CONFIDENTIAL 1 AC/FEB 2022/TAX667/490

UNIVERSITI TEKNOLOGI MARA

FINAL ASSESSMENT

COURSE : ADVANCED TAXATION / ADVANCED MALAYSIAN

TAXATION
COURSE CODE : TAX667/490
ASSESSMENT : FEBRUARY 2022
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
invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) a two-page Appendix 1

5. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 10 printed pages
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QUESTION 1

En Abdussalam, a non-resident businessman from Brunei, come to Malaysia five years ago
and married a local woman from Melaka. They have a daughter who currently studying in
UiTM Jengka. The family lived in Bandar Hilir area. On 1 July 2021, En Abdussalam was
admitted to Melaka Medical Center and passed away due to sudden heart attack. He was
domiciled at the time of his death. Upon En Abdussalam’s death, his uncle En Eusoff a resident
taxpayer was appointed as the executor of his estate.

For the purpose of tax filing, En Eusoff provides information regarding the income and
expenses of the late En Abdusssalam’s for the basis year of 2021.

RM
Business income - Trading
Adjusted income 250,000
Capital allowance 45,000

Business income - Manufacturing

Adjusted loss (25,000)

Business income - Brunei

Adjusted Income (All were donated to an approved institution there). 35,000

Dividend (single tier)

Rasidah Utama Bhd - received on 12 June 2021 5,000

Rental Income
Net rental income - Segamat (received in advanced in June 2021) 15,000
Net rental income - Surabaya (received RM8,000 on 1 September 2021) 13,000

Interest
Maybank, credited on 1 March 2021 7,000
CIMB on RM115,000 saving account, credited on 1 November 2021 11,500

Other income
Honorarium - En Abdussalam was invited as speaker for a seminar series in
Kuala Lumpur, only half of the payment received in May 2021. 20,000

Expenditures incurred during the year of assessment 2021 are as follows:

i. The executor fees of RM20,000 is to be paid to En Eusoff in December 2021, whereas

annuity amounted to RM5,500 per month is to be paid to En Adussalam’s wife (full-time
housewife) every month-end after his death.

ii. En Abdussalam made a cash donation of RM15,000 paid to an approved charitable

institution (Rumah Seri Kenangan, Melaka) on 15 March 2021.

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Required:

a. Compute the income tax payable of En Abdussalam and En Eusoff as the executor of
the estate for the year of assessment 2021.
(10 marks)

b. Explain the tax consequences if En Eusoff fails to furnish the tax return and pay income
taxes of the estate.
(2 marks)
(Total: 12 marks)

QUESTION 2

Sunway Berhad (SB) is a company listed on Bursa Malaysia. Its principal activity is holding
an investment. To support its group, SB provides management services to its subsidiaries.
The relevant financial information provided by SB for the preparation of its tax return:

Financial information for the year ended 31 December 2021

Gross Income RM’000

Dividend from Kedah subsidiaries 3,000
Dividend from Singapore subsidiaries 1,400
Interest from loan to Penang subsidiaries 4,600
Fees for management services from subsidiaries 1,000

Other income
Gain from disposal of an investment 5,000

Investments:
Investment in Kedah subsidiaries 80,000
Investment in Singapore subsidiaries 50,000
Loan to Penang subsidiaries 120,000

Additional information:

i. The direct expenses incurred in respect of the provision of the management services
are RM200,000 for staff costs and RM100,000 for office overheads.

ii. The interest expense incurred for the year is RM575,000 and was used to finance those
three investments as above. The interest expense directly attributed to:

Dividend from Kedah subsidiaries RM200,000

Dividend from Singapore subsidiaries RM100,000
Interest from loan to Penang subsidiaries RM275,000

iii. The amount of common expenses after excluding the expenses in items i and ii is RM1
million.

iv. The current year capital allowance relating to the common assets is RM200,000.

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v. Based on the tax computation for YA 2020, there was an excess of deductible expenses
over gross income in respect of the management fee and interest income sources of
RM100,000 and RM50,000 respectively.

Required:

a. Discuss, with supporting calculations, why SB will be regarded as an investment holding

company.
(4 marks)

b. Compute SB’s total income for YA 2021.

(11 marks)

c. Compare the tax treatment of the management service fees income if SB is to be

delisted from the Bursa Malaysia.
(5 marks)
(Total: 20 marks)

QUESTION 3

Jihoon, a businessman, was being investigated by the Inland Revenue Board of Malaysia
(IRBM) for suspected tax evasion. An investigation was carried out and the following
information were discovered.

1. The extract of the statement of financial position from Jihoon’s business are shown
below:

2019 (RM) 2020 (RM) 2021 (RM)

Capital as at 1 January 300,000 350,000 480,000
Profit for the year 150,000 200,000 200,000
Drawings for the year 15,000 40,000 50,000

2. A car was acquired by Jihoon in April 2019 at a cost of RM150,000. The vehicle was
financed by an interest-free loan, provided by his father (RM90,000) and his uncle
(RM30,000) in 2019. Jihoon paid three (3) equal yearly installments and two (2) equal
yearly installments to his father and uncle, respectively. The payment commenced in
November 2019.

Subsequently, the car was traded-in with a Toyota Lexus vehicle at a value of
RM100,000 on 1 July 2021. The cost of the new vehicle was RM240,000. The trade-in
value was used as a down payment for the new vehicle, while the balance was financed
by a 56-month hire purchase loan. Jihoon began paying the monthly installment of
RM2,655 on 1 August 2021.

3. Jihoon acquired 200,000 shares at RM1 per share in Minimalist Bhd for RM200,000 in
2017. In March 2021, 60% of these shares were sold for RM110,000. The broker agent
was given a 1.5% fee from the disposal value. In November 2021, Jihoon acquired
100,000 shares for RM100,000 from Saradise Bhd.

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4. Jihoon stayed at an inherited bungalow with his family, since 2012. The market value of
the property at the time was RM300,000. Jihoon incurred RM8,000 being cost in
repairing the roof in February, 2020. Later that year, the bungalow was renovated at a
cost of RM90,000. The property was subsequently sold for RM500,000 in July 2021.
Jihoon and his family moved to a new residential property (RM600,000) at Boulevard
Park in the same year. The proceed from the disposal of the bungalow (RM500,000)
was used to settle a RM200,000 personal loan, while the remaining RM300,000 was
deposited into his personal account in Jakarta, in 2021. Jihoon borrowed the RM200,000
personal loan from his sister in 2019.

5. Jihoon’s personal bank statement in Malaysia showed the following balances at the end
of the year:

As at 31 December 2019 (RM) 2020 (RM) 2021 (RM)

Balances 110,000 (Dr) 250,000 (Cr) 1,500,000 (Cr)

6. Jihoon declared income of RM 105,000, RM180,000 and RM185,000 for the years of
assessment 2019, 2020 and 2021, respectively.

7. The payments extracted from the company’s bank statement are shown below:

2019 (RM) 2020 (RM) 2021 (RM)

Ting Dental - 8,000 (Dr) 12,000 (Dr)

Inland Revenue Board Malaysia 15,000 (Dr) 20,000 (Dr) 20,000 (Dr)
Everise Supermarket Bhd - - 36,000 (Dr)

The following explanations were provided by Jihoon about the above items:

i. The payment for Ting Dental relates to dental bills for his children.
ii. The payment to IRBM pertains to income tax paid.
iii. The payment to Everise Supermarket Bhd pertains to food for his family.

8. Jehan (Jihoon’s brother) made a payment of RM80,000 to Jihoon in September 2020,

being partial payment for the RM150,000 interest-free loan provided by Jihoon earlier
that year. He passed away suddenly in late 2021. Due to financial difficulties, Jehan’s
wife will only be able to settle 50% of the outstanding loan in the year 2022. Jihoon will
not be able to recover the remaining balance in 2021.

Required:

a. Calculate the unreported income (if any) of Jihoon for the years of assessment 2020
and 2021 using the capital statement method.
(20 marks)

b. The revised Tax Investigation Framework 2018 has specified incorrect return as an
offence under Sec 113(1) of the Income Tax Act 1967. Explain the offences of an
incorrect return.
(3 marks)
(Total: 23 marks)

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QUESTION 4

Saradise Property Trust (SPT) is an approved real estate investment trust (REIT) listed on
Bursa Malaysia. The income statement for the year ended 31 December 2021 is provided
below:

Income Note RM
Rental income 1,480,000
Interest income from debentures 1 200,000
Dividend from Taiwan 50,000
Revaluation surplus 20,700
1,750,700
Expenditure
Trustee’s fee 2 (36,000)
Professional fees for tax appeal (18,000)
Realized loss on sale of quoted shares (3,400)
Contribution of books to National Public Library [sec 34(6)(g)] (12,000)
Interest on loan 3 (40,000)
Profit before tax 1,641,300

Additional information:

1. Debenture was approved by the Securities Commission.

2. The trustee was paid RM20,000 to manage the business.
3. A quarter (¼) of the interest on a loan was related to the purchase of debenture while
the remaining amount was incurred to earn rental income.
4. The total income distributed to unitholders amounted to RM1,200,000.

Required:

a. Calculate the total income of SPT for the year of assessment 2021. Write ‘Nil’ where no
adjustment is required. Start your answer from profit before tax.
(10 marks)

b. Discuss the differences in the tax treatment of the following items under REIT, in
comparison with the normal treatment of a business source.

i. the excess of deductible expenses over income

ii. the excess of capital allowances
(5 marks)

c. Advise the management of SPT on the following:

i. the taxability of its total income for the year of assessment 2021.
ii. the tax implication of distributing another RM200,000 to its unitholders on 15
February 2022.
iii. the deduction of withholding tax to a resident company unit holder, assuming that
the total income of SPT qualifies for exemption.
(5 marks)
(Total: 20 marks)

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QUESTION 5

A. Gerak Invest Sdn Bhd (GISB) and Mara Invest Sdn Bhd (MISB) are wholly-owned
subsidiaries of Dabeena Investment Holding Bhd (DIHB). Both subsidiaries have an
issued capital of RM7 million each and DIHB has issued a share capital of RM10 million.
Dabeena group of companies were incorporated in Malaysia and have been actively
operating their business in the country for the past five years. These companies end
their accounting period on 31 October annually.

For the year of assessment 2021, DIHB’s aggregate income is RM1,100,000 which
comprises income from rental and business income. MISB recorded a statutory income
of RM2.0 million, meanwhile, GISB suffered an adjusted loss of RM2.5 million

Other information pertaining to the companies are as follows:

1. DIHB and its subsidiaries do not receive any form of tax incentives in the year of
assessment 2021.

2. Donation made by each company to an approved organization is as follows:

i. DIHB RM90,000
ii. GISB RM30,000
iii. MISB RM25,000 and 7 unit computers cost RM5,000 each to a
boarding school in Melaka.

Required:

a. Does Dabeena group of companies eligible for group relief for the year of
assessment 2021? Discuss and highlight criteria that need to be fulfilled before
the tax treatment can be implemented.
(6 marks)

b. Assuming that Dabeena group of companies qualify for group relief, for the year
of assessment 2021, compute the following:

i. The amount of adjusted losses that may be surrendered by GISB.

ii. The amount of unabsorbed losses to be carried forward by GISB.
iii. The defined aggregate income of DIHB and MISB.
(4 marks)

B. Kancil Plantation Sdn Bhd (KPSB), is a Malaysian resident company, which has been in
the business of cocoa plantations since 2000.

In a recent board meeting, KPSB has decided to build a factory in the year 2022 to
process and produce raw cocoa extract for export. The cost estimated for the capital
investment in the factory is RM250 million which plan to be financed from a loan raised
by the company. At the same time, KPSB also anticipates suffering a loss at the
beginning of the new venture.

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In order to proceed with the plan, KPSB is considering two alternatives:

1. To set up a new wholly-owned subsidiary company with a paid-up capital of RM2.6

million that will take charge of the factory operation, or
2. KPSB will own and operate the factory as an extension of the existing business.

Additional information shows that KPSB incurred the following expenses the year ended
31 December 2021:

RM
Donations 75,000
Training expense 126,000
Leasing expenses 42,000
Bad debts 59,000
Employees’ remuneration 96,000

Notes:

1. The company donate RM20,000 and a van costing RM40,000 to an approved

charity organization.

2. Training expenses for employees.

3. KPSB leased a new Mercedes for its general manager for a period of 5 years at
RM4,200 per month starting March 2021. The cost of the car is RM250,000.

4. Bad debt consists of provision for general doubtful debts of RM30,000 and
provision of specific doubtful debts of RM29,000.

5. The amount includes salaries paid to a disabled employee amounted to RM30,000

per annum.

Required:

a. Based on the expenses incurred, advise five (5) tax planning strategies for KPSB
to minimize its income tax liability.
(10 marks)

b. In regards to KPSB decision to build a new factory, propose comparative tax

impact on each of the two alternatives, with reference to the following aspects:

i. The deductibility of the cost of any feasibility studies and other preparatory
expenses related to the establishment of the mill.
(2 marks)

ii. The treatment of the initial losses incurred.

(3 marks)
(Total: 25 marks)

END OF QUESTION PAPER

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 CONFIDENTIAL APPENDIX 1 (1) AC/FEB 2022/TAX667/490

• The following tax rates and allowances are to be used in answering the questions:
Income Tax Rates
(a) Companies 24%

(b) Small and Medium companies:

Chargeable Income ≤ RM600,000 17%
Chargeable Income > RM600,000 24%

(c) Non-resident individuals 30%

(d) Resident individuals Scaled rate*

(e) Trust Body – Resident or Non-resident 24%

(f) Executor – Domiciled in Malaysia Scaled rate*

(g) Executor – Not domiciled in Malaysia 24%

* Scaled Rate (BUDGET 2021)

*Chargeable Income Rate Cumulative Tax
RM RM
On 5,000 0
Next 5,000 1 50
On 10,000 50
Next 10,000 1 100
On 20,000 150
Next 15,000 3 450
On 35,000 600
Next 15,000 8 1,200
On 50,000 1,800
Next 20,000 13 2,600
On 70,000 4,400
Next 30,000 21 6,300
On 100,000 10,700
Next 150,000 24 36,000
On 250,000 46,700
Next 150,000 24.5 36,750
On 400,000 83,450
Next 200,000 25 50,000
On 600,000 133,450
Next 400,000 26 104,000
On 1,000,000 237,450
Next 1,000,000 28 280,000
On 2,000,000 517,450
Exceeding 2,000,000 30

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Personal reliefs (BUDGET 2021)

RM
Self 9,000
Disabled self, additional 6,000
Spouse relief (normal) - no income/ joint assessment 4,000
Disabled spouse 9,000
Child - basic rate (each) 2,000
Child - more than 18 years old and study at higher institution (each) 8,000
Disabled child (each) 6,000
Disabled child - more than 18 years old and study at higher (each) 14,000
institution
Childcare (below six years old) (maximum) 2,000
Medical expenses expended on parents (maximum) 8,000
Medical expenses expended on self, spouse or child with serious (maximum) 8,000
disease,
including up to RM1,000 medical examination Parental care (each) 1,000
Basic supporting equipment for disabled self, spouse, child or (maximum) 6,000
parent
Study course fees for skills or qualifications (maximum) 7,000
Lifestyle allowance (maximum) 2,500

Rebates
Chargeable income not exceeding RM35,000 RM
Individual - basic rate 400
Individual entitled to a deduction in respect of a spouse or a former wife 800

Rate of Capital Allowances

Initial allowance Annual allowance
(IA) (AA)
Rate % Rate %
Industrial buildings 10 3
Plant and machinery - general 20 14
Motor vehicles and heavy machinery 20 20
Office equipment, furniture and fittings 20 10
Computers 20 20

Agriculture allowance
Buildings for the welfare of or as living
accommodation for farm employees Nil 20
Other buildings used in the business Nil 10
All other qualifying agricultural expenditure Nil 50

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