FACULTY OF BUSINESS AND INFORMATION SCIENCE (FoBIS)

BA203 TAXATION 1
GROUP ASSIGNMENT
Lecturer: Josephine Chang Swee Mei
Submission date: Wednesday 3 Mar 2016; 9.30-11 am
Marks: 30%
Marks are to be given for teamwork and professional work done on the assignment.
No.
1
2
3
4
5
6
7
8

Name

ID No.

Contribution

Your assignment must be type written using Microsoft Word or Excel with single line
spacing and Times New Roman font size 12. Staple your assignment for submission.
Email the softcopy of your assignment to changsm@ucsiuniversity.edu.my.

All workings and notes must be shown. Marks will be deducted for poor presentation
and organization of answers, spelling errors and lack of team-work.
Provide citation and references for the work of published authors.
Penalties for late submission of assignments after the due date above:
One (1) day late:
10%
Two (2) days late:
60%
Three (3) days late: 90%
Assignments received three (3) days after the due date will not be graded.

Question 1
On 1 June 2015, Baton Sdn Bhd, a trading company which makes up its accounts annually to
30 June, was bought over by Torch Berhad. Torch Berhad makes up its accounts annually to
30 September.
In 2015, Baton Sdn Bhd intends to change its year end to be coterminous with its new holding
company, Torch Berhad. It will apply to the Director General of Inland Revenue (DGIR) to
direct its basis period(s). Baton Sdn Bhds accounting periods are as follows:
1 July 2013 to 30 June 2014
1 July 2014 to 30 September 2015
Thereafter annually to 30 September
Baton Sdn Bhd operates solely from Ipoh, although it imports and exports from neighbouring
countries. To expand its business, Baton Sdn Bhd has recruited Mr Robert Hew to be based in
Hong Kong for 24 months from 1 July 2015 to 30 June 2017. Robert Hew has never left
Malaysia for any extended period prior to 1 July 2015.
While in Hong Kong, Robert Hew will actively seek out suppliers and customers for Baton
Sdn Bhds trading business. Robert Hew will travel extensively within Hong Kong. He is fully
authorised to enter into business contracts on Baton Sdn Bhds behalf. Baton Sdn Bhd intends
to charge all expenses relating to Robert Hews deployment in Hong Kong to its business
accounts in Malaysia.
Once every three months, Robert Hew will spend a week in Ipoh to report his progress to and
have discussions with the managing director of Baton Sdn Bhd.
Throughout the whole of the 24-month period, Robert Hew will continue to derive rental
income from his property in Malaysia. Each year, Robert Hew will remit 50% of his Hong
Kong income back to Malaysia.
Robert Hew plans to spend a month touring Hong Kong at the end of his 24-month
deployment, before relocating back to Malaysia in August 2017.
The Malaysia Hong Kong double taxation agreement (DTA) was signed on 25 April, 2012
and have been gazetted in both jurisdictions.
Required:
(a)
Explain how Baton Sdn Bhds basis periods for the years of assessment 2015 and 2016
will be determined, whether by direction by the Director General of Inland Revenue or
otherwise, demonstrating how the underlying principles are satisfied.
(10 marks)
(b)

Explain with reasons, whether Baton Sdn Bhd is likely to have a permanent
establishment in Hong Kong from 1 July 2015.
(10 marks)

(c)

Assuming Baton Sdn Bhd does have a permanent establishment in Hong Kong from 1
July 2015, explain the income tax implications and treatment for the company for the
purposes of Malaysian tax during the 24 months, on the assumption that the profits
2

attributable to the permanent establishment are subject to tax in Hong Kong.

(10 marks)
(d)

For each of the years of assessment 2015, 2016 and 2017, state, with reasons, Mr
Robert Hews Malaysian residence status and explain his Malaysian income tax
treatment.
(8
marks)

(e)

Explain the importance and reasons for identifying the residence status of an individual.
(6 marks)
(44 marks)

Question 2
Masters Sdn Bhd (MSB) was incorporated on 1 January 2015 and commenced its operations
on 1 April 2015 with an authorised and issued share capital of RM2,100,000. MSB is in the
business of distributing on-line books and providing career guidance and recruitment services
and makes up its accounts annually to 31 December.
The statement of profit or loss of MSB for the financial year ended 31 December 2015 is as
follows:
Not
RM'000
RM'000
e
Sales
14,700.00
Less: Cost of sales
1
(7,350.00)
Gross profit
7,350.00
Add: Other income
Dividend income
525.0
0
Share of profits from the Upswing Technology
2
2,100.0
College partnership
0
Other income
3
31.5
0
2,656.50
Less: Expenses
Statutory audit fees
45.1
5
Cash losses due to theft and embezzlement
4
52.5
0
Donations
5
105.0
0
Entertainment expenses
6
128.1
0
Foreign exchange loss
7
178.5
0
Insurance premiums
8
94.5
0
Legal and professional fees
9
29.4
3

Allowance for receivables and irrecoverable

debts written off
Repair and maintenance expenses

10

Pre-commencement
expenses
Salaries and wages

12

Travelling expenses

14

11

13

0
31.5
0
71.4
0
21.0
0
6,123.6
0
82.9
5
(6,963.60)
3,042.90

Profit before tax

1

Notes:
Cost of sales
Included in the cost of sales are:

RM000

Depreciation of plant and equipment

Royalty fees (refer to the details below)

1,470.00
1,890.00

Details of the royalty fees paid to Books Inc, a non-resident company, and the
withholding tax remitted to the Inland Revenue Board (IRB) are shown below. No
penalties in respect of late payment were paid:
Date paid to non-resident

Date of remittance to IRB

30 June 2015

2 August 2015

30 September 2015

23 October 2015

Amount
paid
RM000
210.0
0
1,680.0
0
1,890.0
0

2 MSB entered into a partnership agreement with Robust Sdn Bhd to form the Upswing
Technology College. The profits of this partnership will be shared equally. The
necessary approvals were obtained to provide software engineering education services
for both the local and international markets and also to participate in career fairs and
campaigns abroad to attract candidates for the university campus in Kuala Lumpur.
For the year 2015, the Upswing Technology College partnership recorded a profit
before tax of RM4.2 million, after charging depreciation of RM10,500.
Capital allowances for the Upswing Technology College partnership have been
computed at RM105,000 for the year of assessment 2015.
3 The other income arose from a key-mans endowment policy in respect of the managing
4

director.
4 This figure includes an amount embezzled of RM21,000 by one of the directors. A
police report was lodged but was dismissed.
5 MSB contributed computers worth RM105,000 to an approved charitable institution.
6 Entertainment expenses comprise:
Gifts without a business logo for a customers annual dinner
Entertainment of employees of related companies
Promotional samples

RM000
69.30
8.40
50.40
128.10

7 The foreign exchange loss comprises:

Foreign exchange loss realised on trade payables
Foreign exchange gain realised on the purchase of
machinery

189.00
(10.50)
178.50

8 Insurance premiums include:

Insurance premium to cover risk of loss of income of the companys key
personnel
Insurance premium paid for a key-man whole life policy to insure the
life of the marketing manager (the beneficiary stated in this policy is the
company)

RM000
63.00
10.50

9 Legal and professional fees comprise:

Costs of defending legal proceedings brought by former employees
claiming unjust dismissal
Tax fees for appealing against a penalty on a late instalment tax payment
Company secretarial fees

10

RM000
10.50
12.60
6.30
29.40

Allowance for receivables and irrecoverable debts written-off comprise:

General allowance for trade receivables (debtors)
Specific allowance for trade receivables (debtors)

RM000
15.75
15.75
31.50

11

Repair and maintenance expenses include the costs of installing a ramp to provide
access for disabled customers for RM3,150.

12

The total pre-commencement expenses incurred during the period up to 31 March

2015 comprised:
RM000
Salaries and employees provident fund (EPF) related
31.50
expenses
Recruitment expenses
15.75
Incorporation expenses relating to the companys memorandum and
15.75
articles of association and registration of company expenses
63.00
MSB decided to amortize all the above expenses over a period of three years.

13

Salaries and wages include:

Leave passage local trip for managing director
Staff training costs (see below)
Salaries of directors
EPF contributions for directors

RM000
21.00
115.50
2,100.00
525.00

The staff training was delivered by a non-resident trainer and the costs include
RM8,400 paid to a local hotel for the accommodation expenses incurred for the
trainers one-week stay. It was agreed that MSB would bear the hotel accommodation
expenses incurred by the trainer. No withholding tax was deducted from the payment
made to the hotel. The staff training was not approved for any further deduction.
14

a
b
c
d
15

These include travelling and promotional expenses for four company representatives
to participate in a career and education fair overseas for ten (10) days, which was
approved by the relevant authority, as follows:
Economy air fares for the company representatives at RM5,000
each
Hotel accommodation for the company representatives
Sustenance for the company representatives
Promotional pamphlets and booth rental

RM000
21.00
20.00
15.75
5.78

MSBs capital allowances have been computed at RM2.1 million for the year of
assessment 2015.
Required:
Commencing with the profit before tax, compute the chargeable income, and the tax
payable of Masters Sdn Bhd for the year of assessment 2015.
6

(36 marks)
Note: You should indicate by the use of the word NIL any item referred to in the
question for which no adjusting entry needs to be made in the tax computation.
Total: 80 marks
Team & Professional work: 5 marks
Grand total: 85 marks
END OF QUESTION PAPER