the insurance premium has not
been allowed. √

Law Section 22(1); Public Ruling No 2-2003


(4 √ = 2 marks)

1(b)(ii) Salary and wages (Note 5)

• The salary paid to the disabled persons qualifies for a double deduction. √

• The payment of the EPF contributions on the salaries of the management staff is
restricted to 19% of the remuneration, and the balance is not an allowable expenses. √

• The free trips for the management staff while it is an expenditure incurred in the course of
the business, is not an allowable deduction. √

Law:
Section 33 and 39(1)(m) Income Tax Act 1967 (as amended)
Income Tax (Deduction for the Employment of Disabled Persons) Rules 1982. √
(4 √ = 2 marks)

1(b)(iii)
The treatment for the entertainment expenditure is as follows:

• Company annual dinner 50


This is fully allowed. √

• Entertainment expenditure disbursement 180


50% of this expenditure is restricted√

• Family day 79
The expenditure is fully deductible in arriving at the adjusted income √

• Entertainment expenditure wholly for sales 352


Expenditure incurred wholly for sales is fully deductible√
. (4 √ = 2 marks)
CONFIDENTIAL 4 MIA QE MARCH 2012

1(b)(iv) Motor vehicle expenses (Note 10)

• Repairs and maintenance are fully deductible being incurred wholly and exclusively in the
production of gross income. √

• On the other hand, deduction will not be allowed for the compound and fines paid for
various traffic offences as these are expenditures incurred for breaking the law
[Alexander von Glenn]. √

• The lease charges would be fully allowed where the lease rental paid is in respect of a
motor vehicle licensed by the appropriate authority for the transportation of goods and
passengers. In any other case, the maximum amount allowed for a deduction is
RM50,000 [Section 39(1)(k)]. √

• But if the motor vehicle has not been used by any person for any purposes prior to the
rental and the total cost of the motor vehicle exceeds RM150,000, then any sum paid by
way of rental in excess of RM50,000 would be disallowed [ proviso to Section 39(1)(k)]. √
(4 √ = 2 marks)

1(b)(v) Donation (Note 16)

• The company would be given a deduction in an amount equal to the expenditure incurred
by the company in the relevant period on the provision of library facilities which are
accessible to the public and in respect of contribution to public libraries and libraries of
schools and institutions of higher education. √

• The amount qualifying for a deduction under section 34(6) is RM100,000√


– the balance of any excess would be disallowed. √

• Donations to approved institutions are allowed a deduction but such deductions are
restricted to 10% of the aggregate income of the company. √

Law:
Section 34(6)((g) Income Tax Act 1967 (as amended)
(4 √ = 2 marks)
(Total: 23 marks)
CONFIDENTIAL 5 MIA QE MARCH 2012

QUESTION 2

(a) Computation of qualifying industrial building expenditure

Year of assessment 2011


Qualifying industrial building expenditure
Expenditure RM
Cost of land √ NQ
Legal fee for transfer of land √ NQ
Clearing of land √ NQ
Cutting and leveling land √ NQ
Excavation and preparation of site for construction √ 66,420
Piling and foundation works for building √ 118,900
Construction of building √ 295,200
Construction of perimeter wall √ 28,700
Architect fee-building √ 114,800
Legal services for obtaining various building approval √ 53,300
Subcontract charges for wiring and plumbing works √ 60,680
Landscaping charges √ NQ
Total qualifying building expenditure 738,000

(12 √ = 5 marks)
(b) Computation of Industrial Building Allowance
Year of assessment 2011
Qualifying expenditure √ 738,000
Less: IA 10'% √ 73,800
AA 3'% √ 22,140 √ 95,940

Residual expenditure c/f √ 642,060


(5 √ = 2 marks)
(Total: 7 marks)
CONFIDENTIAL 6 MIA QE MARCH 2012

QUESTION 3

Business income RM RM RM
Memberships’ subscription fees √ 118,300
Less: Prop of common expenses √ 46,570
Adjusted income 71,730
Less: Prop of Capital allowance √ 668
Statutory income 71,062

Seminar
Seminar fees √ 59,150
Less: Direct expenses
Speaker fees √ 10,080
Rental of seminar hall √ 5,000
Prop of common expenses √ 23,285 (38,365)
Adjusted income 20,785
Prop. of capital allowance √ (334) 20,451

Dragon Dance
Dragon Dance √ 35,000
Less:
Dragon dance expenses √ 14,700
Prop of common expenses √ 13,778 (28,478)
Adjusted income 6,522
Less: Prop of capital allowance √(198)
Statutory income 6,324
Aggregate of statutory income from business 97,837
Less: Amount exempted √ (71,062)
Aggregate of SI from business after exemption 26,775
Dividend √ 8,000
Interest √ 1,400 9,400
Aggregate income 36,175
Less: Donation √ (975)
Total income 35,200
Tax RM
Tax charged on the first √ 35,000 √ 2,025.00
Tax charged on the balance √ 200 at 15% √ 30.00
35,200 2,055.00
Less: Sec. 110 set off (8,000 x 25%) √ (2,000)
Tax payable √ 55.00
CONFIDENTIAL 7 MIA QE MARCH 2012

Working
Gross income from business
RM
Memberships’ subscription fees √ 118,300
Seminar fees √ 59,150
Dragon dance √ 35,000
Total gross income from business 212,450

Common expenses
RM
Salary and wages √ 60,480
EPF √ 7,862
Stationery √ 6,048
Utility expenses √ 5,040
Painting of premises √ 2,590
Quit rent √ 403
Assessment √ 1,210
Total common expenses 83,633

Common expenses attributable to memberships' subscription fees


[Membership sub. fees/Gross income ] x common expense
118,300/212,450 x 83,633 = 46,570√

Common expenses attributable to seminar fees


[Seminar fees /Gross income ] x common expenses
59,150/212,450 x 83,633 = 23,285 √

Common expenses attributable to 'Dragon Dance'


['Dragon dance' /Gross income ] x common expenses
35,000/212,450 x 83,633 = 13,778 √

Common capital allowance attributable to memberships' subscription fees


[Memberships’ sub. fees/Gross income ] x Capital allowance
118,300/212,450 x 1200 = 468√

Common capital allowance attributable to seminar fees


[Seminar fees/Gross income ] x Capital allowance
59,150/212,450 x 1,200 = 334√

Common capital allowance attributable to 'Dragon Dance'


[Dragon dance /Gross income ] x Capital allowance
35,000 /212,450 x 1,200 = 198
(Total: 20 marks)
CONFIDENTIAL 8 MIA QE MARCH 2012
QUESTION 4

A) (a) Computation of Statutory Employment Income of Encik Adam for the year of
assessment 2011:
RM RM
Section 13(1)(a):
Salary (30000 x 12) 360,000 √
Bonus (30000 x 2) 60,000 √
Interest on loan (12,000 – 4,000) 8,000 √√
Prize – i-pad (exempt) √ Nil √
Hamper 500 √
School fees 24,000 √
Refund of Professional fees 650 √√ 461,750
Utilities bills 8,600 √

Section 13(1)(b):
Car (prescribed value) 9,000 √
Fuel (exempt) √ Nil √
Driver (prescribed value) (600 x 12) 7,200 √
Servant (400 x 12) 4,800 √
Furniture (prescribed value) 3,360 √
Mobile phone (exempt) √ Exempt √
Subscription for corporate Nil √
membership entrance fee (exempt) √
Subscription fee 6,000 √ 30,360

Section 13(1)(c):
Defined value 3,500 x 12 = 42,000 √
or 30% Sec 13(i) (a) 30% x 461,750 = 138,525 √ 42,000√
Take the lower

Gross Employment income 534,110


Less: professional fees (650) √√
Adjusted / Statutory income 533,460

(27/ x 1/3 = 9 marks)


CONFIDENTIAL 9 MIA QE MARCH 2012
(b)
Adam Anis
Income from Malaysia : RM RM
Business
Employment 533,460 √√
Dividend:
Malaysia (exempt) √ Nil √
Singapore (exempt) √ Nil √
Rental – Singapore (exempt) √ Nil √

Aggregate income √ 533,460 √

Approved donations (3,000) √


Total income 530,460 √
Personal reliefs:
Self 9,000 √
Child:
First 4,000 √
Second 1,000 √
Books (max) 1,000 √
EPF (max) 6,000 √
Medical insurance (max) 3,000 √
(24,000)
Chargeable income √ 506,460

Tax chargeable at special rate / flat rate 15% √√


Income tax payable 75,969

(21/ x 1/3 = 7 marks)


B) The tax implication if Adam was not resident:
- He is subject to tax a flat rate of 26% /
- He is not entitled for personal reliefs under section 46, 48 and 49. /
2 √x 1/2 = 1 marks)

C) The chargeability of RM20,000 director fee received by Encik Adam which was credited
into his bank account in Singapore:
- RM20,000 is subject to Malaysian tax /. The director fee is considered as income
derived from Malaysia, as it was paid by a resident company in Malaysia /. The
company is deemed resident in Malaysia by virtue of section 8(1)(b) as the board of
directors meeting was held in Malaysia /. The fact that the amount was credited into
his account in Singapore does not affect the taxability of the director fee in Malaysia.
(4/ x ½ = 2 marks)
CONFIDENTIAL 10 MIA QE MARCH 2012
D) The statutory requirement in relation to the notification of chargeability of the
employment income derived from Malaysia:
- Encik Adam must inform the IRBM in writing of his chargeability to tax within two
months from his arrival in Malaysia – S.77(3) /
- Submit tax return form BE for the year of assessment 2011 latest by 30 April
2012. /
(2/ x 1 = 2 marks)
(Total: 21 marks)

QUESTION 5

A) YEAR ENDED
31 December 2011 2012 2013
RM’000 RM’000 RM’000

Promoted Product: - 18,000 10,000


Adjusted income
Capital allowance:
Brought forward [8,000] √ [12,000] √
Current year [4,000] √ [4,000]√ [4,800] √
Statutory income - Nil √ 2,000 5,200
70% exemption / - [1,400] √ [3,640] √
Deemed total income - Nil √ 600√ 1,560√

Non-promoted product:
Statutory income 1,000 - -
Adjusted loss b/f [800]/
Statutory income from business 200
Interest income 15/
Aggregate income 215
Approved donations [12] Nil √
Total income 203
Deemed total income - 600 1,560
Chargeable income 203/ 600/ 1,560/

Exempt income:
70% exemption - 1,400 3,640
Non-promoted product losses – cy [600]/ [400]/
Promoted product losses - current year b/f [800]/ [3,240]/
cf5,200 cf 1960
Credited into exempt income account Nil √ - Nil √ - Nil √
CONFIDENTIAL 11 MIA QE MARCH 2012
Workings on capital allowance:
31 December 2010 2011 2012 2013
RM’000 RM’000 RM’000 RM’000
Plant and machinery:
Initial allowance 20% 4,000 - - 400
Annual allowance 20% 4,000 4,000 4,000 4,400
Total 8,000 4,000 4,000 4,800

Unabsorbed losses to be carried forward:


RM6,000,000 – RM800,000 – RM3,240,000 = RM1,960,000 ///
(27 Nil √ x 1/3 = 9 marks)

B) (1)

i) The company is categorised as taxable person under group G √ i.e. other service
providers as consultancy √ services as included in taxable services provided under
group G /.
ii) The service tax rate is 6% on the value of taxable services rendered to customers /.

iii) The STA 1975 stipulates six taxable periods whereby a taxable person has to remit
the service tax amount collected from the taxable services within 28 days from the
taxable period as follows: √ √

Tayable Period Payment due by:


January – February 28 March
March - April 28 May
May - June 28 July
July - August 28 September
September - October 28 November
November - December 28 January of the following year

iv) 10% √ penalty will be imposed on the unpaid amount if RMI Sdn Bhd fails to remit the
amount of service tax collected to RMCD. The maximum penalty imposed is 50%. /
(8/ x ½ = 4 marks)
B) (2)
√ √
RMI is subjected to withholding tax of 10% under the Special Classes of income S.4A from
the gross payment made to its Australian counterpart as follows:

RM
Gross payment 100,000
WHT 10% S. 109B [10,000] / - remit to IRBM within one month
from the date of payment to Australian
company
Net payment to Australian company 90,000 /

(4√ x 1/2 = 2 marks)


(Total: 15 marks)
CONFIDENTIAL 12 MIA QE MARCH 2012
QUESTION 6

A) Tax avoidance is the act of deferring, minimizing and exclusion of income tax within
the ambit of the tax laws /, such as utilizing the tax incentives and personal reliefs
provided in the tax laws /.
Tax evasion is the act of evading of income using illegal means /, such as under
reporting of income and manipulating of business records with intention to eliminate
the income tax liabilities /.
(4 /x 1 = 4 marks)
B) (1) Road transport business:

- The business income and non-business income derived from Malaysia will be
subjected to tax on a derivation basis i.e. the company is only taxable on income
derived from Malaysia √.

- Whereas, income derived from outside Malaysia is exempted from income tax √.
(2) Air transport business:

- The income derived by air transport business from Malaysia and outside
Malaysia are subjected to √ world income basis i.e. chargeable to tax on income
from wherever derived irrespective whether the income is remitted or not to
Malaysia√.

- Whereas, income from other √ sources (other business and other income) are
chargeable to tax on derivation basis i.e. chargeable to tax on income derived
from Malaysia√.

- Foreign source income from non-air transport business is only taxable in


Malaysia upon remittance of the income into Malaysia √.
(8 √ x ½ = 4 marks)

C)
i) The exemption available on the disposable of chargeable assets are:
- For an individual, the exemption available is 10% of the chargeable gain or
RM10,000 whichever is higher √.
- For a company, no exemption is available. Hence the RPGT payable is 5%
on chargeable gain √.
(2/ x 1 = 2 marks)

ii) Losses incurred when the disposal price is less than the acquisition price √. The
amount of losses can be absorbed from the chargeable gain derived from the
disposal of other chargeable assets √. Any unabsorbed losses can be carried
forward to be offset against future √ chargeable gain but it cannot be carried
backward√.
(4 √ x ½ = 2 marks)
CONFIDENTIAL 13 MIA QE MARCH 2012
iii)
Criteria for an individual to be given full exemption under S.8 of RPGT Act 1976:
• The individual must be citizen or permanent resident of Malaysia.
• The real property is owned by the individual, his spouse or jointly owned by them.

• The real property must be residential property or part of the building is used for
residence (either occupied by the owner or rented out).
• The exemption is only available once in a life time.

(4 √ x 1/2 = 2 marks)
(Total: 14 marks)