se S) UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION CONFIDENTIAL, TS) ACIMAR 2016/TAX317 COURSE TAXATION 2 COURSE CODE TAX317 EXAMINATION MARCH 2016 TIME 3 HOURS INSTRUCTIONS TO CANDIDATES 1 This question paper consists of five (5) questions. 2 ‘Answer ALL questions in the Answer Booklet. Start each answer on a new page. 3. Do not bring any material into the examination room unless permission is given by the invigitator. 4. Please check to make sure that this examination pack consists of i) the Question Paper ii) a two-page Appendix 1 iii) an Answer Booklet ~ provided by the Faculty 6. Answer ALL questions in English. DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO This examination paper consists of @ printed pages {© Hak Cipta Universit Teknologi MARA CONFIDENTIALCONFIDENTIAL, 2 ACIMAR 2016/TAX317 QUESTION 1 A ABC Chemical Sdn Bhd has been in the business of manufacturing industrial chemicals since 2010. For the year ended 31 March 2015, the Statement of Profit or Loss is as follows: Notes RM RM Sales 1 Less: Cost of sales 2 Gross Profit 12,000,000 Add: Dividend 3 100,000 Interest 4 95,000 12,195,000 Less: Operating expenses Depreciation of plant and machinery 2,000,000 Entertainment expenses 5 260,000 Payroll expenses 6 2,450,000 Provision for doubtful debts 7 910,000 Training and research 8 120,000 ‘Compensation 9 100,000 Professional and subcription fees 10 66,000 Repair and maintenance "1 1,100,000 Donation 12 90,000 Foreign exchange loss 13 105,000 Miscellaneous expenses 14 1,180,000 _(8,381,000) Net profit before taxation 3,814,000 Notes: Sales includes a sum of RM150,000 received from a supplier of chemical compounds as compensation for its poor quality. Included in the cost of sales is a sum of RM200,000 for the insurance premium paid to a Malaysian insurance company for export of chemical products to Korea ‘The dividend is a dividend received from a subsidiary company in Thailand which was credited to the company’s bank account in Malaysia. The interest represents charges on overdue trade receivables imposed by the company for delayed payments by customers. The entertainment expenses were incurred in entertaining the company's clients except for RM100,000 which was incurred for the annual dinner for the company’s staff. Payroll expenses include: RM Leave passages to Korea for staff and their families 25,000 Leave passages for the company’s family day in Pulau Tioman 20,000 Entertainment allowance for staff 30,000 (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL, 3 ACIMAR 2016/TAX317 10. 1. 12. 13. 14. Provision for doubtful debt comprises: RM 10% of the outstanding trade receivables 600,000 Specific provision of doubtful debts 300,000 Cost of issuing reminder notices (long overdue debts written off) 10,000 Training and research expenses includes: RM Allowances for instructors from approved training institute 18,000 Allowances for trainees (approved training) 20,000 Research costs on new chemical compound. The research was conducted by an approved research institute. 75,000 The compensation was paid to a client for late delivery of the chemical compounds. Professional fees and subscription comprises: RM Entrance fee to trade association 2,000 Annual fee to trade association 3,000 Evaluation fee for company's land 46,000 Accounting and audit fees 20,000 Registration of trademark in overseas for promoting of export 25,000 Repair and maintenance includes: RM Director's motor vehicle expenses 17,000 Construction of parking for staff 35,000 The donation is a chemical compound (trading stock) taken by the company and given as donation for cleaning purposes of Rumah Anak Yatim Barakah (approved). The foreign exchange loss is on the repayment of company's foreign loan. Miscellaneous expenses include business zakat paid to State Baitulmal amounting to RM100,000. Additional information: For the year of assessment 2015, the following are allowances/charges related to the business: RM i, Industrial building allowance 60,000 ii, Capital allowance for plant and machinery 100,000 iil, Capital allowance brought forward 420,000 iv. Balancing charge 21,000 Required: Calculate the tax payable of ABC Chemical Sdn Bhd for the year of assessment 2015. Indicate ‘NIL’ in the appropriate column for every item that does not require adjustment. (22 marks) © Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 4 AGIMAR 2016/TAX317 b. _ Business expense has to fulfill all the conditions under Section 33(1) of Income Tax Act 1967, in order to secure a deduction from the gross income of a business. State any TWO (2) of the conditions. (2 marks) DEF Bhd commenced its operation on 1 April 2015. The company will close its accounts on 31 December 2015 and thereafter on 31 December. The estimated tax payable for the period is RM225,000. Required: a. Identify the due date DEF Bhd should submit its estimated tax payable via CP204 for the year of assessment 2015. (2 marks) b. Indicate the number of monthly tax installments of DEF Bhd for the year of assessment 2015. (2 marks) c. Calculate the monthly tax installment for the year of assessment 2015, (2 marks) (Total: 30 marks) QUESTION 2 A GHI Sdn Bhd was incorporated on 1 July 2014. Its accounts are made up to 30 June annually. On August 2014 the company entered into agreement to purchase a piece of industrial land in Kulim, Kedah costing RM2 million and constructed the following ‘structures thereon during the financial year ended 30 June 2015. a. A factory-cum-office block at a cost of RM4,500,000 with total built-up area of 150,000 sq. ft. of which the administration/sales office occupy 22,500 sq. ft. b. Awarehouse for the storage of raw material and finished good and a workshop at a cost of RM200,000. c. A three-storey employees quarters at a cost of RM900,000 was constructed adjacent to the current factory building. The three-storey employees quarters are used as living accommodation for the company’s employees under Paragraph 42A(2) Schedule 3 of the Income Tax Act 1967. ‘The ground floor has been used as employees quarters for the following: i. Surau 50% ii, Child Care Centre 50% In addition, the company incurred RM310,000 on site preparation of the installation of plant and machinery which cost RMS0,000. (© Hak Cipta Universiti Teknologi MARA, CONFIDENTIAL,CONFIDENTIAL, 5 ACIMAR 2016/TAX317 The company also rented a shop-house nearby at an annual rental of RM120,000 for the purpose of carrying out an approved training Required: a. Calculate the relevant industrial building allowances/charges for the year of assessment 2015. (12 marks) b. State TWO (2) conditions under which initial allowance for industrial building can be claimed. (2 marks) JKL Plantation Sdn Bhd was incorporated on 1 January 2013 to carry out a business of a large scale organic vegetable farm. The company prepares its accounts to 31 December. The capital expenditures incurred by the company are as follows: RM 01/02/13 Cost of land 500,000 01/04/13 Clearing of land 280,000 20/06/13 Green house and store 500,000 01/08/13 New planting 300,000 ‘On 28 May 2014, the company received a grant from government for clearing of land amounting RM45,000. The farm was sold to MNO Sdn Bhd on 1 July 2015 for RM2 million. JKL Plantation Sdn Bhd made an election to spread back the agriculture charge. The accounting year end for MNO Sdn Bhd is 30 September 2015. Required: a. Calculate the agriculture allowance or charges (if any) for JKL Plantation Sdn Bhd up to the year of assessment 2015. (8 marks) b. State the condition under which portion of agriculture allowance can be claimed by the acquirer upon acquisition of agriculture asset in the basis period of acquisition. (2 marks) (Total: 24 marks) QUESTION 3 A Encik Ali, a Malaysian resident bought a shop-house in Seberang Prai for RM400,000 under a sale and purchase agreement signed on 1 March 2011. The property was transferred to him on 1 July 2012. Legal fees and stamp duty of RM10,000 were incurred upon purchase. In December 2012, he made an extension to the building for RM90,000. (© Hak Cipta Universiti Teknologi MARA, CONFIDENTIAL,CONFIDENTIAL, 6 ACIMAR 2016/TAX317 In 2014, an intended buyer, Ahmad, who called off the deal, forfeited a deposit of RM15,000 to Ali. The shop-house was sold to Mary Yap for RM1,200,000 on 7July 2015. He incurred real estate agent fees of RM10,000 in connection with the sale. Required: Calculate real property gain tax payable by Ali on the disposal of the shop- house (6 marks) b. Explain briefly FOUR (4) conditions that must be fulfilled by Ali to be entitled for private residence exemption on the disposal above. (4 marks) B. Cyber Jaya Sdn Bhd, a company resident in Malaysia, manufactures computers for export. On 1 March 2016, it entered into an agreement with Linux Ltd, a United States (US) company for the use of Linux operating system and computer hardware. Royalties and rentals of computer hardware amounting to RMS500,000 and RM200,000 respectively will be payable on 30 June 2015 to Linux Ltd in US. On 20 September 2015, after the production began, an amount of RM280,000 royalty was paid to a new branch of Linux Ltd in Malaysia Required: @. Briefly explain, whether the payments to Linux Ltd is subject to withholding tax in Malaysia. (4 marks) b. Calculate the amount of withholding tax payable, if any. (2 marks) ¢. Compute the amount of debt due to the government by Cyber Jaya Sdn Bhd if the payment of withholding tax was made after the due date. (2 marks) (Total: 18 marks) QUESTION 4 Alex, Brian and Linda have been partners since 2010 as financial consultants. The partnership closes its accounting year end to 31 December every year. The terms of their agreement are as follows: Alex Brian Linda Before 4 July 2015 RM RM RM Capital 80,000 80,000 80,000 Salary per year 36,000 20,000 16,000 Interest on capital 5% 5% 5% Profit or loss sharing 13 113 18 (© Hak Cipta Universiti Teknologl MARA, CONFIDENTIAL,CONFIDENTIAL T ACIMAR 2016/TAX317 ‘On 30 June 2015, Alex opted for retirement, after which the profit or loss is shared equally between Brian and Linda and the rest of the terms remained the same. Bonus paid to the partners for the year ended 31 December 2015 is as follows: Brian RM2,000 Linda RM3,600 The provisional adjusted income of the partnership for the basis year 2015 was RM40,000 and the capital allowance of RM3,600 on its plant and machinery. Required: a. Calculate the divisible income/(loss) for the year of assessment 2015. (4 marks) b. Compute the statutory income of each partner for the year of assessment 2015. (6 marks) (Total: 10 marks) QUESTION 5 ‘A. a. _ Briefly explain THREE (3) purposes of Good and Service Tax (GST) in Malaysia (marks) b. Explain the scope of charge for Good and Service Tax (GST) in Malaysia. (3 marks) c. Procop Sdn Bhd is a manufacturing company located at Klang, Selangor. The company incurred the following expenditure in producing finished goods. All the finished goods were sold in cash to Orchid Bhd on 1 June 2015. The profit mark- up for the sale is 20% RM Cost of raw material 212,000 Cost of direct labour 30,000 Direct expenses 10,000 Overhead cost 51,500 Required: Calculate the GST imposed on Orchid Bhd at the point of sales. (4 marks) B. Tabah Sdn Bhd commenced its business on 1 April 2010, making up its first set of accounts to 31 July 2011 and to that date for subsequent years. On 1 August 2012, the management decided to change the accounting year end to 31 December 2012 and to date thereafter. In December 2014 the accounting period was extended to 30 April 2015 and thereafter. (© Hak Cipta Universiti Teknolog! MARA CONFIDENTIAL,CONFIDENTIAL, 8 The adjusted income/(loss) are as follows: Accounting Period 01/04/2010 ~ 31/07/2011 01/08/2011 - 31/07/2012 01/08/2012 ~ 31/12/2012 01/01/2013 - 31/12/2013 01/01/2014 - 30/04/2015 Required: ACIMAR 2016/TAX317 Adjusted Income/Loss (RM) (180,000) 360,000 (120,000) 200,000 300,000 a, Determine the basis period and compute the adjusted income or loss for all the relevant years of assessment up to 2015. (6 marks) b. __ Briefly explain the importance of commencement date and the year-end date of a business. (2 marks) (Total: 18 marks) END OF QUESTION PAPER (© Hak Cipta Universiti Teknologi MARA, CONFIDENTIAL,CONFIDENTIAL, APPENDIX 4 (1) ACIMAR 2016/TAX317 + The following tax rates and allowances are to be used in answering the questions: (a) Companies (b) Small Companies (©) Non-resident individuals (d) Resident individuals: Income Tax Rates 25% 20% 25% Chargeable income (RM) Rate ‘Cumulative Tax (RM) | 0 - 5,000 0% 0 5,004 - 10,000 1% 50 10,004 - 20,000 1% 450 20,001 = 35,000 5%, 900 ‘35,001 — 50,000 10% 2,400 50,001 -70,000 16% 5,600 70,001 = 100,000 21% 11,900 400,001 = 250,000 24% 47,900 250,001 = 400,000 24.5% 84,650 | ‘Above 400,000 25% © Benefits-in kind (BIK) s« ites as per Inland Reven ue Board (IRB) guidelines Cost of car when new (RM) ‘Annual value of BIK (RM) Up to 50,000 1,200 50,001- 75,000, 2,400 75,001 - 100,000 | 3,600 100,001 - 150,000 { 5,000 150,001 - 200,000 7,000 200,001 - 250,000 ‘9,000 250,001 - 350,000 45,000 ‘350,001 - 500,000 21,250 500,001 - and above 25,000 The value of the car benefit equivalent to half of the above rat is more than five years old. ites is taken if the car provided Where a driver is provided, the value of benefit is fixed at RM600 per month. * Household furnishing, apparatus and appliances Types of BIK ‘Annual value of BIK (RM) ‘Semi-furnished with furniture in lounge,dining room or bedroom — 840 Plus one or more of the following: Air-conditioners, curtains, carpets 1,680 Plus one or more of the following: Kitchen equipment, crockery, utensils, appliances i.e. fully furnished | 3,360 © Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL APPENDIX 4 (2) + Rate of Capital Allowances Motor General © Heavy Computers Vehicles Plant& —_-Plant& Machinery Machinery Initial 20% 20% 20% 20% allowance Annual 20% 14% 20% 80% allowance «Rate of Real Property Gains Tax Rates For the period of 1 January 2014 and onwards ACIMAR 2016/TAX317 Others Building 20% 10% 10% 3% acquisition of real property or thereafter © Hak Cipta Universit Teknologi MARA Category of disposal Individual (citizen and permanent resident) Rate Within 3 years after the date of 30% acquisition of real property In the 4" year after the date of acquisition 20% of real property - in the 5” year after the date of 15% acquisition of real property In the 6” year after the date of 0% CONFIDENTIAL