DTX5024 (Taxation 1) /Chapter 4

TUTORIAL 4 SOLUTION

Question 1
Describe differences between business income and employment income.

Question 2
Define these following terms:
i. Employment
ii. Employee
iii. Employer

Question 3
Mr. Gary has a contract of employment with United Seoul Bhd. Mr. Gary’s income for the year
ended 31 December 2019 is as follows:
RM
Salary 168,000
Entertainment allowance 30,000
Bonus 42,000
United Seoul Bhd provides Mr. Gary with benefits and incurred expenses as detailed below. Unless
otherwise stated, the benefits were provided for the full year ended 31 December 2019.
i. The gift of a monthly broadband subscription fee registered in the name of United Seoul
Bhd, amounting to RM900.
ii. Monthly subscriptions in respect of Mr. Gary’s membership to a golf club, amounting to
RM18,000.
iii. Reimbursement of salary in respect of a driver employed by Mr. Gary, amounting to
RM13,000.
iv. A domestic help for Mr. Gary employed by United Seoul Bhd at a monthly salary of
RM1,300 commencing from 1 July 2019.
v. United Seoul Bhd incurred expenses as follows in respect of Mr. Gary’s holidays with his
wife and child in September 2019 in the United States:
RM
Cost of air fare 17,000
Cost of meals and accommodation 2,800
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In December 2019 in Langkawi, Malaysia: RM

Cost of air fare 2,600
Cost of meals and accommodation 2,100
vi. Child care benefit for Encik Mr. Gary’s son, costing RM3,500.
vii. The use of a car costing RM177,000, and petrol expenses amounting to RM15,000.
viii. Hotel room charges amounting to RM27,000, from 1 January 2019 to 31 March 2019.
ix. The use of an unfurnished house provided to Mr. Gary by United Seoul Bhd from 1 April
2019 to 31 December 2019. The company incurred a rental expense at RM13,000 per
month.
x. Mr. Gary was required by United Seoul Bhd to contribute a sum of RM250 per month for
the maintenance of the premises, commencing from 1 April 2019.
xi. Use of a fridge costing RM6,000 purchased by United Seoul Bhd, from 1 May 2019. The
fridge is the only item provided by the company in the house provided (as per note xi). The
life span of the fridge is 10 years.
Mr. Gary claimed the following expenses incurred by him during 2019:
RM
Entertainment expenses 33,000
Contribution to the company for maintenance of premises (as per xi above) 2,250

Required:
1. State ANY TWO of the benefit(s) referred to above that are non-taxable/exempt from tax;

2. Compute statutory employment income of Mr. Gary for the year of assessment 2019;

3. State the meaning of ‘reimbursement’ in relation to an employee.

Question 4
Encik Firas, aged 55, retired as a manager in a private company on 30 June 2019. He had worked in
the private company since 1 December 2000. During the year 2019, Encik
Firas received the following payments and benefits from the company:

a. Net monthly salary of RM8,600 after deducting EPF contribution of 11% and tax of
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RM300.
b. Upon retirement, he received a gratuity of RM100,000.
c. Watch costing RM5,000 as an appreciation of his long service with the company.
d. A semi-furnished house with air conditioner was provided by the company for the period 1
January 2019 to 30 April 2019. The monthly rent of RM1,200 (excluding furniture of RM160)
was paid by the company.
e. Medical expenses of RM4,000.
f. A holiday package for him and his wife to New Zealand including:
- Air fares (includes insurance of RM2,500) RM13,000
- Hotel accommodation RM 8,000
He withdrew RM80,000 from the company’s unapproved retirement fund of which RM30,000
represents his contributions and RM10,000 represents interest income earned.
On 1 August 2019, Encik Firas was offered a post as a director (not service director) in
his friend’s company with the following remuneration scheme:
i. Director fees of RM10,000 per month.
ii. Entertainment allowance of RM1,000 a month.
iii. Encik Firas was provided with a mobile phone. The cost of all business calls and
the rental amounting to RM2,100 from August to December 2019 was paid by the
company.
iv. A new company car costing RM140,000 was purchased and provided to Encik
Firas with a driver from 1 August 2019.
v. For the month of August 2019, Encik Firas was provided with accommodation in a
hotel with daily room rate of RM250. On 1 September, he moved into an unfurnished house
provided by the company. The monthly rental incurred by the company is RM2,000.
vi. The company also provided him with a servant and a gardener with a monthly salary of RM600
and RM500 respectively, effective from 1 September 2019.

Required:
Compute the statutory employment income of Encik Firas for the YA 2019.

Question 5
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Chong, a Malaysian resident is employed by Sunway Holdings Bhd since 1 July 2003. In
the year 2019, the company paid him a salary of RM15,000 a month and an entertainment
allowance of RM5,000 a month. Chong claimed that entertainment allowances received from the
company during the year 2019 have been fully spent for entertaining the company’s clients. In
addition, the company also provides Chong with the following benefits during the year 2019:
1. A fully furnished apartment with annual value of RM40,000, including the value of furniture of
RM600 a month.
2. A servant with a salary of RM650 a month paid by Chong and reimbursable by the company.
3. Corporate membership with a monthly subscription of RM300 paid by the company.
The entrance fee of RM2,000 was also paid by the company.
4. A mobile phone under the company’s name. The bills paid by the company for the year 2019
amounted to RM2,000.
5. A new car was purchased by the company for Chong in April 2014 for RM180,000 together
with fuel. The company also provided a driver with a monthly salary of RM800 .

6. A holiday package to Australia whereby the company paid the air tickets, meals and
accommodation of RM8,000, RM4,000 and RM5,000 respectively.
7. Medical expenses of RM2,500 for Chong and his family.
8. Tuition fees for his children amounting to RM350 a month.

Required:
Compute Chong’s statutory income from employment for the year of assessment 2019.

Question 6
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Encik Eiman, 58 years old, was a managing director of Manhattan Sdn Bhd since 1 July 2011. On 1
December 2019, he was advised to leave the company due to improper conduct with a staff
member. On 31 December 2019, Encik Eiman left the company and he was paid a compensation of
RM300,000 and a gratuity of RM150,000.
For the purpose of filling up the income tax return form for the basis year 2019, Encik Eiman
provided the following information:
1. A director’s fee of RM30,000 per month.
2. Reimbursement of travelling expenses for official duties of RM11,000.
3. Entertainment allowance of RM5,000 per month which was fully spent for business purposes.
4. Bonus equivalent to two months salary for the accounting period ended 30 September 2019.
5. Company’s shares of 10,000 units of RM1.00 each which was offered to Encik Eiman under
the share option scheme on 1 March 2019. The share option scheme was exercisable on 1 June
2019 where the market value at that date was RM6.00 each. On 1 July 2019 he took up the
option when the market value of the share was RM7.00 each.
6. During the basis year 2019, the company provided the following benefits to Encik
Eiman:
i) a new car which was purchased in 2009 for RM255,000 and a driver, but not fuel benefit.
ii) a servant with monthly salary of RM800 a month.
iii) an unfurnished house with a defined value of RM60,000 per annum.
iv) one leave passage in Malaysia of RM9,000 including food and hotel.
v) medical expenses for his wife which cost RM13,000.
7. He also received a pension of RM7,500 a month from the Federal Government for his previous
employment with the civil service.

Required:
Compute the statutory income from employment for Encik Eiman for the year of assessment 2019.

Question 7
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1. Explain THREE (3) types of benefits in kind which are exempted from income tax under
Section 13(1)(b).
2. Explain what is meant by controlled company and service director as defined by Section 2 of
the Income Tax Act 1967.
3. Under what circumstances will gratuity be fully exempted from income tax?
4. State the circumstances referred to in Section 13 of the Income Tax Act 1967 under which
employment income is deemed to be derived from Malaysia.

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