SET 1 ANSWER FOR EXAM SEPTEMBER 2016
MIAQE TAXATION
ANSWER 1
Merci Engineering Sdn. Bhd.
Tax computation for the year of assessment 2016
Note
Add (+)
Ded (-)
RM’000
RM’000
RM’000
Business income
√160,10
3
Profit before taxation
Cost of sales
Less:
Dividends-single tier (local)
√18
1
√14
Dividend (foreign)
Interest received from debtors
2
√30
Insurance recovery
3
√0
62
160,041
Add/(Less):
Salaries and wages
4
Director's salary
√0
EPF (rest: [58 - (19% of 264k)]
√8
√23
Overseas trip for director
Loan interest
Interest on loan for investment
5
√0
Interest on loan for working capital
Entertainment
√26
6
√0
Company annual dinner
√60
Staff disbursement (Disallow 50% of 120k)
Promotion
√0
Depreciation
√80
Repairs and maintenance
7
√168
Extending the sales office
√0
Other repairs
Bad and doubtful debts
Bad debts written off
8
√0
General bad debts provision
√260
Specific loan debts provision
√143
Bad debts (advance to customer w/off)
√21
Bad debts (advance to supplier w/off)
√39
Motor vehicle expenses
9
√14
Compound and fines
√0
Other maintenance charges
Lease payments
10
√50
Car [100k-50k max]
√0
Machine
Advertisement
11
√104
Advertising -patented product (DD)
TV advertising
√0
Free gift
√0
Professional fees
12
√0
Termination of supply contract
√18
Guarantee fee for loan
Lease agreement
√0
New supply contract
√0
Secretarial fees
√3
[8k - 5k
Tax filing fees [16k-10k] max)
√6
√13
GST appeal
√0
Transfer pricing advice
Insurance
13
Local insurance-cargo import (Note 1]
√0
Foreign insurance-cargo export
√0
Insurance-company assets
√0
Foreign exchange loss
14
√0
Realized loss- stock imports
√0
Realized loss-machinery spare parts
√13
Unrealized loss-machine
Proprietary rights
√60
Ded.for proprietary rights (20% of RM300k)
Donation
Cash to the Selangor Government
15
√35
1,105
Add
164
160,041
1,015
161,056
Less
164
Adjusted income from business
160,892
Less: Capital allowance
Capital allowance on business assets
√48,000
Statutory business income
112,892
Add: Other income
Dividends (local - single tier)
√0
Dividend (foreign - exempted)
√0
Interest received from debtors
√30
30
112,922
Less: Donation
√35
Cash donation to the Selangor State Government
√112,88
7
Total income and chargeable income
50√=20 marks
ANSWER 2(A)
Determination of qualifying building expenditure
RM
Cost of land
√0
Legal fee for transfer of land
√0
Cutting and leveling land
√0
√37,327
Excavation and preparation of site for construction
√624,394
Piling and foundation works
√4,728,580
Construction of building
Construction of perimeter wall
√16,129
Architect fee-hospital building design
√64,515
Legal services for obtaining various building approval
√29,954
Subcontract charges for installation of wiring and plumbing
√34,101
√0
Landscaping charges
√5,535,000
Qualifying building expenditure
Constructed building
Year of assessment 2015
RM
Qualifying building expenditure
Initial allowance
Annual allowance
Residual expenditure
10%
3%
√553,50
0
√166,05
0
√5,535,00
0
719,550
4,815,450
Year of assessment 2016
Annual allowance
√166,050
3%
√4,649,40
0
Residual expenditure
Leased building
RM
√760,448
Renovation expenditure
Year of assessment 2015
Qualifying
Leased building - used as hospital
RM
√608,358
Qualifying expenditure (80% of 760,448)
Initial allowance
Annual allowance
10%
√60,836
3%
√18,251
79,087
529,271
Year of assessment 2016
Annual allowance
√18,251
3%
√511,020
Residual expenditure c/f
Leased building - used as administrative office
Year of assessment 2015
Nonqualifying
RM
√152,090
Non-qualifying expenditure (20% of 760,448)
Initial allowance
Notional allowance
10%
√0
3%
√4,563
4,563
141,527
Year of assessment 2016
Notional allowance
Residual expenditure c/f
3%
√4,563
√142,964
28√=10 marks
ANSWER 2(B)
Disposal price
RM
RM
√530,000
Consideration received
Less: Permitted expenses
Cost of enhancement
Legal fees -defending title
√57,755
√8,540
66,295
√463,705
Less: Incidental cost of disposal
Valuation fees
√8,183
Brokerage
√11,550
Legal fees
√4,000
Advertisement
√1,444
√438,528 (a)
Disposal price
Acquisition price
25,177
RM
RM
√413,000
Consideration paid
Add: Incidental expenses
Stamp duty on transfer
√5,785
Legal fees
√3,446
9,231
422,231
Less: Para 4(1) receipts
Compensation received
√36,600
Insurance recoveries
√18,300
Deposit forfeited
√10,000
Acquisition price
64,900
√357,331 (b)
√81,197
Chargeable gain [(a) - (b)]
Less: Para 2 Sch 4 Exemption: Higher of
RM10,000; or
10% of chargeable gain
Chargeable gain after exemption
√10,000
√8,120
√ 10,000
√71,197
21√= 10 marks
ANSWER 3(A)
MD Shipping Lines Plc
Year of Assessment 2016
5% Method
RM
Gross income derived from Malaysia.
Deemed statutory income :
5% of 1,054,350
RM
√1,054,350
√52,718
√4,500
Less: Donation
√48,218
Chargeable income
Tax charged
RM
Tax on
48,218 at 24%
√11,572
Less: DTA relief at 50%
√5,786
Tax payable
√5,786
Ratio Certificate Method
RM
Adjusted income
2,811,600 x [1,054,350 /4,217,400]
√702,900
Less: Capital allowance
800,000 x [1,054,350/4,217,400]
√200,000
Statutory income
√502,900
√4,500
Less: Donation
√498,400
Chargeable income
Tax charged
Tax on
498,400 at 24%
√119,616
Less: DTA relief 50%
√59,808
Tax payable
√59,808
Rounding error: RM 1.00
15√ = 5 marks
ANSWER 3(B)
In the case of a bus operator, this risk is inherent in a business of this nature (i.e. of meeting
with an accident or causing some damage to third parties or properties , and it can be
reasonably foreseen that some form of compensation may need to be paid). Accordingly,
because such risk is sufficiently connected with the taxpayer’s income-generating activities,
the compensation would be deductible.
With regard to the legal fees, one needs to look at the nature of the legal expenses incurred
in this case. The company has resisted the payment of the compensation to the employee
and it may be argued that it is not incurred in the production of gross income.
However such decision (i.e. not to allow a deduction) could be considered as being a narrow
interpretation of the law and one that does not take into account the realities of conducting a
business.
One could cite the case of Port Elizabeth Electric Tramway Co v Commissioner for Inland
Revenue 1936 CPD 241, 8 SATC 13) in support of the argument to allow the compensation
and disallow the legal fees incurred by the company.
(5 marks)
ANSWER 3(C)
In this case one need to consider whether the advances made to the padi cultivators is one
in the nature of an investment or simply a trading arrangement. If it is investment in nature
then the losses incurred would be capital and therefore not deductible. But if it is one on
account of trading then it would be a trading loss and would fall to be deducted under
section 33 as being incurred wholly and exclusively in the production of gross income.
Based on the fact of the case, the relationship between the padi cultivators and the company
is one of a supply arrangement and not an investment arrangement. And the assistance
given is more in the nature of an advance payment for the crop to be supplied, done to
assist the padi cultivators. There being no investment element in this instance and the loss
arising from a natural disaster, it is one on revenue account and is quite similar to a case
where a payment has been made for a stock delivery that was not made for some reason.
The case of Commissioners of Income Tax v The Mysore Sugar Co., Ltd (1962) [1967 AIR
723] could be cited in support.
(5 marks)
ANSWER 4A
i)
Filing of Malaysian personal tax returns:
Under S.77(1), for the year of assessment 2015 Miss Tina must inform IRBM of her
chargeability by completing the tax return form BE and submit the tax return to the
IRBM not later than 30 April in the following year of assessment. /
(1 x / = 1 mark)
ii) The penalties for failing to furnish the tax return for a year of assessment:
-
S.112(1): if taxpayer fails to notify chargeability, without reasonable excuse, he will be
guilty of an offence and shall on conviction be liable to a fine of not less than RM200
and not more than RM2,000 or to imprisonment for a term not exceeding 6 months or
both. /
-
S.112(3): if a taxpayer fails to furnish a return and notify chargeability and no
prosecution was made, the DG may require that a person to pay a penalty equal to
treble the amount of the tax payable for that year. /
(2/ x 1 = 2 marks)
iii) She intends to remit some of her income from Australia into Malaysian and she asked for
your advice regarding the Malaysian personal tax implications on non-Malaysian income
received in Malaysia:
Under S.3 of the ITA 1967, Malaysian income tax shall be charged on foreign income
received in Malaysia for that year of assessment /. However with effect from 1 January
2004, the income arising from sources outside Malaysia and received in Malaysia by an
individual, regardless of his resident status, will be exempted from income tax – para 28,
Sch 6 /.
(2/ x 1/2 = 1 mark)
ANSWER 4B
A taxable period for a taxable person—
i)
In the case where the total value of all his taxable supplies in the period of twelve
months is five million ringgit or more, the first taxable period shall begin from the date
he should have been registered under section 21 and end on the last day of the
month he should have been registered and the subsequent taxable period shall be a
period of one month ending on the last day of any month of any calendar year; or
In the case where the total value of all his taxable supplies in the period of twelve
months is less than five million ringgit, the first taxable period shall begin from the
date he should have been registered under section 21 and end on the last day of the
two months period following the month in which he should have been registered
and the subsequent taxable period shall be a period of three months ending on the
last day of any month of any calendar year.
ii)
a) Sale by Pending to Tanjak
RM
10,000
Selling Price
GST 10,000 @ 6% = RM600
Output tax to Pending
Input tax to Tanjak
RM
600 
600 
Sale by Tanjak to customers
Selling Price
GST 13,000 @ 6% = 780
Output tax to Tanjak
RM
13,000
( x 1 = 2 marks)
RM
780 
b) Remittance to RMCD by:
Pending
Tanjak (Output tax – Input Tax)
= 780 - 600
Total GST remitted to RMCD
600 
180 
780 
( x ½ = 2 marks)
ANSWER 5A
Computation of Income Tax Payable for YA 2015
RM
Encik Atef
RM
RM
Puan Naimah
RM
Sec 4(a) business income
Adjusted income
+ Balancing charge
160,000
2,500
162,500
- Capital allowance (c/y + (10,500)
b/f)
Statutory business income 152,000
- Business loss b/f
(12,500)
Net statutory business 139,500
income
Section 4(b) employment
income
Salary
(12,600+1,250+3,400) x 12
Section 4(c)
Interest
Incomebank
rakyat
Dividend – pioneer status
Section 4 (d)
Rental
139,500
207,000
nil
nil
24,000
47,000
Less: Expenses
Quit rent
Repairs of broken window
Renovation of the kitchen
Royalty income
Publication of books
Less: Exemption Para 32
Honorarium
1,100
1,800
Nil
40,000
(10,000)
Aggregate income
Less:
Donation to in kind
Total income
Less: Relief
Self
EPF/Life insurance
Education/Medical
insurance
Books/magazines
Child relief
Afiq
Afifah
Ashriq
Wheelchair mother disable
Annual medical check up Ashriq
Chargeable income
On the first RM150,000
Next (374,200 – 150,000)
224,200 x 24.5%
Less:
Zakat
Rebate
Net income tax payable
(1,600-600
max)
21,100
30,000
10,000
407,600
47,000
NA
407,600
47,000
(9,000)
(2,400)
(3,000)
(9,000)
(5,170)
(1,800)
(1,000)
(6,000) 
(6,000)
(6,000)
(5,000)
(500)
374,200
25,530
47,900
54,929
900
553
14,400
88,429
400
1,053
(x 1/3 = 12 marks)
ANSWER 5B
Chargeable income for the year of assessment 2015
Business 1:
Gross income
Less: allowable expenses
(75,000 – 10,000)
Adjusted income
Less: capital allowance
Statutory income
Deceased (R)
( 8 m)
RM
Executor (R)
(4 m)
RM
73,667
36,833
200,000
(65,000)
------------135,000
(24,500)
--------------110,500
-----------------
Business 2:
Statutory income (foreign source) - Exempt
Less: business loss b/f from previous year
Statutory income from all business
Add: other sources of income
Dividend (single tier) -exempt
Interest
Adjusted rental income
Aggregate income (AI)
Less:
Current year business loss
Annuity payable
Approved donation (restricted to 7% of AI) 
Total Income
(10,000) 
(5,000) 
- (8,000) 
(4,678) OF
(6,000) 
91,667
49,155
Less:
Self relief/special relief
Wife relief
Medical expenses on serious disease
Chargeable income
Tax charge
On the first RM70,000 / RM35,000
On the next RM3,667@ 21% / RM5,155 @ 10%
Tax payable
(9,000) 
(3,000) 
(6,000) 
73,667
Scale rate
5,600.00
770.07
6,370.07
(6,000) 
67,667
NIL
36,833
NIL
40,000
107,667
20,000
10,000
66,833
(9,000) 
40,155
Scale rate
900.00
505.50
1,405.50
16 x ½ mark = 8 marks
(Total: 20 marks)
ANSWER 6
SOLUTION 6
A.
Adjusted income
(-) capital allowances
2015
RM’000
NIL
(800) c/f
Statutory income (SI)
(-) 70% x SI
Chargeable income
Nil
Nil
Nil
70% x SI
(-) Pioneer loss b/f
Credited to Exempt income
2015
RM’000
Nil
Nil
Nil
2016
RM’000
1,500
(1,500) 200
c/f
Nil
Nil
Nil
2017
RM’000
3,200
(1,200)
2018
RM’000
5,000
(1,800)
2,000
(1,400)
600
3,200
(2,240)
960
2016
2017
2018
RM’000
RM’000
RM’000
Nil
1,400
2,240
Nil
(1,000)
Nil
400
2,240
14x ½ mark = 7 marks
Solution 2(B) - Investment Tax Allowance
Statutory income
(-) ITA utilized
(-) business loss b/f
Chargeable income
70% x SI
Set off against:
ITA: 60% x QCE
: brought forward
Total available
ITA utilized & credited to EIA
ITA unutilized b/f
2015
RM’000
Nil
Nil
Nil
2016
RM’000
Nil
Nil
Nil
2017
RM’000
2,000
1,400
600
(600)
Nil
2018
RM’000
3,200
2,240
960
(400)
560
2015
RM’000
Nil
2016
RM’000
Nil
2017
RM’000
1,400
2018
RM’000
2,240
4,200
4,200
Nil
4,200
300
4,200
4,200
2,800
4,200
4,200
3,100
Nil
1,400
2,240
4,200
2,800
860
16x ½ mark = 8 marks
ANSWER 6B
i)
The amount of withholding tax and penalties payable by BSB to IRB
Payment to APL on:
1 May 2015 – Installation fees
WHT
10% X 100,000
= RM10,000
1 May 2015 – Technical services 10% X 250,000
= RM25,000
1 June 2015 - Technical services
10% X 250,000 
= RM25,000
Penalty
nil
10% X 25,000
= 2,500
nil
Total payable to IRB = RM62,500
(10X1/2 = 5 marks)
(Total : 20 marks)