BKAT3033 SPECIALISED TAX

A231
TUTORIAL 1:
TAXATION ON LEASING COMPANIES

QUESTION 1
A. Below are three situations for a leasing business:

(i) A lease of asset Q was granted on 1 July 2022 for 36 months with rentals of
RM900 per month. The asset was installed in the lessee’s premise and cannot be
used by any other person without altering or dismantling it. The lease rentals for
year of assessment 2023 amounting RM10,800 of which RM2,700 relates to the
interest portion.

(ii) A lease of asset R is a result from a sale and lease back arrangement. The asset
was previously used by the lessee who suffered a balancing charge on the sale of
the asset to the lessor.

REQUIRED:

For each of the situation above, evaluate:

(a) whether the asset should be treated as lease asset or deemed sale asset; and
(b) the tax treatment for each situation.

B. Harmony Leasing Sdn Bhd is a locally incorporated company which closes its
accounts on 31 December every year. The main business of the company is leasing
heavy machinery for bridge construction. In January 2021, it leased out a machine to
Symphony Sdn Bhd for a period of three years under a special arrangement of which
the lease payments were as follows:

Year Lease payment (RM)

2021 36,000 per month
2022 54,000 per month
2023 60,000 per month

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 REQUIRED:

Advise Harmony Leasing Sdn Bhd on the tax implication of the above with reference to
Regulation 3 of the Income Tax Leasing Regulations (ITLR) 1986. Show all relevant
computations.

QUESTION 2

Bumi Hijau Bhd (BHB) is a company involves in leasing business. BHB closes its account on
30 November each year. The accounting information extracted for the year ended 30
November 2023 are as follows:

NOTE RM
Deemed Sale
Lease on Equipment 1 54,000
Lease on Heavy Vehicle 2 140,000
Lease on IT Equipment 3 48,000
Lease on Machinery 4 64,000

Non-Deemed Sale 3,144,000

Total gross revenue 3,450,000

Less: expenses
Administration expenses 300,000
Remuneration expenses 180,000
Approved donation 34,000
Zakat on business 60,000
Depreciation 370,000
Net profit before tax 2,506,000
Notes to the account:

1. Lease on equipment
BHB lease an equipment to Maju Sdn Bhd on 1 February 2021 for 36 months with a
rental of RM32,000 per month. The cost of equipment was RM990,000. There is no
requirement for the lessee to buy the equipment but was sold at nominal amount at
end of the lease term. The lease rental (interest portion) recognized in the account for the
year 2023 was RM54,000.

2. Lease on heavy vehicle

A heavy vehicle was leased to Jaguh Bhd on 1 April 2023 for 48 months with
monthly lease rental of RM36,000 per month. This asset was bought from Jaguh Bhd
for RM1,000,000. Jaguh Bhd did not claim any capital allowance on them, and no rights
are given for lessee to re-purchase the assets. The rental amount recognized in the
accounts for 2023 was RM140,000.

3. Lease on IT equipment
An IT equipment was lease to Bijak Bhd on 1 December 2020 for 60 months with a
monthly lease rental of RM18,000. The IT cost was at RM840,000. There was a
clause in the lease agreement where lessee can buy for RM100 at end of lease term. The

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lease rental received (interest portion) recorded in company’s account for the year 2023 was
RM48,000.

4. Lease on machinery
A machinery was lease to Bestari Bhd on 1 May 2023 for 30 months with monthly
lease rental of RM29,000. The machinery was purchase from Bestari Berhad for
RM1,512,000 with the condition that the machinery must be leased back to the seller.
Lessee has owned the machinery for three (3) years and had claimed capital
allowance before selling to BHB. Lessee has no right to re-purchase the machinery
but can continue to lease for a nominal amount after the lease term expired. The lease
rental (interest portion) stated in company’s account for the year 2023 was RM64,000.

Additional information:

Capital allowance for the year of assessment 2023 are:

RM
Common assets (not leased assets) 46,000
Leased assets 1,120,000

REQUIRED:

Compute the chargeable income for Bumi Hijau Bhd for the year of assessment 2023.

END OF QUESTIONS

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 TUTORIAL 2:
ALLOWANCES FOR MINING, AGRICULTURE & FOREST

QUESTION 1
GLG Holdings (Malaysia) Berhad was established in 2003 with the financial year ends on
each 31 December. Two (2) of the subsidiary companies, GM Sdn Bhd (GMSB) and
LF Sdn Bhd (LFSB), run mining and agriculture business respectively. The main
activity of GMSB is coal mining while LFSB is oil palm plantation.

Coal mining operation had started since 1 June 2018 with qualifying mining expenditure of
RM3,600,000. The estimated life of the mine was ten years.

On 1 July 2022, LFSB purchased an oil palm plantation from a company (accounting year
ends on 30 September) and paid a consideration of RM1,100,000. The transferor
reported that the residual expenditure of the labour quarters and a storeroom in the
plantation were RM13,000 and RM7,000 respectively. It was estimated that the
portion of labour quarters and storeroom was two percent of the consideration paid
by LFSB. In March 2023, LFSB incurred RM15,000 to plant oil palm trees as a
replacement for the dead trees on the purchased plantation.

REQUIRED:

(a) Compute the mining allowance for GMSB related to coal mining operation for the
years of assessment 2018 and 2019.

(b) Compute mining allowances for GMSB if the company ceased its operation on 31
October 2023 and disposed of the mine on 30 November 2023 for a consideration of
RM900,000. Assume that the company makes an election under Paragraph 15,
Schedule 2 of the Income Tax Act 1967.

(c) Compute the agriculture allowance for LFSB related to the purchased plantation for the
years of assessment 2022 and 2023.

QUESTION 2
Log Input Sdn Bhd was licensed to extract timber from a forest in Malaysia. The accounts
are prepared by 31 December annually. The following expenditure was recorded
related to the operation:

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 Date Incurred Expenditure RM

31 October 2020 Construction of road 80,000

30 November 2020 Construction of living 20,000
accommodation
30 September 2021 Construction of road 25,000
15 December 2021 Construction of living 18,000
accommodation

The company ceased to extract timber and disposed of the forest on 30 April 2023.

REQUIRED:
Compute the forest allowances and charges (if any) for the relevant years of assessment,
assuming that an election was made under Paragraph 32 of Schedule 3 of the Income
Tax Act 1967.

END OF QUESTIONS

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 TUTORIAL 3:
TAXATION ON BANKING BUSINESS

QUESTION 1

RAJ Bank Berhad is a resident company in Malaysia for tax purposes since 2010. Its
operation generated an average annual profit of RM500,000. It holds a 20% shareholding in
SAR Bank Ltd, bank in Country X (outside Malaysia). RAJ Bank Bhd received a net
dividend of RM20,000 after deduction of withholding tax of 10% in year of assessment 2023
from SAR Bank Ltd. Malaysia has double tax agreement with County X and a relief for
underlying tax for a shareholding exceeding 10% in any company. SAR Bank Ltd paid tax
amounting to RM40,000 and its profit after tax was RM160,000.

For business expansion purpose, the company is planning to establish a branch of its business
in one of the two countries i.e. Country Y or Country Z. An annual profit of RM200,000 is
projected for the first two years (2024-2025) of establishment for the proposed branches and
all available profits will be remitted into Malaysia. The tax rate for Country Y and Country Z
is 20% and 15% respectively. Malaysia has double taxation agreement with Country Y but
not with Country Z.

REQUIRED:

(a) Explain the scope of charge for a resident bank receiving banking business income as
stipulated under Section 60C of Income Tax Act 1967.

(b) Compute the tax payable for RAJ Bank Bhd for the year of assessment 2023.

(c) Advise in which country (Country Y or Country Z) RAJ Bank Bhd should locate its
branch in order to minimize its overall tax liability in 2024. Show all relevant
computation to support your advice.

QUESTION 2

Bank Bersatu Berhad (BBB), a Malaysian resident has been carrying on the business of
banking for several years. Apart from Malaysian banking business income, the company also
received foreign banking business income from its overseas branches. The following income
is reported for the year 2023:
Note RM’000
Malaysian Banking Business Income:
Adjusted business income 2,000
Net dividend income 1 300
Capital allowance 50
Balancing charge 40

Foreign Banking Business Income:

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 Branch in Korea (gross) 2 70
Branch in South Africa (gross) 3 80
Notes:

1. Dividend income was received from resident company in Malaysia.

2. Tax paid on the income from the branch in Korea was RM18,500. Malaysia has a
double taxation agreement with Korea. The gross amount was never remitted back to
Malaysia.
3. Malaysia has no double taxation agreement South Africa. The income tax rate is 25%
in this country. The full amount of profit derived in South Africa was remitted back to
Malaysia.
4. BBB has also a subsidiary in Singapore doing banking business. The subsidiary
derives SGD100,000 (RM240,000) of banking business for the year of assessment
2023. It pays RM42,500 net dividend after deducting Singapore withholding tax of
15%. There is DTA between Singapore and Malaysia.
5. BBB has a 30% shareholding in State Bank, a company operating in banking business
Vietnam. Malaysia has double taxation agreement with Vietnam which provides full
tax credit relief including underlying tax for shareholding exceeding 15% in any
company in Vietnam. The State Bank for the year 2023 derives RM320,000 income
before tax. The corporate tax in Vietnam was 22%. Dividends paid to any non
resident would be subject to 18% withholding tax in Vietnam. BBB receives a net
dividend of RM20,500 from State Bank for the year 2023.

REQUIRED:

Compute the income tax payable for Bank Bersatu Bhd for the year of assessment 2023.

END OF QUESTIONS