TAXATION (TAX)

CONFIDENTIAL 2 MIAQE SEPTEMBER 2015

ANSWER QUESTION 1

KK Manufacturing Sdn Bhd

Tax computation for the year of assessment 2015

Add Deduct
(+) (-)
Note RM’000 RM’000 RM’000
Business income
Profit before taxation √144,000
Cost of sales
Less:
Dividends-single tier 1 √15
Interest 2
Customer-late payment charges √20
Interest-fixed deposit - foreign bank √20
Insurance recovery 3 √NIL 55
143,945
Add/Less:
Salaries and wages 4
Director's salary √NIL
EPF and PRF(rest: [(90k+30k) -(19% of 300k)] √√√63
Overseas trip for director √20
Loan interest 5
Interest on loan for investment √20
Interest on loan for working capital 6 √NIL
Entertainment √NIL
Company annual dinner √√50
Ent. disbursement (Disallow 50% of 100k) √60
Depreciation
Repairs and maintenance 7
Extending the underground drain √200
Other repairs √NIL
Bad and doubtful debts 8
Bad debts written off √NIL
General bad debts provision √225
Specific loan debts provision √150
Bad debts (staff commission w/o) √√18
Bad debts (advance to supplier w/off) √√33
Motor vehicle expenses 9
Compound and fines √10
Other maintenance charges √NIL
Lease payments 10
Car [80k-50k max] √√30
Machine √NIL
Advertisement 11
Newspaper, magazines and radio √NIL
Local advertising for branded goods (DD) √√400

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Professional fees 12
Termination of supply contract √NIL
Guarantee fee for loan √15
Lease arrangement for vehicles √NIL
Income tax appeal √12
Mock transfer pricing audit run √√NIL
Insurance 13
Local insurance company for import of cargo (DD) √√15
Insurance on other company assets √NIL
Foreign exchange loss 14
Unrealised loss on stock imports √5
Realised loss-machinery spare parts √NIL
Donation 15
Cash to approved institution √20
Public school library facilities (foreign) √√150
Scholarship to local university-director's children √√50
Sponsoring foreign art activity [210-200(max)] √10
Proprietary rights
Deduction for proprietary rights (20% of RM300,000) √√60
1,201 415 143,945
Add
1,201
145,146
(415)
Less 144,731
Adjusted income from business
Less: Capital allowance
Capital allowance on business assets (√2,731)
Statutory business income 142,000
Add: Other income
Dividends (single tier) √NIL
Interest (exempted) √NIL √20
Interest (customer) √√20 142,020
Less: Donation: Lower of
Cash donation to approved institution; or √20
√10% of aggregate income √1,420 √20
Total income and chargeable income √141,980

(60√ x ½ = 20 marks)

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 TAXATION (TAX)

CONFIDENTIAL 4 MIAQE SEPTEMBER 2015

ANSWER QUESTION 2 A

GSP Shipping Lines

Year of Assessment 2015
5% Method
Gross income derived from Malaysia. RM RM
√1,500,000
Deemed statutory income: √ 5% of 1,500,000 √ √75,000
Less: Donation (√5,000)
Chargeable income 70,000

Tax charged RM
Tax on 70,000 at 25%√ √17,500.00
Less: DTA relief at 50%√ (√8,750.00)
Tax payable √8,750.00

(10√ x ½ = 5 marks)

ANSWER QUESTION 2 B

Kaya Holdings Sdn Bhd

Year of assessment 2015

Gross Income RM RM
FD Interest √18,000

Rent-shopping mall √100,000

Less: Expenses
Prop of interest charges:
(37,289 x 600,000/2, 900,000) (√ 7,715)
Quit rent and assessment (√1,864) 90,421
Dividends (single tier)
Investment 1 √NIL
Investment 2 √NIL NIL
Aggregate of statutory income 108,421
Less: Fraction of permitted expenses (√5,000)
Total income and chargeable income √97,215

Income Tax √ RM
Income tax 97,215 at 25% √24,303.75

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 TAXATION (TAX)

CONFIDENTIAL 5 MIAQE SEPTEMBER 2015

Kaya Holdings Sdn Bhd

Computer of permitted fraction

Permitted expenses RM
Director's remuneration √46,611
Employee's salary √27,967
Accounting and secretarial fee √9,324
Audit fee √18,644
Printing and stationary √1,864
Management expenses √26,101
Rent √46,532
√177,043 A

Gross income chargeable to tax RM

Interest √18,000
Rent √100,000
Gross income chargeable to tax √118,000 B

Add:
Gain from realization of investment √85,000
Dividend-investment 1 √140,000
Dividend-investment 2 √50,000 275,000
Income(whether chargeable or not) √393,000 C

Fraction of permitted expenses allowable RM

√ A x [B / (4 x C)]
177,043 x [118,000 /(4x393,000)] √13,289
Or
√ 5% of gross income chargeable to income tax √5,900
[5% x 118,000]
√ Lower of the two √5,900

(30 √ x 1/3 = 10 marks)

ANSWER QUESTION 3 A

Capital allowance can be claimed on plant and machinery provided it falls within the meaning of
‘plant’ in paragraph 2 of Sch 3 of the ITA. However the word ‘plant’ is not defined and one needs to
obtain assistance from decided cases. √

In the case of Kelantan Fried Chicken Sdn Bhd it would appear that the new shop front with large
glasses, suspended ceilings, stairs and balustrades and the mezzanine floors including the tiles
would not qualify as these form part of the building, or setting rather than perform any specific
function in the carrying on of the business. One could refer to the case of Wimpy International Ltd
v Warland [(1988) STC]. √√

However, the special lighting to create the tranquil atmosphere (rather than mere general lighting)
may qualify since it performs a particular function of creating a desired atmosphere for its

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CONFIDENTIAL 6 MIAQE SEPTEMBER 2015

customers in the restaurant. There is support for this in the case of CIR v Scottish & Newcastle
Breweries Ltd [ 55 TC 252]. √√

(5 √ x 1 = 5 marks)

ANSWER QUESTION 3 B

The classes of income which are chargeable to tax are enumerated in Section 4 and include gains
or profits from a business in section 4(a), and employment income falling under section 4(b). √

Section 33 is the section that specifies the deductibility of outgoings and expenses which are
incurred wholly and exclusively in the production of gross income from a source. The word
‘outgoing‘ has a far more wider import than expenses; and so expenditure not directly connected
with but is related to a source, say business (e.g. advertisement) may fall within its meaning. √

Section 39 specifically disallows those expenses which are not incurred wholly and exclusively in
the production of gross income, including domestic, private, and capital expenditure, among
others. √

Hiring, and firing, particularly an unsatisfactory employee, gives rise to no particular capital asset
and the expenses incurred in connection with hiring and firing had been treated by the courts as
an outgoing of a business, including compensatory payments associated with such dismissal
[Mitchel v BW Noble]. √

The payment received by the dismissed employee is also taxable (barring special circumstances)
as it is a ‘gain’ on account of having an employment within the meaning of section 4(b). √
(5 √ x 1 = 5 marks)

ANSWER QUESTION 3 (C)

When a sum of money is received on behalf of a client, as in this case of an auction house, the
income is not the income of the firm. The firm has no unconditional right to the receipt and such
sums must be remitted to the clients upon the submission of a proper claim. Furthermore, in this
case, the money in the possession of the firm does not becomes theirs at any time in the future as
the Statute of Limitation does not apply to these monies. √

As such transfer of a certain balance after a pre-determined cut off period to the personal account
of the partners does not make it their income either. The transfer was probably done by the firm
more for book keeping purposes. It is also to be noted from the facts that the firm has taken legal
advice and have also transferred the possible liability attached to the money to their account as
well. √√

Based on the information it would appear that the sum is not liable to income tax, and the Inland
Revenue Board may not succeed based on the decisions of the courts in similar situations. √

The case of Morley v Tattersall [22 TC 51] and Elson v Price Tailors Ltd [40 TC 61] could be sited
in support. √
(5 √ x 1 = 5 marks)

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CONFIDENTIAL 7 MIAQE SEPTEMBER 2015

ANSWER QUESTION 4 A

Year Periods of stay No of Status Section

days and reason
2010 20 May to 17 July 59 Resident Stay in Malaysia
19 November 31 December 43 S7(1)(b) √ less than 182 days
but the short period
is linked by a longer
period which he
was in 182
consecutive days or
more in year 2011 √
2011 1 January to 15 April 105 Resident Physically present in
16 April to 30 April - TA (15) S7(1)(a) √ Malaysia at least
1 May to 20 August 112 182 days √

2012 10 April to 30 September 174 Resident Physically present in

5 November 12 December 38 S7(1)(a) √ Malaysia at least
182 days √

2013 1 Febuary to 31 May 119 Resident Present in Malaysia

S7(1)(c) √ at least 90 days √
and 3 out of 4
immediately
preceeding
years(2012,
2011,2010) are
either resident or
stayed in Malaysia
at least 90 days √
2014 1 January – 14 January-TA (14) Resident Deem to be resident
15 January to 10 April 86 S7(1)(d) √ as he was resident
in the following year
(2015) √ and 3 years
immediately
preceeding years
(2011 – 2014) √ was
resident.

2015 1 July to 30 September 92 Resident Present in Malaysia

S7(1)(c) √ at least 90 days √
and 3 out of 4
immediately
preceeding years
(2012 – 2014) are
either resident or
stayed in Malaysia
at least 90 days √

(15 √ x 1/3 = 5 marks)

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CONFIDENTIAL 8 MIAQE SEPTEMBER 2015

ANSWER QUESTION 4 B

i) The threshold for registration to get a license is the annual sales value of RM500,000√.
Businesses below the threshold are not required to register √ but may register on voluntary basis.

ii) Zero-rated supply means good sold by businesses that are charged GST at a zero rate√. For
such businesses, GST paid on their inputs can be claimed as credits√. Examples are: agriculture
products √ (paddy, vegetables) and foodstuff √ (rice, sugar)

iii) Exempt supply means goods and services sold by businesses that are exempt from GST√. For
such businesses, GST paid on their inputs cannot be claimed as credits√. Examples: buildings
used for residential purposes √ and childcare services √.
(10√ x 1/2 = 5 marks)
[Total: 10 marks]

ANSWER QUESTION 5 A

Computation of Mr Amman Statutory Income from Employment

for the year of assessment 2015

Malaysian Company (1.1.2015 – 30.4.2015)

RM RM

Sec. 13(1)(a):
Salary (10,000 x 4 months) 40,000 √
Entertainment Allowance (3,500x4mths) 14,000 √

54,000

Sec. 13(1)(b):
Leave Passage- Sabah (exempt) Nil √
Toyota (7,000x 4/12x1/2) 1,168 √√
Driver (600 x 4) 2,400 √ 3,568

S13(1) (e)
Compensation for loss of employment
(RM100,000 – RM10,000 x 13 completed years) Nil√√
exempt

Gross Employment Income 57,568

Director (1.7.2015 – 31.12.2015)

Sec. 13(1)(a):
Directors Fee (15,000 x 6) 90,000 √
Tuition Fees 5,000 √
Servant (800 x 6) 4,800 √

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Sec 13(1)(b)
Medical & Dental expenses (exempt) NIL √
Corporate golf club membership (monthly
fee RM500 x 6) 3,000 √
Gardener (300 x 6) 1,800 √
Furniture (280 x 6) 1,680 √

Sec. 13(1)(c):
Defined Value = (3,600 – 750) x 6 months 17,100 √√√

[For a director who owns more than 5% shares of the

company, VOLA is assessable at defined value,
S.13(1)(a) is not applicable]

Gross Employment Income 123,380

Total Gross Employment Income 180,948

(-) Deductible/allowable Expenses.

Entertainment Expense (70% x 14,000) (9,800) √

Adjusted/Statutory Employment Income √ 171,148

(21√ x 1/3 = 7 marks)

ANSWER QUESTION 5B

Computation of Income Tax Payable, YA 2015

Mansor Dina
Sec 4(a) business income RM RM RM
Adjusted income 77,900 √
+ Balancing charge 850 √
78,750
- Capital allowance (1,800) √
Statutory business income 76,950
- Business loss b/f (3,600) √
Net statutory business income 73,350

Sec 4(b) Employment income

Salary (5640+2820+520)x10 89,800 √

Sec: 4(c)
Interest (exempted) Nil √
Dividend : resident company (exempted) Nil √
foreign income (exempted) Nil √

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Sec: 4(d)
Royalty 8400
(-) exemption – sch 6 para 32B (12000) √ Nil √

Sec:4(e) Annuity (600 x 12) 7,200 √

Pension (no exemption) 8,500 √
AGGREGATE INCOME 105,500 73,350
(-) Approved donation to approved instn 1,000
Restricted to 7% √ of Agg Inc = 7959 (1,000) √
TOTAL INCOME 104,500 73,350

(-) Reliefs:
Self relief 9,000 √ 9,000 √
Basic supporting equipment (brother) Nil √
Medical exp for mother (receipt = 660) 660 √
Broadband (not allowed) nil √
Books & Magazines(820-200 n/paper); 620 √
(1130, max1000) 1,000 √
Sport equipments (520-200) = 300 max 300 √ -
Child relief : Aisya Nil √
Hakim 6,000 √
Haikal 6,000 √
Laila 1,000 √
EPF & LIP:
LIP (children) not allowed Nil √
LIP (self) 100 x 12=1 200 1,200 √

LIP 110 x 12 = 1 320

1,320 √√
Med Ins : self & spouse 200 x 12 = 2400
children 300 x 12 = 3600
6000 3,000 √
max3000
Self (120 x 12) = 1440 1,440 √
CHARGEABLE INCOME√ 91,280 46,030

Income tax payable:

1st 70,000 / 35,000 5,600.00√ 900.00√
Next 21,280 @21%√ / 11,030@10% √ 4,468.80 1,103.00
10,068.80 2,003.00
(-) Zakat (10,000.00√ (3,000.00) √

NET INCOME TAX PAYABLE√ 68.80 0

(39√ x 1/3= 13 marks)

[Total: 20 marks]

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CONFIDENTIAL 11 MIAQE SEPTEMBER 2015

ANSWER QUESTION 6 A

Global Manufacturing Sdn Bhd

i)
CLAIMING OF RA:
YA 2013 2014 2015
RM’000 RM’000 RM’000
QE: Factory 4,000 / - -
Plant 5,000 / 2,500 / 1,000 /
Special Equipments 250 / 250 / 150 /
9,250 2,750 1,150
RA RATE:60%/ X QE / x 60% x 60% x 60%
RA 5,550 / 1,650 / 690 /

(12 / x 1/3 = 4 marks)

ii)
Adjusted income/(loss) 3,500 - 6,000
Less: CA (1,000) / (c/f 750) / (b/f 750)
- - (1,250) /
STATUTORY INCOME 2,500 - 4,000
70% OF SI / 1,750 / - 2,800 /
RA AVAILABLE 5,550 5,450 6,140
EXEMPT INCOME 1,750 / NIL / 2,800 /
SI LESS EXEMPT INCOME 750 - 1,200

LESS BUSINESS LOSSES B/F

FROM PROM PDT - - B/F(1,000) /

AGGREGATED INCOME 750 - 200

LESS APPROVED DONATIONS
(LIM TO 10% OF AGG. INC) (75) -/ (20) /
TOTAL INCOME /
CHARGEABLE INCOME 675 - 180

RA B/F - 3,800 / 5,450

RA CY 5,550 1,650 690
RA AVAILABLE 5,550 5,450 / 6,140
RA UTILISED (1,750) - (2,800)
RA UNABSORBED C/F 3,800 / 5,450 / 3,340 /

(18 / x 1/3 = 6 marks)

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CONFIDENTIAL 12 MIAQE SEPTEMBER 2015

ANSWER QUESTION 6 B

a) b)
Payment Subject to WHT? Rate WHT amount
RM40 million Yes. A non-resident contractor. (10 % + 80m  X 10% = RM8 million
√√ 3%) for the service portion of the
contract.
80m X 3% = RM2.4
RM220 No. Supply of equipment and - -
million materials. √√
RM20 million Installation charges, will attract - 10%  x RM20m = 2m
withholding tax of 10% since
the service is carried out by
non-resident in Malaysia √√

RM5 million Yes. Subject to WHT under 10% 5m X 10% = RM0.5 million
S109B. This provision of
technical services is taxable
under S4A. √√
RM10 million The right to use the trade mark 10% 10m  X 10% = RM1m
would constitute a royalty
payment under S109. √√
RM2 million No. Malaysian bank is a - -
Malaysian resident (world
income scope). The payment of
interest to the Singapore branch
of the bank would be payment
to a resident person. √√
a) (12  x 1/3 = 4 marks)
b) (9 X 1/3 = 3 marks)

c) The non-compliance would result in the following:

(i) A penalty of 10% on the outstanding amount of withholding tax;

(ii) Penalty and withholding tax would be debt due to the government;
(iii) The gross payment would not be tax deductible to the payer (i.e. Multi-
Hyper Store Bhd) unless the penalty and the withholding tax have been
paid;
(iv) Penalty be imposed on the under declaration / estimate of income due to
wrongly claiming of expenses subject to WHT.

(6 x 1/2 = 3 marks)

[Total : 20 marks]

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