Professional Documents
Culture Documents
15
As the paid-up ordinary share capital of the company is only RM1 million and its related companies do not have a paid-up
ordinary share capital of RM2·5 million, EH is eligible for the preferential tax rate for small and medium enterprise (SME). It
should be noted that the redeemable preference share capital of RM100 million is not relevant in determining the share capital
for SME tax rate purposes. Based on the SME tax rate, the tax payable by EH in YA2017 is RM4·962 million.
Appendix
East Highway Sdn Bhd (EH)
Income tax computation for the year of assessment (YA) 2017
RM’000
Profit before taxation 40,000
Less:
Rental from retailers operating at rest areas Nil
Grant receivable (3,000 )
Interest income (2,000 )
Add:
Quit rent and assessment for rest areas Nil
Maintenance of rest areas Nil
Finance cost – Term loan interest Nil
Finance cost – Dividend on redeemable preference shares 5,000
Other tax deductible expenses Nil
Resurfacing of road (18,000 )
–––––––
Adjusted business income 22,000
Less: IBA (see working) (3,200 )
–––––––
Statutory business income 18,800
Interest income 2,000
–––––––
Aggregate income/total income/chargeable income 20,800
–––––––
Tax payable
First RM500,000 at 18% 90
Balance at 24% 4,872
–––––––
4,962
–––––––
Working: IBA
RM’000
Qualifying expenditure (completed additional lane to highway net of grant and toll booths)
– Initial allowance [10% x (RM15m + RM5m)] 2,000
– Annual allowance [6% x (RM15m + RM5m)] 1,200
Resurfacing of existing roads Nil
––––––
3,200
––––––
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2 Baba Charles
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zero rated supply, it is likely that TM would have been in a GST repayment position. This would have been inefficient in
terms of the cash flow position of the group, as MM would have had to account for the output tax and TM would have
needed to wait for the GST to be refunded.
With the transfer of the trading business into MM, TM will now only derive rental income which is an exempt supply.
Therefore, TM will be able to deregister for GST and, moving forward, only MM will need to file GST returns. Further, as
MM will be exporting the goods directly, it need only account for output tax on its standard rated sales of goods to the
local market.
3 (a) Big Sdn Bhd (Big) and Little Sdn Bhd (Little)
(i) RM1 million treated as equity
An increase of RM1 million in equity will mean higher single-tier dividend payout which is not deductible. Despite having
a paid-up share capital of RM1·8 million, i.e. not exceeding the RM2·5 million, Little is nevertheless not a small and
medium enterprise (SME) because Little is wholly-owned by Big, which has a paid-up share capital of RM20 million, i.e.
more than the RM2·5 million SME threshold.
18
If Big takes up the RM1 million as additional ordinary share capital in Little, the paid-up share capital of Little will increase
to RM2·8 million (RM1·8 million + RM1 million). However, as Little is already a non-SME and will remain one, there
will be no impact as a consequence of exceeding the threshold in this way. Thus, Little will continue to be subject to tax
at the standard rate of 24% and it will qualify for 100% write-off of small value assets of a value up to only RM13,000
for each year of assessment.
(ii) RM1 million as an interest-free loan with no terms of repayment
With no terms of repayment and no interest charge, the RM1 million is arguably not a loan: it is a grant. The grant will
be a revenue grant as it is made specifically in order for Little to pay its trade debtors and employees, which are both
revenue expenses. As the loan is from Big, a company, it is not a grant from the government, so it does not qualify for tax
exemption. Therefore, the amount of RM1 million will represent a revenue grant duly subject to tax as business income
in the hands of Little.
Tutorial note: An additional or alternative argument would be that the amount of RM 1 million is effectively an amount
received by way of recoupment, recovery or reimbursement of sums in respect of outgoings and expenses deductible in
ascertaining the adjusted income from Little’s retail business. Pursuant to the law [s.22(2)(a)], this amount is deemed
to constitute gross income from that retail business.
(iii) RM1 million as a market-rate loan
Interest is taxable when it is received. However, when received, it is related back to the period for which it is receivable.
Where the loan is between related parties, the lender is deemed to be able to obtain such interest on demand when it is
‘due to be paid’ [s.29(3)].
As a market-rate loan, interest is due to be paid from July 2020, therefore, the interest first becomes ‘due to be paid’ to
Big only in the year of assessment (YA) 2021 (1 July 2020 to 30 June 2021).
As Big has control of Little by virtue of its 100% shareholding, it is deemed to be able to obtain the interest on demand
when the interest is due to be paid, i.e. in the year ending 30 June 2021. The interest, thus deemed obtainable on
demand, will be taxed on Big for the period for which it is receivable, i.e. YA 2018 to YA 2021.
The interest expense on the loan is tax deductible in Little only when the interest is due to be paid, i.e. in YA 2021, but
related to the period for which the interest is payable [s.33(4)], i.e. YA 2018 to YA 2021. This would require Little to
notify the Director General of Inland Revenue (DGIR) within 12 months from the end of the basis period for the YA in
which the interest is due to be paid, that is by 30 June 2022. The assessments for YAs 2018 to YA 2020 may then be
reduced accordingly by the DGIR [s.33(5)].
19
Review fees for Malaysian clients This is a component activity of EPC and is carried out in Malaysia. The
income is derived from Malaysia and duly subject to tax in Malaysia.
Review fees for Singapore clients Similarly, this activity is carried out in Malaysia. The fact that the clients
are from Singapore does not change the fact that the activity is carried out
in Malaysia. The income is derived from Malaysia and subject to tax in
Malaysia regardless of whether the amount is remitted to Malaysia.
(ii) Fixed base in Singapore
Ahmad was in Singapore for 12 days in 2017 solely to conduct courses. Although the activity of conducting courses is
an integral activity of his business, the short duration and the fact that he does not carry out any other business activity
in Singapore would suggest that he has no fixed base in Singapore.
(b) Sathi
(i) Residence
Sathi has never left Malaysia until 1 January 2017 when she travelled to India. She will return to Malaysia on
31 December 2017.
In 2017, Sathi will have been in Malaysia for the previous 20 years, thereby fulfilling the rule [under s.7(1)(d)] that she
was a resident of Malaysia for the three immediately preceding years of assessment (YA), i.e. YAs 2014, 2015 and 2016;
she also plans to be resident for the YA immediately following 2017, i.e. YA 2018. Therefore, despite being in Malaysia
for only two days in 2017, Sathi is a resident of Malaysia for YA 2017. Alternatively, she also qualifies for residence in
YA 2017 by virtue of the fact that she was in Malaysia on 1 January 2017 which is connected to a period of 365 days
in 2016, or on 31 December 2017 which is connected to a period of 365 days of 2018.
(ii) Total income for YA 2017
RM
Rental income
1 January 2017 to 30 September 2017
Rental income of RM135,000 (180,000/12 x 9) is taxable in the hands of Param,
as the rental property transferred to Sathi by her grandfather falls to be treated as a
settlement [under s.65] Nil
1 October 2017 to 31 December 2017
Following the demise of her grandfather, the settlor, the rental income becomes
taxable in the hands of Sathi (180,000/12 x 3) 45,000
Annuity (specifically taxable [s.64(3)(b) and (c)]) 12,000
Scholarship (exempt [Paragraph 24, Schedule 6]) Nil
–––––––
Aggregate income 57,000
Less: Approved donation RM12,000 (restricted to 7% of RM57,000) (3,990 )
–––––––
Total income 53,010
–––––––
20
To ensure its continued eligibility for the relief, the group must ensure that for the three years after the date of the DGIR’s
approval:
– Bie, the transferee company, does not cease to be resident in Malaysia; and
– both Aay and Bie continue to be companies in the same group.
(ii) Subsequent reclassification of Parcel Z as inventory
Pursuant to the law [paragraph 17A Schedule 2 of RPGT Act], if Bie reclassifies Parcel Z as inventory, it will mean taking
it into trading stock. This taking into inventory and conversion into a current asset will be deemed to be a disposal of a
chargeable asset by Bie and Bie will be liable to RPGT on this deemed disposal. The disposal price of the chargeable asset
is deemed to be its prevailing market price. The acquisition price for Bie is the original acquisition price of RM1,680,000.
From an income tax perspective, the cost of Parcel Z as inventory in the property development business will be the
prevailing market value (price) at the time of its reclassification.
21
Professional Level – Options Module, Paper P6 (MYS)
Advanced Taxation (Malaysia) December 2017 Marking Scheme
Marks
1 (i) Tax treatment of other income and related expenses
Rental income
Active comprehensive services 1
For the benefit of the road users, incidental 1
Deductibility of expenses 1
Government grant
Exemption 1
Expenses/QE disregarded 1
Eligible QE for IBA 1
Amortisation/accounting treatment not relevant 1
–––––
Available 7
–––––
Maximum 6
–––––
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Marks
(iv) Tax treatment of the proposed business of floriculture
Business income, separate v incidental 1
Basis to support incidental income 2
Fact mainly for export not critical 1
No tax impact whether separate or incidental 1
Tax impact if carried out by GL 2
Conclude GL more efficient vehicle 1
–––––
Available 8
–––––
Maximum 7
–––––
Professional marks
Format and presentation of the report 1
Clarity and effectiveness of communication including logical flow 2
Appropriate use of appendix 1
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4
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35
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24
Marks
2 (a) (i) Export incentives available
Further deduction on export of goods, basis of eligibility 1+2
Eligible amount (3 x 0·5) 1·5
Further deduction on advertising expenses, basis of eligibility 1+2
Eligible amount 0·5
–––––
Available 8
–––––
Maximum 7
–––––
(ii) Additional incentive after consolidation
Tax exemption for increased exports, basis of eligibility 1+1
Significant increase in exports: definition, calculation 1+1
Tax exemption: definition, value 0·5 + 0·5
70% restriction 1
Payment of exempt dividends 0·5
–––––
Available 6·5
–––––
Maximum 6
–––––
(iii) Other taxes benefits of consolidation
Income tax
Single business 1
Utilisation of unabsorbed CA 1
No TP scrutiny 1
GST
Tax returns 1
Cash flow 1·5
–––––
Available 5·5
–––––
Maximum 4
–––––
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Marks
3 (a) (i) RM1 million as equity
Higher equity, higher dividend, not deductible 1
Already not an SME, reason 0·5 + 1
Increased share capital will not result in any change to non-SME status 1
Continued tax treatment 0·5 + 0·5
–––––
Available 4·5
–––––
Maximum 3
–––––
(ii) RM1 million as an interest-free loan with no terms of repayment
No interest-rate, no terms of repayment, not a loan, no interest deduction 0·5 + 0·5 + 0·5
Conclusion: it is a grant/subsidy 0·5
Revenue grant, reason 0·5 + 0·5
Not a grant from the government, not eligible for exemption 0·5
Conclusion: grant subject to tax 0·5
–––––
4
–––––
(iii) RM1 million as a normal market-rate loan
Interest income for Big
Principles: when received, but then related to when receivable 0·5 + 1
Obtainable on demand, with reason 1
Application: receivable year ended 30 June 2021, taxed in YAs 2018 to 2021 0·5 + 0·5
Interest expense for Little
When due to be paid/YA 2021 1
Related back to period for which payable, YAs 2018 to 2020 1+1
Notification to DG to revise, within 12 months 1 + 0·5
–––––
Available 8
–––––
Maximum 7
–––––
(b) Compensation
Loss of animal stock and crop 2
Degradation of farmland
Income tax 2
RPGT 1
Loss of profits 2
–––––
Available 7
–––––
Maximum 6
–––––
20
–––––
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Marks
4 (a) (i) Derivation and taxability
Fees: courses in Malaysia 1+1
Fees: courses in Singapore 2+2
Review fees: Malaysian clients 1+1
Review fees: Singapore clients 1+2
–––––
Available 11
–––––
Maximum 10
–––––
(ii) Fixed base in Singapore
Short duration 0·5
No other business activities 0·5
Conclusion – no fixed base 1
–––––
2
–––––
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Marks
5 (a) (i) RPGT relief
Intra-group transfer, deemed at no gain/no loss 1+1
Eligibility
Aay and Bie in the same group 1
Bie is resident 1
Transfer for greater efficiency of operation, how 1 + 0·5
Prior approval of DGIR 1
Form of consideration 1
Continued eligibility
Three-year moratorium 1
Residence of Bie, both group companies 0·5 + 0·5
–––––
Available 9·5
–––––
Maximum 9
–––––
(ii) Subsequent reclassification as inventory
RPGT:
Deemed disposal, RPGT payable by Bie 1 + 0·5
Disposal price at market value 0·5
Acquisition price at original price 0·5
Income tax:
Cost as inventory deemed market value 1
–––––
Available 3·5
–––––
Maximum 3
–––––
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