CONFIDENTIAL, ACIJUN 2019/TAX267 ey UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE TAXATION 1 COURSE CODE 1 TAX267 EXAMINATION : JUNE 2019 TIME : 3HOURS INSTRUCTIONS TO CANDIDATES 1 This question paper consists of five (5) questions. 2 ‘Answer ALL questions in the Answer Booklet. Start each answer on a new page. 3 Do not bring any material into the examination room unless permission is given by the invigilator. 4. Please check to make sure that this examination pack consists of: i) the Question Paper ji) three-page Appendix 1 iii) an Answer Booklet ~ provided by the Faculty 5 ‘Answer ALL questions in English. DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO This examination paper consists of 9 printed pages (© Hak Cipta Universit Teknolog! MARA, CONFIDENTIALCONFIDENTIAL, 2 ACIJUN 2019/TAX267 QUESTION 1 A. a. State THREE (3) classes of income with applicable sections in which tax is chargeable. Your answer should exclude Section 4(a) business income and Section 4(b) employment income. (3 marks) b. Encik Aiman has the following receipts during the year of assessment 2018. Determine the nature of income (capital receipts or income receipts) for the followings: i Proceeds received from disposal of shares. ii Insurance claim received from loss of machinery used for business. iii, Commission received from sale of goods. iv. Bad debts recovered, (4 marks) B. a. __Briefly explain the offences and penalties imposed on the following scenarios. i. Puan Maisara is working as a sales manager and has no other sources of income. For the year of assessment 2018, her net income tax payable was RM3,200. She managed to furnish her return on time however she made a tax payment on 15 May 2019, ii A group of IRB officers has visited Encik Hamzah's office. They would like to conduct investigation on his tax matters. However, Encik Hamzah hesitated to provide cooperation with regards to the investigation. (4 marks) b. State any FOUR (4) factors that determine the amount of tax deduction under schedular tax deduction system (STD). (4 marks) C. Mr. Tommy Jacques a Frenchman, works as a senior engineer with Sydney Transport Monorail, Australia. The company was awarded a monorail construction project located in Malaysia. His periods of stay in Malaysia were as follows: © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL, 3 ACIJUN 2019/TAX267 Year_| Periods of stay Remarks 2014 | 01/02/2014 - 30/07/2074 | Note 1: 01/10/2014 - 15/12/2014 | He went to Germany to attend a short-term training related to his project in Malaysia from 16/12/2014 until 14/01/2015. 2015 | 15/01/2075 - 31/05/2016 | Note 2: 01/07/2015 - 24/12/2015 | He went to Hong Kong with family to visit friends from 25/12/2015 until 05/01/2016. 2016 | 06/01/2016 - 31/01/2016 | Note 3: 01/06/2016 - 30/08/2016 | He went to the United Kingdom accompanying 01/08/2016 - 30/09/2016 | his wife who was undergoing special health treatment from 01/07/2016 until 31/07/2016. 2017 = Not in Malaysia. [2018 | 15/01/2078 - 30/06/2078 | Left Malaysia permanently on 30/06/2018. Required: Determine the tax residence status of Mr. Tommy Jacques for the years of assessments 2014 until 2018. Provide the relevant sections and reasons to support your answer. (9 marks) (Total: 24 marks) QUESTION 2 Mr. Abdul Khalid was a project manager at IT Consultant Sdn Bhd since 1 March 2006. Due to health problems, he took a one month paid leave in May 2018 before opting for early retirement on 1 June 2018. He received gratuity amounting to RM124,000. Details of his remuneration and benefits received from IT Consultant Sdn Bhd in 2018 before retirement were as follows: A net salary of RM9,960 per month after deducting EPF of 11%, hire-purchase loan of RM1,500, schedular tax deduction of RM400 and zakat RM600. He received a reimbursement of water and electricity bills amounted to RM3,000. He received a notebook costing RM9,500 as a gift for his long service award. He received a gift voucher from the company upon his retirement in the form of an umrah package worth RM7,000. Parking allowance of RM1,000 per month. ‘The company paid him RM4,000 for his medical treatment as well as RM1,000 for his son's acupuncture treatment. ‘The company provided him with a credit card. He spent RM7,000 and 80% was used for business purposes. The company paid annual membership fees of RM100 for the credit card. (© Hak Cipta Universiti Teknologl MARA CONFIDENTIALCONFIDENTIAL, 4 ACIJUN 2019/TAX267 h. He was provided with a fully-furnished semi-D house with a defined value of RM42,000 per annum (excluding furniture cost) until 31 May 2018. The company also hired a maid with a salary of RM1,500 per month for him. i, The company offered him an option to purchase 6,000 unit shares of the company at RM2.50 per share on 1 July 2014 at the market value of RM4.20 per share. Mr. ‘Abdul Khalid exercised the option on 1 March 2018 when the market value was RM7.00 per share. j A leave passage to Sapporo, Japan amounting to RM5,000 on airfare was provided to Mr. Abdul Khalid. k. The company paid a monthly subscription of RM250 for corporate membership in a golf recreational club. Mr. Abdul Khalid was entitled to the club facilities until 31 May 2018. I He withdrew RM115,000 from an unapproved fund of which 35% represented the employee's contribution. m. During the year until his retirement, he incurred RM6,500 entertainment expenses exclusively related to business. Required: Compute the statutory employment income of Mr. Abdul Khalid for the year of assessment. aad (15 marks) QUESTION 3 Hani Boutique Enterprise has been in business of selling clothes since 2010. The business is owned by Hani, a sole proprietor. The following is the Statement of Profit or Loss for the year ended 31 December 2018: Note RM RM Sales 590,000 Less: Cost of goods sold ___ (280,000) Gross Profit 310,000 ‘Add: Other Incomes 1 13,800 323,600 Less: Expenses Remuneration 2 129,524 Freight and insurance 3 20,000 Entertainment expenses 4 24,300 Fees and donation 5 13,500 Bad debts 6 8,300 Repair and maintenance 7 22,500 Depreciation 9,600 Rental 8 41,200 Water and electricity bills 9 _14,000___(282,924) Net Profit 40.876 (© Hak Cipta Universiti Teknolog! MARA CONFIDENTIAL,CONFIDENTIAL 5 ACIJUN 2019/TAX267 Additional information: 1. Other incomes comprise: Compensation received from suppliers due to late delivery Bad debts recovered from the loan given to employees Interest charged on trade debtors for late payment Gain on disposal of motor vehicle Remuneration consists of: Salaries paid to Hani Salaries paid to employees Approved private retirement scheme for Hani Approved private retirement scheme for employees Overtime paid to employees Freight and insurance include: Business travelling expenses Leave passage for Hani and family to Auckland Fire insurance premium for business premises Life insurance premium for Hani Entertainment expenses consist of: Entertainment expenses to entertain clients and suppliers Annual dinner for employees Discount vouchers given to customers. Child care allowances given to employees Fees and donation comprise: Accounting fees Annual fees to Royal Golf Club for Hani Cash donation to the public library (apply $44(8)) Cash contribution to the approved community project (s.34(6)(h)(a) Bad debts include: Trade bad debts written off Bad debts from the loan given to Hani's relatives Decrease in general provision for doubtful debts (© Hak Cipta Universiti Teknologi MARA RM 5,500 8,000 7,200 3,600 24,300 RM 3,000 1,500 6,000 3,000 73,500 RM 4,500 5,000 1,200) 8,300 CONFIDENTIALCONFIDENTIAL 6 AGIJUN 2019/TAX267 10. Repair and maintenance consist of: Initial repair of the secondhand van used for business 6,000 Repair and maintenance costs on business premises Renovation of business premises Rental: 40% of the rental expenses were paid for Hanis house located in Puncak Alam. The balance was for business premises. Water and electricity bills: 30% of the expenses were for private use. Total capital allowance and balancing charge for the year of assessment 2018 were RM16,000 and RM3,000 respectively. Required: Compute the statutory business income of Hani Boutique Enterprise for the year of assessment 2018. Indicate “Nil” for any item that does not require any adjustment. (18 marks) QUESTION 4 A Briefly explain the tax treatment for the followings: a. Unabsorbed tax rebate b. Relief on child who is unmarried, aged 20, studying full time at a local university and part time working earning an income of RM7,000 per annum c. Rental income received in advance (6 marks) Encik Naufal and his wife, Puan Adira are tax residents in Malaysia. Encik Naufal works as an engineer while Puan Adira is a businesswoman who owns a restaurant in Kuala Lumpur. For the year of assessment 2018, they have decided to be assessed separately for income tax purposes. The following are information regarding their income and expenses for the year of assessment 2018. Encik Naufal 1. Received a salary of RM9,980 per month (after deducting EPF 11% and M700 for schedular tax deduction). He also received two (2) months bonus. 2. Received royalties of RM25,000 from the publisher of his book on building structures in Malaysia, (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL, 7 AGIJUN 2019/TAX267 3. Received honorarium of RMB,000 for being part of the committee to validate a franchised engineering programme offered by private universities in Malaysia. This service was verified by the Lembaga Akreditasi Negara 4. Received interest income of RM10,000 in respect of securities issued by Pengurusan Danaharta Nasional Berhad. 5. Made a cash donation of RM15,000 and RM10,000 respectively to Majlis Kanser Nasional (MAKNA) an approved institution and a political party in Malaysia. 6. Took a life insurance policy for himself and paid RM1,000 per month for the whole year. He also paid RM4,500 for his children’s medical and educational insurance premium. 7. Zakat paid for the year was RM5,000 8 Amount spent for the newspaper, magazines and books for the use of his family amounted to RM1,200. 9. Paid monthly internet subscription of RM150 for the year. Puan Adira 1. Income from restaurant business in Kuala Lumpur: RM Adjusted business income 160,800 Balancing charge 18,000 Capital allowance 35,800 Balancing allowance 5,800 2. Received dividend from a resident company in Malaysia amounted to RM15,000. 3. Received rental income from her house located in Ampang. The house has been rented out since April 2018. Details information regarding the house are as follows: RM Rental income (per month) 2,300 Non-refundable deposit 2,300 ‘Quit rent and assessment rate (per annum) ‘900 Fire insurance premium (per annum) 1,500 Repair and maintenance (from April — December 2018) 500 Renovation cost, 800 4. Paid RM1,800 to purchase sport equipment for the use of her family, 5. Paid insurance premium for her life of RM3,200. (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL, 8 ACIJUN 2019/TAX267 Additional Informatior Incurred RM4,700 for her mother’s medical expenses who is suffering from renal failure. Receipts were available for all medical expenses claimed Purchased a breastfeeding equipment of RM1,900. Donated RM10,000 to the Selangor State Government and paid zakat of RMB8,900, a. The following is information regarding their children: ‘Arman, 19 years old, is studying at Malaysia Multimedia University. He is a handicapped person. Airaa, 14 years old, is studying at Ampang International School. Armin, 8 years old, is studying at Sekolah Kebangsaan Ampang. Aisyaa, 9 months old. b. Encik Naufal chooses to claim child relief for Aisyaa. The rest of the children will be claimed by Puan Adira, c. Encik Naufal qualifies to claim parental care relief for his mother and father. He has three siblings and they have decided to claim and share the parental care relief, Require Compute the income tax payable for Naufal and Adira for the year of assessment 2018. (22 marks) (Total: 28 marks) QUESTION 5 ‘A. Schedule 3 of the Act provides mechanism to claim tax relief on capital expenditure on asset acquired in the form of capital allowance. Give THREE (3) criteria for a taxpayer to claim capital allowance. (3 marks) (© Hak Cipta Universiti Toknolog! MARA CONFIDENTIAL,CONFIDENTIAL, 9 ACIJUN 2019/TAX267 B. _AgroMart Tani closes its account on 31 December annually and owned the following assets: Food truck In August 2016, the business purchased a food truck under hire purchase terms as follows: Cost of vehicle RMs2,000 Deposit paid on 1 August 2016 RM10,000 Hire purchase interest, RM24,000 No. of monthly instalments 60 The first instalment commenced on 1 September 2016. On 9 May 2018, due to some technical problems, the food truck was traded in for a new pick-up truck costing RM105,000. The trade in value was RM50,000. Computer On 6 June 2017, a computer purchased for personal use of the owner was brought into the business. The cost of acquiring the computer was RM7,000. At the date of transfer, the market value and net book value were RM4,200 and RM3,600 respectively. Required: Calculate capital allowances, balancing charge or balancing allowance (if any) for AgroMart Tani for all the relevant years of assessments up to the year of assessment. 2018. (12 marks) (Total: 15 marks) END OF QUESTION PAPER © Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL APPENDIX 4 (1) ACIJUN 2019/TAX267 * The following tax rates are to be used in answering the questions. a) b) °) d) Resident company with paid up capital of RM2.5 milion and below (at the beginning of the YA): (On the first RM500,000 chargeable income On subsequent chargeable income Resident company with paid up capital above RM2.5, million (at the beginning of the YA) Non-resident company/branch Resident limited liability partnership with paid up capital of RM2.5 million and below (at the beginning of the YA): On the first RM500,000 chargeable income ‘On subsequent chargeable income Resident limited liability partnership with paid up capital above RM2.5 million (at the beginning of the YA) Non-resident limited liability partnership Income tax rates 18% 20% - 24%" 20% - 24%" 24% 18% 20% - 24%" 20% - 24%* 24% * Reduction in the income tax rate based on the percentage of increase in chargeable income as compared to the immediate preceding YA. Percentage (%) of increase in Percentage | Income tax rate chargeable income as compared (%6) of on incremental | to the immediate preceding YA reduction on portion of income tax chargeable rates income (%) | Less than 5% Oo 24 5% - 9.99% 1 23 10% - 14.99% 2 22 15% - 19.99% 3 241 20% and above 4 20 CONFIDENTIAL (© Hak Cipta Universit Teknologi MARACONFIDENTIAL APPENDIX 4 (2) ACIJUN 2019/TAX267 9) Resident individuals ‘Chargeable Income Rate ‘Cumulative Tax RM RM oT = T 2,500 0% 0 2,501 | - 5,000 0% 0 5,007 | = 10,000 | 1% 50 70,001 | 20,000 1% 750 20,001 |= 35,000 3%. 600 35,007 | _- 50,000 8% 7,800 ‘50,007 | - 70,000; 14% 4,600 70,001 |= 700,000 21% 70,900 700,001 | 150,000| 24% 22,900 150,001 | _- 250,000 24% 46,900 250,001 | _- 400,000 24.5% 83,650 400,001 | - 600,000 25% 133,650 7,000,000 |" 26% 237,650 | 28% h) Non-resident individuals 28% © Hak Cipta Universiti Teknologi MARA, CONFIDENTIALCONFIDENTIAL APPENDIX 1 (3) ACIJUN 2019/TAX267 + Benefits-in-kind (BIK) scale rates as per Inland Revenue Board (IRB) guide lines [ Cost of car when new ‘Annual value of BIK RM RM. Up to 50,000 7,200 50,001 | - - 2,400 75,001 | = - 3,600 700,001 | = 5,000 150,004 | - 7,000 200,001 | = 9,000 250,001 | - 15,000 360,001 | - 21,250 500,001 and above 7 25,000 The value of the car benefit equivalent to half of the above rates is taken if the car provided is more than five years old. Where a driver is provided, the value benefit is fixed at RM600 per month. + Household furnishing, apparatus and appliances Types of BIK ‘Semi-furnished with furniture in lounge, dining room or bedroom Plus one or more of the following: Air-conditioners, curtains, carpets Plus one or more of the following: Kitchen equipment, crockery, utensils, appliances i.e fully furnished . Rate of Capital Allowances Motor General Heavy Computers Vehicles Plant& Plant & Machinery Machinery Initia 20% 20% 20% 20% allowance Annual 20% 14% 20% 20% allowance (© Hak Cipta Universiti Teknologi MARA Annual value of BIK RM 840 1,680 3,360 Others Building 20% 10% 10% 3% CONFIDENTIAL