1 TAX SEPTEMBER 2017

SUGGESTED SOLUTION SET1

SOLUTION 1

MM Manufacturing Sdn Bhd

Tax computation for the year of assessment 2017
Add (+) Ded (-)
Note RM000 RM000 RM000
Business income
Profit before taxation 235,723
Cost of sales
Less:
Dividends-single tier (local) 1 30
Dividend (foreign) 25
Interest received from debtors 2 48
Insurance recovery 3 0 (103)
235,620
Add/(Less):
Remuneration 4
Director's salary 0
EPF (rest: [93 - (19% of 422k)] 13
Overseas trip for director 35
Compensation to a director 5
Lump sum 100
Pension 24
Loan interest 6
Interest on loan for investment 40
Interest on loan for working capital 0
Entertainment 7
Entertainment of suppliers [50% disallowed] 75
Ent allowance to marketing staff [50% disallowed] 90
Annual dinner for staff 0
Gift to customers for purchases above RM100 0
Launching a new sofa 0
Depreciation 119
Repairs and maintenance 8
Extending the admin office 300
Replacement of the roof 0
Other repairs 0
Bad and doubtful debts 9
General trade bad debts written off 0
General trade bad debts provision 440
Specific loan debts provision 230
Motor vehicle expenses 10
Compound and fines 22
 2 TAX SEPTEMBER 2017

Damaged lorry repair 40

Other maintenance charges 0
Lease charges
Car [70k-50k max] 11 20
Machine 0
Negotiated lease compensation payment 100
Advertisement, publicity and patent 12
Advertisement in local dailies 0
Advertising -own brand (DD) 150
Ded. for proprietary rights (20% of RM500k) (DD) 100
Professional fees
Damages for breach of agreement 40
Legal fees 8
Secretarial fees [10k - 5k max) 5
Tax filing fees [15k-10k] 5
GST appeal 5
Insurance 13
Local insurance-cargo import 0
Foreign insurance-cargo export 0
Insurance-company assets 0
Foreign exchange loss 14
Realized loss- stock imports 0
Realized loss-machinery spare parts 0
Unrealized loss-machine 20
Cash donation to the Federal Government 15 200
1,931 250 235,620
Add 1,931
237,551
Less (250)
Adjusted income from business 237,301
Less: Capital allowance 45,600
Qualifying expenditure 40,000
Less:
Initial allowance 8,000
Annual allowance 8,000 16,000 16,000 (61,600)
Statutory business income 175,701
Add: Other income
Dividends (local - single tier) 0
Dividend (foreign - exempted) 0
Interest received from debtors [Sec 4(c)] 48 48
175,749
Less: Donation
Cash donation to the Federal Government 200
Total income and chargeable income 175,549

(20 marks)
 3 TAX SEPTEMBER 2017

SOLUTION 2(a)
En Segar
Computation of chargeable gain

Disposal price RM RM

Consideration received 354,200

Less: Permitted expenses
Cost of enhancement 37,851
Legal fees -defending title 7,700 45,551
308,649
Less: Incidental cost of disposal
Valuation fees 5,495
Brokerage 7,692
Advertisement 977 14,164
Disposal price 294,485 (a)

Acquisition price RM RM

Consideration paid 274,725

Add: Incidental expenses
Stamp duty on transfer 4,495
Legal fees 2,373
Interest on loan 0 6,868
281,593
Less: Para 4(1) receipts
Compensation received :
Fire damage 48,420
Insurance recoveries 12,088
Deposit forfeited 6,600
67,108
Acquisition price 214,485 (b)

Chargeable gain [(a) - (b)] 80,000

Less: Para 2 Sch 4 Exemption: Higher of
RM10,000; or 10,000
10% of chargeable gain 8,000 10,000
Chargeable gain after exemption 70,000

(10 marks)
 4 TAX SEPTEMBER 2017

SOLUTION 2(b)

Puncak Co-operative Society

Tax computation for the year of assessment 2016
RM RM
Business
Audited net profits 697,732
Less:
Member's entrance fee (exempted) 21,130
Member's subscription (exempted) 78,887
Rental of farm machinery to non-members 5,600
Interest from loan to members (exempted) 12,678 118,295
579,437
Add: Disallowable expenses
Secretarial fees (23,166 5,000) 18,166
Depreciation 3,739
Donation 56,448
Zakat 33,600 111,953
Adjusted income 691,390
Less: Capital allowance 10,000
Statutory income from business 681,390
Add: Other income
Rental of machinery to non-members 5,600
Aggregate income 686,990
Less:
Donation-Restricted to 7% of agg income 48,089
Less: 638,901
Zakat-Restricted to 2.5% of agg income 17,175
621,726
Less: Sec 65A(a) deduction
Lower of :
Amount paid (Note 1); or 75,040
25% of audited net profit 174,433 75,040
546,686
Less: Sec 65A(b) deduction
8% of member's fund (Note 2) 124,560
Chargeable income 422,126

Note 1 RM
Statutory contribution
Contribution to Universiti Malaya 19,040
Co-op Development Trust Fund 16,800
Statutory reserve fund 39,200
75,040
 5 TAX SEPTEMBER 2017

Note 2
Member's fund as at 1 Jan 2014 [Para 12 Schedule 6] RM
Paid up share capital 1,200,000
Share premium account 50,000
Statutory reserve fund 122,000
Reserves from revaluation of assets (excluded) 0
Balance of profit and loss appropriation account b/f 185,000
Member's funds as the first day of the BP 1,557,000

8% of member's funds 124,560

(10 marks)

SOLUTION 3(a)

The issue is whether the sum paid is capital or revenue in nature and if revenue in nature
whether it is deductible for the purposes of the Income Tax Act 1967 (as amended).
The payment would have been capital and therefore not allowable for the purposes of the
Income Tax Act 1967 (as amended) if it is connected with the closing down of the business.
However in this case, the retrenchment was undertaken as part of an attempt cut costs and to
remain in business.
It is therefore an expense wholly and exclusively incurred in the production of gross income
and the company is entitled to the deduction under section 33(1) of the Income Tax Act 1967
(as amended).
There is sufficient support for this line of thinking in the decision of Ampat Tin Dredging Ltd v
DGIR and IRC v Patrick Thompson Ltd.
(5 marks)
SOLUTION 3(b)

It is a loss that arose out of the defalcation of the director. In other words, amount is an
embezzlement of funds by an officer of the company who has some control over the operations
and administration of the business.
This is therefore not an expense wholly and exclusively incurred in the production of gross
income within the meaning of section 33. It should be disallowed in arriving at the adjusted
income of the company.
There is support for this treatment in the case of Curtis v J&G Oldfield Ltd.
(5 marks)
 6 TAX SEPTEMBER 2017

SOLUTION 4

A.
Computation of income tax payable for Encik Badrul and Puan Sofia under
separate assesement for YA 2016

Encik Badrul Puan Sofia

RM RM
Section 4 a
Business Business
Business income 1(RM) 2(RM)
Gross income
less Deductibe expenses
Adjusted income NIL 80,000
add Balancing charge 1,800 -
1,800 80,000
(1,800) (8,000)
less Capital allowances c/f 1,000
Statutory income NIL 72,000 72,000
UNABSORBED LOSS B/F NIL (5,000)
67,000
Section 4 b
Employment Income 220,000
Section 13(1)(a)Salary 145,200
Employers provident fund (EPF) 19,800
Personal gift computer 3,000
168,000
Section 13(1)(c)
Hotel accomodation
3% x Section 13(1)(a)
3% x 168,000x1/12 420
Gross employment
income/Adjusted/statutory 168,420
income 287,000

Section 4 c: Dividend and

Interest income
Dynamic Bhd Exempted NIL
Aloyy Sdn Bhd (Pioneer S) Exempted NIL
Amanah Saham Wawasan Exempted NIL

Interest Exempted NIL -

Taman Taman
Section 4d: Rental income Cahaya Desa
Rental 24,000 36,000
 7 TAX SEPTEMBER 2017

Air Cond. NQ
QR&A (1,600) (2,000)
Repairs (4,000) (3,000)
Adjusted Rental Income 18,400 31,000 49,400
AGGREGATE INCOME 336,400 168,420
CURRENT YEAR BUSINESS LOSS (20,000)
DONATIONS to APPROVED INSTITUTIONS
Cash (restricted to 7% of aggregate income) (2,000)
Benefits in kind - books (NIL)
TOTAL INCOME 314,400 168,420
Less RELIEF
Self 9,000 9,000
Employers provident fund
(EPF)/life insurance 6,000 6,000
Books
Internet subscription 2500
Parents Medical Expenses 2,379
Full Medical Check up 500 384
Computer
Books 2,200
Child-Yusmira NQ
Ariel 8,000
Delima 2,000
Medical/Education 3,000 1,738
Medical Expenses-Children NQ
TAXABLE INCOME 281,321 148,798
COMPUTATION OF TAX 281,321
On the first 250,000 31,321 47,900 11,900
31,321
On the next 47,900 @24.5% 7,673.64 48,798@24%
TAX CHARGED 55,573.64 23,611.52
LessZakat 40,000
TAX
PAYABLE/(REFUNDABLE) 15,573.64 23,611.52

(14 marks)

B.
a. A taxable person means any person who is registered under sec 2 GST Act 2014.
Persons include an individual, sole-proprietor, partnership, company, trustee, society, trade
union, club and association.
(1 mark)
 8 TAX SEPTEMBER 2017

b. Titi Tinggi Sdn Bhd

Transaction Value (RM) GST(RM)

i) Supplied tinted glasses 6% x 400,000 24,000
ii) Rental of forklift 6% x 10,000 600
iii) Disposal of tables 6% x 3,000 180
iv) Cash rewards nil nil

Total output tax 24,780

Less: input tax (18,000)

GST payable 6,780

(5 marks)

SOLUTION 5

A.

A. Deceased Executor
R / D [6/12] R [6/12]
RM RM
Adjusted income 160,000
(+) balancing charge 2,000
(-) capital allowance (18,000)
Statutory income 144,000 72,000 72,000
Dividend (exempt) Nil -
Interest - 10,000
Royalty (exempt) Nil
Adjusted rental income 8,000 12,000
Aggregate income 80,000 94,000
less:
Approved donation (restricted to 7% of AI) (5,600)-
Annuity payable -(20,400)
Total income 74,400 73,600
less: self relief/special relief (9,000)(9,000)
child relief (2,000 x 2) (4,000)-
Chargeable income 61,400 64,600
Tax charge scale rate
on the 1st RM50,000 2,400 2,400
On the next RM11,400 x16% 1,824 2,336
/14,600 x 16%
4,736
Income tax payable 4,224 4,736

(10 marks)
 9 TAX SEPTEMBER 2017

B. a. Interest paid to Bank of Thailand

i. Interest of RM320,000 is subject to withholding tax as the payment is

deemed to be derived from Malaysia as the responsibility of payment lies
with a person who is resident in Malaysia and the money borrowed to
finance the project in Malaysia.

ii. Interest of RM480,000 is not subject to withholding tax as the money

borrowed to finance the project outside Malaysia.

Rental of plant and machinery

The RM440,000 payment is subject to withholding tax under sec. 4A(iii) special
classes of income. It is deemed to be derived from Malaysia as the
responsibility of payment lies with a person who is resident in Malaysia paid to a
non-resident recipient and the project is in Malaysia.

Supply of materials

The RM3,900,000 payment is not subject to withholding tax as it is related to the

purchase of materials and not related to services rendered.

Technical advice

The RM270,000 payment is not subject to withholding tax because the services
rendered outside Malaysia. (video conference)

Public entertainer remuneration

The RM70,000 paid to a non-resident public entertainer to perform in Kedah,

Malaysia is subject to withholding tax under s 109A. it is deemed to be derived
from Malaysia because the employment is exercised in Malaysia.
The RM100,000 paid to a non-resident public entertainer to perform in Bangkok,
Thailand is not subject to withholding tax under s 109 because the performance
was not performed in Malaysia.
(8 marks)

ii. Tax implications: A penalty of 10% will be imposed on the payer if the
company failed to pay the amount of withholding tax to the tax authorities within
1 month after crediting or paying the interest amount to the non-resident.
Since TP Sdn Bhd paid the WHT on 28 August 2016; the following will be the
debt due by TP Sdn Bhd.

Interest paid 320,000

======
WHT @ 15% 48,000
Add: Penalty @ 10% x 48,000 4,800
-----------
Debt due to the tax authority 52,800
=======
(2 marks)
Total: 20 marks
 10 TAX SEPTEMBER 2017

SOLUTION 6
A.
Investment Tax Allowance
2016 2017
RM RM
QCE:
Factory bulding 2,220,000 -
Plant and machinery 260,000 1,600,000
Total QCE 2,480,000 1,600,000
ITA @ 60%x QCE 1,488,000 960,000

ITA b/f - 1,488,000

ITA available 1,488,000 960,000
Total ITA available 1,488,000 2,448,000
Less: ITA utilized Nil (1,162,000)
Unutilised ITA c/f 1,488,000 1,286,000

Adjusted Income 300,000 2,000,000

Add: Balancing Charge 30,000
Less: CA b/f - (40,000)
CA c/y (330,000) (300,000)
Statutory income Nil 1,660,000
Less: ITA utilized @ 70%x SI Nil (1,162,000)
Statutory income after abatement Nil 498,000
Less: Unabsorbed business Nil (120,000)
losses b/f
Total/Chargeable income Nil 378,000

Amount credited to the exempt Nil 1,162,000

income a/c
Pioneer Status
Adjusted Income 300,000 2,000,000
Add: Balancing Charge 30,000
Less: CA b/f - (40,000)
CA c/y (330,000) (300,000)
Statutory income Nil 1,660,000
Less: Abatement @ 70%x SI Nil (1,162,000)
Total/Chargeable income Nil 498,000

Exempt income account:

70% x SI Nil 1,162,000
Less: Unabsorbed business Nil (120,000)
losses b/f
Amount credited to the exempt Nil 1,042,000
income account

(8 marks)
 11 TAX SEPTEMBER 2017

ii. Decision:
Investment incentives Chargeable Exempt Income
Income account
RM RM
Pioneer status 498,000 1,042,000
Investment Tax Allowances 378,000 1,162,000

Kelly Castle Sdn Bhd should apply for Investment Tax Allowances since the amount of
chargeable income is lower while the amount of exempt income account is higher
compared to Pioneer Status Incentives.
(2 marks)

(Total marks: 10 marks)