DEC 2020 TEST 1 TAX667 Solution PDF

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TAX 667 SUGGESTED SOLUTION –TEST 1 – DECEMBER 2020 QUESTION 1

Sec 4(a) Business A Gross income Less: Executor fees (3500 x 2) Adjusted income - Capital allowance Statutory business income√(OF) Business B Adjusted income + Balancing charge Statutory Business Income Aggregate statutory income from businesses Less: business loss brought forward Adjusted aggregate statutory income from biz Add: other non-business income Sec 4(c) Dividend [single tier] – exempted Interest – Berkat Bank Bhd (1 July) Interest – Sejahtera Bank Bhd (1 Nov) Sec 4 (d) Gross rental income (48,000 + 4,000) Less: Deductible expenses Renovation expenses Adjusted rental income√(OF) Royalty (remitted RM20K in 2020) - Exempted Aggregate income Less: current year business loss Donation – Rumah Wargamas (10% of A.I) Total income Less: Self relief/ special relief Wife relief Child relief (2000 x 2) Medical expenses for serious diseases Chargeable income Tax charged On the first RM10,000 On the next RM1,233@ 1% Income tax payable√ OF

(iii)

65,200√ (7,000) √ 58,200 (9,000) √ 49,200 Nil√ 12,000√ 12,000

Deceased 10/12 [R / D] RM

Executor 2/12 [R] RM

41,000

8,200

10,000 51,000 (6,000) √ 45,000

2,000 10,200 10,200

Nil√ Nil√ 6,200√ 52,000√√ (14,000) √ Nil√ 38,000

31,667 Nil√

6,333

76,667 (12,500) √ (6,000)√ 58,167 (9,000) √ (4,000) √ (4,000) √ (6,000) √ 35,167

22,733 (2,500) √ 20,233 (9,000) √ -

11,233 Scale rate√ 50 12.33 62.33 (26 x ½ mark = 13 marks)

Administrator’s fee received by the executor is deductible √ since it was for managing the business. It was incurred wholly and exclusively for the production of business income. (2 x 1 mark = 2mark) Total = 15 marks

QUESTION 2 PART A Workings: TB Total Income = 180,000. Discretionary Trust = Alfred ( R ) & Beyonce (NR). Compare: 1. TB TI x Sum Received/ Agg Sum Recevied 2. Sum Received Whichever is lower = OS/ SI from TB

Alfred - R

Beyonce - NR

TI from TB = 180k x 120k/200k = 108k Sum Received = 180K.

TI from TB = 180K x 80k/200k = 72k Sum Received = 80k

OS/ SI = 108K (the lower amount).

OS / SI = 72k (the lower amount)

Income Tax Computation: Trust Body (Apply Section 61(2)) RM 180,000

Total income Less: Distribution to resident beneficiary: OS / SI - Alfred Chargeable income Tax rate (YA 2020) Tax payable



(108,000)  72,000 24%  17,280 (4 x ½ = 2 mark)

i. Income Tax computation: Beneficiaries Alfred R RM Sources of income: Ordinary source/ SI from TB Total Income Less: Individual relief Chargeable Income Income tax computation (YA 2020): On the 1st RM70,000 On the next RM29,000 @ 21% Total tax charged Less: Tax Credit on Sec 110 (8) (Beyonce: 24% x 72,000)  OF Tax payable

108,000 108,000 (9,000) 99,000 Scale rate 4,600 6,090 10,690 NA

Beyonce NR RM



72,000 72,000 NA 72,000

 

Flat rate 30%



21,600  (17,280)

11,690

4,320 (8 x ½ marks = 4 marks)

PART B A. Total Income RM Sec 4 ( c ) Interest - Malaysian Dividend – Switzerland (exempt) Aggregate Income Less: Trustees fees Total Income / Distributable Income (-) Accumulation Total Income / Net DI

Distributable Income RM

200,000 Nil 200,000 Nil 200,000 200,000

200,000 148,000 348,000 (18,000) 330,000 (35,000) 295,000

Workings Deemed Total income

=

TI

x

=

200,000

x

=

178,787.8

2/3 119, 192 310,000 119,192

x

178,788 of

Compare with SR OS (the lower) 

= = = =

Lisa ( R ) (Non-Discretionary) OS

= =

1/3 59,596

x

178,788 of

Ordinary source: Fairuz (NR) (Discretionary)

Net DI DI 295,000  330,000

(14 x ½ marks = 7 marks)

PART C Distributable income is an accounting concept which is arrived by deducting all income against all expenses. It is the amount of cash available to the trust for distribution to beneficiaries.  Whereas Total income is the income of the trust that is chargeable to tax which is determined in accordance with the Act.  and will not indicate the cash available to the trust for distribution to beneficiaries. (2  x 1 = 2 marks) Total: 15 marks

QUESTION 3 A i.

Discus the requirements to qualify for income tax exemption if Grand Travel Sdn Bhd has licensed under the Tourism Industry Act 1992 as a tour operating business. The company must be resident in Malaysia  The company must be licensed under the Tourism Industry Act 1992  The tour must be a group inclusive tour  The total number of tourists must be at least 750 in the basis period of YA.  (Any 3  x 1 mark = 3 marks)

ii.

Identify the expenses that would qualify for double deduction for the year of assessment 2020. Office rental in Jakarta  Participation fees in a Kuala Lumpur Trade Exhibition approved by MATRADE  Participation fees in a Jakarta Trade Exhibition approved by MATRADE  Advertisement of travelling packages in Indonesia  (4  x ½ = 2 marks)

B Discuss whether each investor could qualify for a tax deduction under the Income Tax (Deduction for Investment in a Venture Company) Rules 2005. Unrelated Individual:  Ahmad

Qualify for tax deduction since he is Malaysian resident and has a business income 

Unrelated Companies: Golden Bhd  Qualify for tax deduction since the company is resident in Malaysia and has a business income.  Reddish Bhd  Qualify for tax deduction since the company is resident in Malaysia and has a business income. Even though the company eligible for reinvestment allowance.  Grilliant Bhd  Not qualify for tax deduction since it is VCC that has claimed tax exemption under the Income Tax (Exemption) (No 11) Order 2005.  ( 5 x 1 mark = 5 marks) (Total: 10 marks)...