STUDENT ID NO MULTIMEDIA ch university LUI MULTIMEDIA UNIVERSITY FINAL EXAMINATION ‘TRIMESTER 2, 2015/2016 BAC4644 — ADVANCED TAXATION (All sections / Groups) 4 MARCH 2016 9.00 AM TO 12.00 PM. G Hours) INSTRUCTIONS TO STUDENTS. 1. This Question paper consists of 10 (ten) pages (including the cover page) with $ Questions only. 2, Attempt ALL questions. The dstibution ofthe marks foreach question is given 3. Please print all your answers in the Answer Booklet provided.QUESTION 1.25 maris ‘Your manager met with the group chief financial officer ofthe MetroGaya group of ‘companies. Extracts from the record oftheir meeting and an email from your manager ae set out below. Extract from the record of the meeting ‘The MetroGaya Group ‘The group comprises MetroGaya Sdn Bhd, the holding company, and two wholly- owned subsidiaries, Metro Sdn Bhd and Gaya Séa Bhd. All re companies make up ‘their accounts annually to 30 June. They run profitable businesses a follows: () MewoGaya Sdn Bhé: Retail stores for groceries and household goods (3) Metro Sén Bhd: Distribution ofa brand of beverage Gi) Gaye Sdn Bhd Budget hotel Raising finance ‘The group wants to expand, and estimates that the expassion will require about |RM200 million of additional capital, ‘The group also intends to list on the Bursa Malaysia and to carry out an initial public offering (IPO) in three yeas time, Expansion exercise ‘The expansion plans entail the following Creating new group holding company, NewCo, which will wholly own al three operating companies, as well as some other investments, NewCo may ‘occasionally render management services to its subsidiaries. NewCo will become the listed vehicle on Bursa Malaysia aftr the IPO. Opening ten more outlets for MetroGaya Sdn Bhd throughout Malaysia, — _Addiag more product lines to optimise the distribution nework of Metro Sdn Bh, = Upgrading the budget hotel ovmed by Gaya Sdn Bhd to serviced suites for business travellers, ‘The expansion will involve the following capital expenditure: Setting up ten more outlets including renovations itings and equipment, = Securing distribution rights to more product lines and acquiring additionl Continued...Upgrading the hotel to serviced suites requiring new furniture, fittings and equipment, and renovations ‘Extract from sn email from vour manager | trust you have read the extract of the record of the meeting | passed to you yesterday. In preparation for my next meeting with the MetroGaya group, please prepare the following: (9) Raising capital of RM200 milion ‘An explanation of the tx implications of raising capital by way of: — ‘Joan to be taken from & commercial bank by each user company; = loans fiom shareholders who are also directors; and additional equity from existing shareholders, ‘Among other things, ensure that you explain the tax treatment of the incidental ens of rising the capita, the interest expense on the amount borrowed and the potential contrl over the interest rate applicable. (©) Mode of financing the fixed asset acquisitions ‘An explanation ofthe tax implications of using operating leases; = finance leases (which ae not deemed sales; and ~ outright purchase, ‘You should approach this from the perspective of ~ eligibiity for capital allowances (CA): how much end how many years to deplete the CA claim; = eligibility for tax deduction arriving at adjusted income; and — maintenance cost, (©) Group holding company ‘An explanation of why NewCo will be an investment helding company. ‘Also, provide a tabulated summary of the income tax treatment which will be accorded to NewCo before and aftr its listing on the Bursa Malaysia, with respect to the following: Continued. ae athe classification of income; the deductibility of direct and common expenses; asd the availability of CA. Required: (Carry out the work required as requested in the email ftom your manager. (e) Raising capital of RM100 million. (@ mars) (©) Mode of financing the fixed asset acquisitions (7 mans) (©) Group tlding company (NewCo). (10 masis) (Total: 25 mars) QUESTION 2 (20 marks) Prosperous REIT, a reel estate investment trust, was frst established on 1 May 2013. Ik made up its frst set of accounts to 31 January 2014 and intends to continue to make ‘up its accounts to 31 January annually, Prosperous REIT derives rental income fom letting out commercial lots in the matl and ten units of factories in an industrial estate All of the factories will be used for ‘manufacturing by the tenants. All ten factories are identical units and were acquired en bloc on I December 2014 for RM2.5 million, of which RMI millon related fo the cost of land, The ten units of factories will all be let out from I Jenuary 2015, ‘The income statement of Prosperous REIT forthe year ended 31 December 2015 is expected to indicate the following: ‘This space is intentionally left blank. ContinuedProsperous REIT Income Statement for the year ended 31 December 2015, Rwrond—RMf000 Rent frera malls 8,000 Rent frem Factories 50 Interest 22 Dividends 10, Total goss income 8,082 Les: Expenditure Audit fee 20 Depreciation 25 Management fee 805 Property maintenance charges 730 ‘Sectotaial fee s ‘Trustee administration fee 35 Other expenses (Note) $890 1570 512 Note: Th ‘Other Expenses are filly deductible for income tx prposes Required: (@) Explain how the basis periods of Prosperous REIT fo: the yers of assessment (YA) 2013, 2014 and 2015 will be determined. 5 mas (6) Compute te tot income for tx pipes of Prospeous REIT for YA 303 bad on th iain above Ate: Lael he figures cmprising he tages of te compan and ini, by these ofthe word mit any tom shown tn he oome tenet heh Potvin dati (6 matia) (©) Sate, giving reasons, the tax which will be payable by Prosperous REIT for YA 2015, ifit proposes to distribute 91,5% of its tot income for the year of assessment 2015 to its unit holders on 15 March 2015, marks) In respect of YA 2015, for unit holders who are resident individuals, state how the distribution will be axed and whether or not the amount received will need tobe reported in their annual returas, (marks) Continued ... ._ oT(©) lnrespect of YA 2015, for unit holders who are resident companies, state how the distribution will be taxed and the effective tax rat(s) which might apply. matis) FTotak: 20 marks] QUESTION 3 (20 mariss) () Planet Sda Bhd (Planet) has identified Sun Sdn Bhd (Sun), « Malaysian resident, a8 a suitable investment, Both companies Pla curently unrelated, and Sim are San has been manufacturing solar panels for three years and has an accumulated tax Joss of RM6°8 million and unabsorbed capital allowances (CA) of RMI-5 million as atthe year ended 31 May 2015, Apart from the Solar panel manufacturing business, Sun does not have any other assets of seurces of income ‘Sim expects to make an accounting profit of about RMS-5 million in the year ended 31 May 2016. The negotiated price for Plant either to purchese Sun's shares or take over Sun's mamufécturing business (purchase of assets and labilities) is RM million ‘Whichever alternative is chosen, Planet will finance the acquisition with a loan 0: RMSS nilion from its non-resident parent company and RM20 million ‘om a Melaysian commercial bank. The enmual interest rates on these loans vill be 11.5% and 7% respectively. Required @ Discuss any transfer pricing issues on the negotiated price of RMS, nillion and the interest rates on the borrowings from the commercial bank and the parent company. (4 matis) (i) Treatment of unabsorbed losses and capital allowences brought forward, (6 mica) (6) nrespect ofthe Goods and Services Act 2014 (as amended) [‘Act"} () Explain the three (3) types of supply under the said Act. (Smatis) Explain the conditions for registration under the Act including how the taxable tumover is determined, (6 matis) (Cotal: 20 marks) Continued .. ase waitark) (@) Marine Shipping Pie Ltd is a shipping company resent in Singapore whose principal activity is the transportation of pastengers axd cargo by sea. For the yeir ended December 31, 2015, its gross freight eamings ffom Malaysia ‘ampunted to RMI,500,000. Marine Shipping Pte Lid oblained the certificate ffom the Singapore Revenue authorities for the year ended December 31, 2015, The certificate, which is scceplable to the Director General of Iniand Revense Mslaysi, ‘stated the folowing: Particulars BM000 ‘World gross freight earings for the year r7.000 ended December 31, 2015 ‘Adjusted income for the year ended Dec 763 31, 2015 for Singapore tax purposes World capital allowance forthe year of 41 assessment 2 Required: Compute the Malaysian tax payable by Marine Shipping Pte Ltd for the year of assessment 2015 using the five percent method under section $4(3) and the accepisble certificate method under section 54(4) of the Income Tax Act 1967 (asamended). (4 matis) b) Excellent Insurance Malaysia Berhad is a Malaytian resident insurance company. The following informetion has been extracted from its accounts for the year ended December 31, 2015: ‘This space is intentionally left blank. ContinuedTife Insurance General Jnguranoe Life Find | Shareholders Fund Raio00 | RM00O | ROOD ‘Gross income ‘Gross premiums 15,006, 350 33000) Dividend income 250 ° 650 (Malaysian single tier) Interest income 330 a Too Rental income 150. © 150. ‘Gross proceeds from sale of shares 000- 7,600 300 ‘Gross proceeds from sale of building | __1,000 0 o ‘Less: Expenses ‘Net claims incurred a o 3000, ‘Commissions 200 0, 100) ‘Management expenses 750 0. 330 (Cost of shares sold 2.550 300 750 ‘Cost of building sold 930 0 0 Reserve for unexpired risks as at 0 0 7300 December 31, 2015, Other information (General Insurance): 1, The details of the gross premium and reinsurance premiums paid during the year, and the reserve for unexpired risk proviced for are as fellows: Marine, Fire, motor aviation & | & other le transit policies | policies [2 | Pariouars RMOD0—|-RM'OOO (Ma) | Gross premiums: 5,500 3,500, Mb) | Reinsurance premiums fa Mala 300 500 fe) | Reinsurance premiums outside “400 0 Malaysia (Reserve Tor unexpired wake as ai] 1,000 300 December 31,2015 2. The company provided 50% reserve for mare, aviation and transit policies ‘But the reserve for fie, motor and other policies is msde on the basis of actuarial computation under FRS 202 that is consistently used snd epproved ‘under section 60(9)(b) ofthe Income Tax Act 1967 (es amended), Continued. wi3. Reserve for unexpired risks es at Deoember 31, 2014 ie, brought forward for tax purposes was RMI, 500,000. 4. Capital allowances forthe year of assessment 2015 in respect of life insurance business and general insurance business amounted to RM900,000 and RMT50,000 respectively. 5. _Unabsorbed business loss brought forward in respect of the general insurance business amounted to RM30,000, Required Compute the tax payable by Excellent Ins assessment 2015, sce Malaysia Berhad for the year of Note: The income tax rate for Life Fund is 896 and for the Shareholder's Fund and ‘the General Insurance is 259% (12 matis) ©) Perfect Development Sdn Bhd (PDSB) is a Malaysian resident property evelopment company. It is involved in the constuction of a high rise condominium project. The finance manager, Mr. Lim, of PDSB is aware that the Income Tax (Property Development) Regulations 2015 (the Regulations) thas been issued by the tax authorities and has approsched you for tax advice on the following matters (Determination on the date of commencement of a property evelopment business; (i) Treatment of common infrastructure costs and how it is ascertained; and (id) Determination om the éate of completion of a property development project. Required: ‘Advise Mr. Lim regarding the above maters raised in relation to the Income Tax (Property Development) Regulations 2015. (4 masis) (otal 20 marks) QUESTION 5 (15 marks ‘The Indian Coffee Shop Association (1he association’) was registered in 1998 as « trade astociation with the aim of safeguarding and promoting the business ofits members. For the year ended 31 December 2015, the association prepared the following accounts: Continued ae‘The Indian Coffee Shop Association Statement of Accounts for the period | January 2015 t 31 December 2015 RM Income ‘Membership subscription 143,826 Seminar fees “Deepavali Festival surplus ‘Malaysian single ter dividends Fixed deposit interest ro Total income 280,818, Less: Expenses Salary and wages 73,530 Rental of seminar ball 61275 ‘Deepavali Festival’ expenses 17872 Speaker fees 12255 Employee's Providest Fund 91359 Stationery 7353 Uiility expenses 6127 Painting of premises 3149 Donation and contributions 2451 ‘Assessment 1am Quit rent 490 195,532 ‘Surplus of income over expenditure 84,886 ‘The association furnished the following information (The association is entitled to a capital allowance of RM900 for yesr of assessment 2015 on its common assets. It has no special assets that are used for any special or particular purposes, (ii) The ‘Deepavali Festival” expenses consisted oF food, drinks, and fees for performance by well-known local artists end celebrities, The surplus of the ‘money from the event was placed in fixed deposit ofthe association, ‘Several speakers and business leaders were invited to give lectures et several seminars as well as conduct workshops that were held during the year forthe benefit of the association's members, (iv) During the year, the association had mado same charitable contributions, including ® donation of RMI,000 to an approved institution for which a official receipt is avaiable, Required: ‘Compute the income tax lability of the Indian Coffee Shop Association for the year of assessment 2015, 25 mks) End of Page Ce