CONFIDENTIAL ACIJUN 2018/TAX317 UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE : TAXATION 2 COURSE CODE : TAX317 EXAMINATION : JUNE 2018 TIME : 3HOURS 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 four-page Appendix 1 iil) an Answer Booklet — provided by the Faculty 5 ‘Answer ALL questions in English. DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO This examination paper consists of 9 printed pages (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 2 ACIJUN 2018/TAX317 QUESTION 1 ‘A. Superb Seafood Sdn Bhd was incorporated in Malaysia on 1 April 2007 and is in the business of canning various seafood for the domestic and overseas markets. Some of the canned seafood like salmon is imported from New Zealand. The company closes its accounts on 30 June each year. For the year ended 30 June 2017, the company had an opening paid-up capital of RM3 million. The financial results for the year ended 30 June 2017 are appended below: Superb Seafood Sdn Bhd ‘Statement of Profit or Loss for the year ended 30 June 2017 Note RM RM Sales 5,550,400 Less: Cost of sales (4,850,000) Gross Profit 3,700,400 ‘Add: Other incomes 1 _____38,000 3,738,400 Less: Expenses Depreciation 77,000 Salaries and wages 2 1,744,000 Entertainment 3 109,000 Repair and maintenance 4 370,000 Bad and doubtful debts 5 51,000 Motor vehicle expenses 6 41,000 Lease payments 7 64,000 Advertisement and publicity 8 98,000 Professional fees and donation 9 144,900 Foreign exchange loss 10 18,000 _ (2,716,900) Profit before taxation 4,024,500 Notes: 1, Other incomes consist of: RM Dividend income received from an investment in a local fishing company 21,000 Insurance recovery for stolen goods while in transit from factory to customers 17,000 2. Salaries and wages include: RM Salary ~ employees 1,060,000 EPF — employees 190,000 Salary — managing director 340,000 EPF — managing director 65,000 Private retirement scheme contribution (approved) 35,000 Yearly leave passage within Malaysia ~ managing director 20,000 Allowance paid to trainees under Skim Latihan 1Malaysia Programme (SL1M) approved by the Economic Planning Unit 34,000 (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 3 ACIJUN 2018/TAX317 3. _ Entertainment expenses consist of: RM Grand dinner for staff and their family for celebrating the ‘company’s 10th anniversary 37,000 Entertaining customers by marketing and sales staffs 72,000 4. Repair and maintenance costs include: RM ‘An extension of carpark within factory premises 100,000 ‘An extension of a factory building 230,000 Repairs of an office building 38,000 Installation of alarm system in the office building 2,000 5. Bad and doubtful debts consist of: RM Trade debts written off 3,000 General provision for trade debts 21,000 Specific provision for trade debts 19,000 Bad debts written off (with respect of a loan to an ex- employee) 8,000 6. Motor vehicles expenses comprise: RM Compounds and fines relating to traffic offences 5,000 Maintenance of company’s motor vehicles 28,000 Repairs of a company lorry that was involved in an accident 8,000 7. During the year, the company leased a car costing RM200,000. The car was primarily used to transport customers. The lease charges during the year for the car were RM64,000. 8. Advertisement and publicity consist of: RM Launch of a new product line at a hotel 32,000 Promotional gift (with company's logo) given to customers during the product launch 5,000 Cash gift to sponsor customers’ annual dinner 20,000 Cost of company's participation in International Food Fair held in Malaysia for the promotion of exports 41,000 9. Professional fees and donation comprise RM Legal fees for handling legal suit by an ex-employee 9,000 Payment made to a recognised approved research institution for research regarding improvement in the canning process 20,000 Preparation of tender proposals to supply canned seafood to the Malaysian Armed Forces (successful) 35,900 (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 4 ACIJUN 2018/TAX317 RM Cash contribution to INCEIF— the project is declared as a project of national interest, approved by the Minister of Finance 50,000 Sponsor of New Zealand native art and cultural activities at the Sarawak Rainforest Festival during the year, approved by the Ministry of Culture, Arts and Heritage under $34(6)(k). 30,000 10. Financial expenses refer to the realised exchange loss on trade debts amounted to RM18,000. Additional Information: i. During the year of assessment, the company had a capital allowance of RMB2,600. ii, The chargeable income of the company for the year of assessment 2016 was RM1,122,000. Required: a. Explain briefly with reason(s) the treatment of Note 9 — Sponsor of New Zealand native art and cultural activities approved under $34(6)(k). (2 marks) b. Calculate the income tax payable for Superb Seafood Sdn Bhd for the year of assessment 2017. Indicate "Nil" where no adjustment is necessary. (22 marks) B. Crimson Sdn Bhd has been a non-resident company of Malaysia since 2014. The company has a paid-up capital of RM2 million and closes its account on 31 March annually. During the year of assessment 2017, the company had made an estimate tax payable amounted to RM90,000. However, during the six months of the basis period, the company revised its tax payable to RM120,000 via form CP204A. Upon submission of the actual tax return for the year of assessment 2017, the company's actual tax payable was RM180,000. Requir a. Discuss. briefly the responsibility of Crimson Sdn Bhd regarding the submission of actual tax return for the year of assessment 2017. (4 marks) b, Illustrate the computation of penalty on undere: for the Crimson Sdn Bhd. tion of income tax payable (2 marks) (Total: 30 marks) © Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 5 ACIJUN 2018/TAX317 QUESTION 2 A. Andalas Hospital Sdn Bhd is a locally incorporated private maternity hospital that closes its account on 31 December annually. On 1 January 2016, the company completed the construction of a hospital building at a cost of RM3,730,000 (GST exclusive), and commenced operation immediately. Expenditures incurred by Andalas Hospital Sdn Bhd for the construction of the building are as follows: Expenditures Amount ee RM Cost of land — | 230,000 Legal fee for transfer of land 184,700 Preparation of site for construction 28,000 \g and foundation works : 64,700 3,110,500 | Architect fees 40,000 Legal services for obtaining a building approval - 21,000 Installation of wiring and plumbing 29,100 Landscape services 22,000 _| Total 3,730,000 In March 2017, the company leased a nearby building and incurred RM650,000 (GST exclusive) for the renovation of that building. One-fifth of the building is used as an administration office of the hospital. The company also provides child care facilities to its staff by purchasing another building adjacent to the renovated building costing RM450,000 (GST exclusive). The building was purchased on 10 November 2017, Required: a. Compute the industrial building allowances for the relevant years of assessment up to the year of assessment 2017. (12 marks) b. State tax treatment of industrial buildings related to private hospital when they are rented out to derive rental income. (2 marks) B. Palam Sdn Bhd was incorporated on 1 November 2012 to carry a cocoa plantation business in Gua Tempurung, Kelantan. The company closes up its account on 31 October annually. Expenditures incurred by the company are as follows: Date Transaction RM 5 April 2013 Cost of land 200,000 14 June 2013 Cost of clearing land 80,000 21 May 2014 Cost of labour quarters 60,000 30 October 2015 _| Planting of cocoa seedling 480,000 30 June 2016 | Construction of store z= 65,000 (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 6 ACIJUN 2018/TAX317 ‘On 17 November 2014, the company received a grant of RM70,000 from the Federal Government for the planting of cocoa. On 30 September 2017, the whole farm was sold to Tabah Sdn Bhd for RM760,000. Required: a, State TWO (2) conditions that need to be fulfilled by the transferee for claiming the remaining agriculture allowance of the transferor when disposal of qualifying agriculture expenditure takes place. (2 marks) b. Calculate the agriculture allowances/(charges) for Palam Sdn Bhd for the relevant years of assessment up to year of assessment 2017. Palam Sdn Bhd made an election to spread back the agriculture charges. (8 marks) (Total: 24 marks) QUESTION 3 A. Delima, a Singaporean citizen but permanent resident of Malaysia, had signed an agreement with Hamid on 16 June 2013 to acquire a piece of land for RM406,600. ‘She made a bank loan to pay for the land and had to bear the interest cost of RM72,000 for that loan. Upon receiving a bank loan on 27 January 2014, she made a full payment to Hamid. On 15 November 2014, Hamid then transferred the title of the land to Delima. In transferring the title of the land, Delima incurred RM7,900 for the cost of legal fee and stamp duty. She also spent RM15,000 for insuring the land, and RM48,000 on levelling, drainage and fencing of the land In February 2015, the land was partially damaged by a fire. She received a compensation of RM37,000 for the damages. Later, during July 2017, Delima decided to sell the land. She incurred RM1,000 (GST inclusive) for advertising the sale of the land and RM8,000 (GST inclusive) for valuation fee. A buyer responded and paid a deposit of RM11,000. However, the deposit was forfeited because the buyer cancelled the deal Following the cancellation, Mawar who is the cousin of Delima (a Singaporean citizen) offered to buy the land. Mawar agreed to pay RM590,000 (market value was RM610,000) and the Sale and Purchase Agreement was signed on 15 October 2017. The legal fee associated with the sale was RM8,800 (GST inclusive). Required: a, _ Real property is defined in Section 2 of the RPGT Act 1976 to mean any land situated in Malaysia, and any interest, option or other right in or over such land. Explain briefly the meaning of land as stipulated in the act. (4 marks) (© Hak Cipta Universiti Teknologi MARA, CONFIDENTIALCONFIDENTIAL 7 ACIJUN 2018/TAX317 b. Calculate the real property gains tax payable by Delima, if any, on the disposal of land. (6 marks) B. _Jessicca Jung, a popular Korean artist came to Malaysia for a few days in April 2017 to perform and promote her recent album. Her visit was organised by Platinum Sdn Bhd, a Malaysian entertainment company. ‘On 30 April 2017, she received a payment of RM200,000 for her performance and a ‘sum of RMB0,000 for the royalty ofher album that was sold in Malaysia, A Malaysian artist, Okaz Tang (resident) also performed in the show. He was paid RMS50,000 by Platinum Sdn Bhd. However, the payment was only made on 20 May 2017. Required: a. Explain briefly with reason(s) whether the amount received by Jessicca Jung and Okaz Tang from Platinum Sdn Bhd are subject to withholding tax. (4 marks) b. Compute the amount of withholding tax payable by Platinum Sdn Bhd to the Inland Revenue Board (IRB). (2 marks) ©. Calculate the amount of penalty that should be paid by Platinum Sdn Bhd if the company remits the withholding tax to the Inland Revenue Board (IRB) on 30 August 2017. (2 marks) (Total: 18 marks) QUESTION 4 Didi and Nana are partners in a partnership business. Both are residents of Malaysia in the basis year 2017. On 1 July 2017, Nana left the partnership and transferred her ownership to her sister, Maya who is also a Malaysian resident. Since Maya has experience in the operation, she is responsible to monitor the daily operation of the partnership business. The terms provided in the partnership prior to the resignation of Nana and after the entrance of Maya are as follows: Partners Interest on capital | Salary per month ‘Share of per year profit/ loss | RM RM (%) 17412047 — 30/6/2017 Didi 5,000 8,000 60 ‘Nana 4,000 6,000 40 4/7/2047 — 34/42/2017 Didi 5,000 8,000 Maya 4,000 7,000 © Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 8 ACIJUN 2018/TAX317 For the year ended 31 December 2017, the Statement of Profit or Loss of the partnership is as follows: RM RM Sales 950,500 | Less: Cost of sales Less: Expenses | Partners’ salary 174,000 | Partners’ interest on capital 9,000 | General overheads (including RM6,000 salary for a handicapped employee) 65,000 Depreciation | 18,000 Donations (approved) 7 3,000 (269,000) Net Profit - 331,000 Capital allowance for the year of assessment 2017 was RM10,000. Required: a. __ Illustrate the computation of divisible income of the partnership business. (4 marks) b. Compute the statutory income for Didi, Nana and Maya from the partnership business for the year of assessment 2017. (6 marks) (Total: 10 marks) QUESTION 5 A Malaysia started implementing Goods and Services Tax (GST) effective from 1 April 2015. The GST is one of indirect tax reforms that replaces the Sales Tax and Service Tax. Under the GST Act 2014, businesses are mandatorily required to become GST registrants when their annual turnover exceeds RM500,000 threshold, Required: a. Distinguish the TWO (2) methods in computing the annual turnover for ost. (3 marks) b. Explain the treatment of git rule under GST if a GST registrant utilises its own product as a gift to employees. (3 marks) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 9 ACIJUN 2018/TAX317 Kristal Sdn Bhd is a GST registrant with an annual turnover of less than RMS million. The company involves in the business of selling decorative lamps and sells the lamps within Malaysia. In July 2017, the company imported a batch of crystal lamps from Egypt for RM50,000. It is the company’s policy to setup the selling price after considering the mark-up of 50%. On 15 November 2017, the company sold all the lamps purchased in July 2017 to Mewah Sdn Bhd, addressed in Ampang. Required: Compute the amount of net GST payable by Kristal Sdn Bhd to Royal Malaysian Customs Department (RMCD). (4marks) B. Aurora Sdn Bhd commenced its business on 1 December 2012 and its first set of account was prepared to 30 November 2013. On 1 February 2014, the company decided to change the accounting date to 31 August 2014. However, the company again changed its accounting period to 31 January, and thereafter. In October 2016, ‘Aurora Sdn Bhd became the subsidiary of West Bhd and thus, changed its accounting date to 30 June to conform to the group's accounting date. The adjusted incomesi(losses) for the respective accounting periods are as follows: ‘Accounting Period ‘Adjusted income/(loss) 1 December 2012 ~ 30 November 2013 1 December 2013-31 August 2014 | 1 September 2014 — 31 January 2015 1 February 2015 — 34 January 2016 1 February 2016 — 30 June 2017 Required: a. Determine the basis period and the adjusted income/(loss) of Aurora Sdn Bhd for all the relevant years of assessment, (6 marks) Explain briefly the TWO (2) situations provided by Section 21A(5) of ITA when a basis period of a company constitutes the period from its commencement date of business to a specified day. (2 marks) (Total: 18 marks) END OF QUESTION PAPER (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, APPENDIX 4 (1) AC/JUN 2018/TAX317 * The following tax rates are to be used in answering the questions. Income tax rates a) Resident company with paid up capital of RM2.6 million and below (at the beginning of the YA) On the first RM500,000 chargeable income 18% ‘On subsequent chargeable income 20% - 24%" b) Resident company with paid up capital above RM2.5 million (at the beginning of the YA) 20% - 24%* ©) Non-resident company/branch 24% d) Resident limited liability partnership with paid up capital of RM2.5 million and below (at the beginning of the YA) On the first RM500,000 chargeable income 18% (On subsequent chargeable income 20% - 24%" ) _ Resident limited liability partnership with paid up capital above RM2.5 million (at the beginning of the YA) 20% - 24%" f) Non-resident limited liability partnership 24% * Reduction in the income tax rate based on the percentage of increase in chargeable income as compared to the immediate preceding YA © Hak Cipta Universiti Teknologi MARA Percentage (%) of increase in | Percentage | Income tax rates chargeable income as compared (%) of on incremental to the immediate preceding YA reduction on | portion of income tax chargeable 7 rates income (%) | Less than 5% E 0 24 5% - 9.99% 1 23 [10% - 14.99% 2 22 15% - 19.99% 3 24 20% and above 4 20 CONFIDENTIALCONFIDENTIAL APPENDIX 4 (2) 9) Resident individuals ACIJUN 2018/TAX317 Chargeable Income Rate ‘Cumulative Tax RM RM ol - 2,500 0% 0 2,501 | - 5,000 0% 0 5,001 | 10,000 1% 50 10,001 | 20,000 1% 150 { 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 00,001 |= 450,000 24% 23,900 150,001 |= 250,000 24% 47,900 250,001 | = ‘400,000 24.5% 84,650 400,001 |= | _600,000 25% 134,650 600,001 | = 7,000,000 26% 238,650 ‘Above 1,000,00¢ 28% h) Non-resident individuals 28% © Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL APPENDIX 4 (3) ACIJUN 2018/TAX317 + Benefits-in-kind (BIK) scale rates as per Inland Revenue Board (IRB) guide lines ‘Cost of car when new ‘Annual value of BIK RM _ RM Up to 50,000 4,200 50,001 | - | 75,000, 2,400 75,001 700,000 3,600 ___700,004 |= 150,000 5,000 150,001 | = 200,000 7,000 200,001 | = 250,000 9,000 250,001 | - _____ 350,000 15,000 — 350,001 | = | 500,000 21,250 ‘500,001 and above 25,000 The value of the car benefit equivalent to half of the above rates is taken if the car provided is more than five years old Where a driver is provided, the value 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 followings: Air-conditioners, curtains, carpets 1,680 Plus one or more of the followings: Kitchen equipment, crockery, utensils, appliances i.e fully furnished 3,360 (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL APPENDIX 4 (4) ACIJUN 2018/TAX317 . Rate of Capital Allowances Motor General Heavy ICT | Others | Building Vehicles | Plant& | Plant& | Equipment Machinery | Machinery & | Computer Software | initial 20% 20% 20% 20% 20% 10% allowance ‘Annual 20% 14% 20% 20% | 10% | 3% allowance | * Rate of Real Property Gains Tax Rates For the period of 1 January 2014 and onwards Category of disposal RPGT rate Individual ‘Company (citizen or | (non-citizen or permanent | non-permanent _ resident) | _ resident) it Within 3 years after date 30% 30% 30% of acquisition _ In the 4 year after date of 20% 30% 20% acquisition In the 5" year after date of 15% 30% 18% | acquisition In the 6" year after date of Nil 5% 5% acquisition or thereafter a _ * Goods and services tax (GST) Standard rate for taxable supply 6% Registration threshold RM500,000 (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL