Final TAX517 - JAN 2018 - SS PDF

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DO NOT CIRCULATE SOLUTIONQUESTION 1a.Anggerik Sdn Bhd Computation of Income tax payable for the year of assessment 2017 Add (RM) Less (RM) Net profit before taxation 1,250,000√ Adjustment for: Staff annual dinner Nil√ Entertainment of client (5,000 x 50%) 2,500√ Launching new product Nil√ Annual sub...

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SOLUTION QUESTION 1 a. Anggerik Sdn Bhd Computation of Income tax payable for the year of assessment 2017 Add (RM) Less (RM) Net profit before taxation 1,250,000√ Adjustment for: Staff annual dinner Nil√ Entertainment of client (5,000 x 50%) 2,500√ Nil√ Launching new product Annual subscription to trade association Nil√ Advertisement Nil√ Approved training for GST – staff Routine product testing Salaries and bonus for disabled employees Salaries and bonus to employees EPF 45,500 – [(36,000+124,000+65,000) x 19% = 42,750] Managing Director’s fees Provision for gratuity Repair work for office air-conditioning Renovation of covered walkaway and ramps for disabled employees Increase in Specific provision for bad debts Decrease in General provision for bad debts Bad debts written off (non-trade) Audit fees Secretarial fees (9,500-5,000) Legal fees to increase share capital Tax filing fees Cash donation to approved institution Donation of electrical goods to orphanage house Cash contributions to Bantuan Pelajar Miskin 1 Malaysia Fund Lease rental (56,000 – 50,000) Foreign exchange loss arising from purchase of machine Foreign exchange loss arising from translation of debts owing to foreign suppliers at year end (realized) Foreign exchange gain on receipt of trade debts (realized) Interest on loan to acquire shares in TNB Dividend income from overseas Interest income from fixed deposits in a Malaysian bank

Nil√ Nil√ 36,000√ Nil√ 2,750√√ Nil√ 25,000√ Nil√ Nil√ Nil√ 5,500√ 2,500√ Nil√ 4,500√ 8,500√ Nil√ 55,000√ 12,000√ 13,000√ 6,000√ 45,000√ Nil√ Nil√ 6,000√ 50,000√ 25,000√

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Gain on disposal of non current asset

35,000√ 86,000√ 45,000√ 1,550,750

Depreciation Zakat ADJUSTED INCOME√ Less : Capital Allowances (120,000√+20,000√) : Balancing Allowance STATUTORY INCOME Less: Unabsorbed loss b/f Net Statutory Income Add: Other income: Dividend from overseas Interest: Malaysia

164,500 1,386,250 (140,000) (7,000) √ 1,239250 (8,500) √ 1,230,750 Nil√ 25,000√ 1,255,750

AGGREGATE INCOME√ Less: Donation to approved institution (Restricted to 10%√ of 1,255,750) Zakat (45,000 vs ( 2.5%√ x 1,255,750) CHARGEABLE INCOME√

(55,000) (31,394) 1,169,356

TAX PAYABLE (RM1,169,356 x 24%√)

280,645.44 (48√ x ½ = 24 marks)

b. RM

Alternative answer

15/2/2017√ 15/3/2017 15/4/2017 15/5/2017 15/6/2017√ 15/7/2017

600,000/12 = 50,000√ 50,000 50,000 50,000 [700,000 - (50,000 x 4)]/8 = 62,500√ 62,500

7th 8th

15/8/2017 15/9/2017√

9th

15/102017

62,500 [847,500 –{(50,000X4) – (62,500 X3)} /5 =92,000√ 92,000

600,000/12 = 50,000√ 50,000 50,000 50,000 50,000 [700,000 - (50,000 x 5)]/7 = 64,285√ 64,285 64,285

10th 11th 12th

15/11/2017 15/12/2017 15/1/2018

No. of instalment 1st 2nd 3rd 4th 5th 6th

Due date

[847,500 –{(50,000X5) – (64,285 X3)} /4 =101,161√ 92,000 101,161 92,000 101,161 92,000 101,162 (6√x ½ marks = 3 marks) (Total : 27 marks)

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QUESTION 2 A.

Pioneer status

Pioneer Status (Prod A)

2017

Adjusted Income

350,000

2018 Nil (40,000)

2019 125,000

TOTAL

(50,000) Less: Capital Allowance CA b/f CA c/f Statutory Income Exempted: 70% of Statutory Income ✓

(100,000) (10,000) 250,000

✓

(10,000) Nil ✓ -

175,000

65,000

✓

45,500 -

Deemed total income ✓

75,000

19,500

Product B (NPP) Adjusted Income Less: Capital Allowance CA b/f CA c/f Statutory Income - B Less: Loss b/f Product B Add: Rental Income ✓ Aggregate Income CY Loss NPP - B Approved donation ✓ Total Income Add: Deemed total income ✓ Chargeable income EIA SCHEDULE / WORKING Exempted: 70% of SI ✓ Less: CY Loss - NPP B Loss b/f - PP A Credited to exempt income A/C

Nil (70,000)

(10,000) 30,000 30,000 (10,000) 20,000 75,000 95,000

175,000 (70,000) 105,000 105,000

75,000

140,000

(35,000) (10,000)

(35,000)

✓

30,000 ✓ 10,000 40,000 (10,000) 30,000

✓

30,000 ✓

105,000 10,000 115,000 (15,000) 100,000 19,500 119,500

✓ ✓

-

✓

45,500 45,500 (40,000) 5,500

✓

✓

244,500

✓ ✓

110,500

(20√ x ½ mark = 10 marks)

Investment tax allowance

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Product A (promoted) Adjusted Income

2017 350,000

Less: Capital Allowance CA b/f CA c/f Statutory Income Less: ITA Uitilised ✓ Balance of income Product B (NPP) Adjusted Income

(100,000)

Less: Capital Allowance CA b/f CA c/f Statutory Income SI from A & B Loss b/f - A Loss b/f - B Add: Rental Income Aggregate Income Less:CY Business Loss - A CY Business Loss - B Approved Donation Total / Chargeable Income ✓ ITA - Workings Factory building Plant and machinery QCE ITA - b/f ✓ Add: CY ITA {60% of QCE) ✓ Total ITA available ITA Utilised ** Balance c/f 70% of SI ✓ Exempt Income account ✓

2018 Nil (40,000)

Nil (70,000)

(10,000) 75,000 75,000 30,000 105,000

300,000 50,000 350,000 210,000 210,000 (175,000) 35,000 175,000 175,000

TOTAL

(50,000) (10,000)

250,000 (175,000) 75,000

(70,000) (10,000) 25,000

2019 125,000

✓

(10,000) Nil -

65,000 (45,500) 19,500

75,000

140,000

(35,000) (10,000)

(35,000)

30,000 30,000 30,000 10,000 40,000 (40,000) -

105,000 124,500 124,500 10,000 134,500 (15,000) 119,500

✓

-

✓

✓

50,000 50,000 35,000 30,000 65,000 65,000 -

144,500

✓ 65,000 65,000 (45,500) ✓ 19,500 45,500 45,500 220,500 (12 ✓ x ½ = 6 marks)

Pioneer status ITA Chargeable income for 3 years 244,500✓ 144,500 ✓ 110,500 ✓ 220,500✓ Exempt Income Account for 3 years The company should choose ITA ✓ because estimated chargeable income for the tax relief period of 3 years is lower ✓ ie RM144,500 than the estimated chargeable income for PS. OR exempt income account for ITA is higher than PS exempt income account. (6√ x ½ = 3 marks) a.

Reinvestment allowance

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Must be a resident company in Malaysia√ Incurred qualifying expenditure for a qualifying project – automating, modernizing or expansion of the current operations, or diversifying the existing products within the same industry. √ Must be in operation for at least 36 months. √ Only can claim RA after the elapsed of pioneer status period or investment tax allowance. √ (Any 3 points = 3 marks) (Total: 22 marks)

• •

• •

QUESTION 3 A. Gilbert ----------→ Simon (son) DOA DOD -

: :

1/3/2010 24/12/2013

Transfer of house as a gift from father to son within 5 years period Para 12, Schedule 2 is applied No gain no loss situation√ No RPGT payable by Gilbert√ Disposal price deemed equal to acquisition price√

Simon -----→ Alvin DOA DOD

: :

24/12/2013 10/5/2017 RM

RM

Disposal price: Consideration received (RM410,000√ – RM4,000 √) Acquisition price: AP from the father Less: Deposit forfeited ( Saleha) Insurance received

406,000 364,500 (42,000)√ (6,000)√ (316,500) 89,500

Chargeable gain Less: Schedule 4 exemption RM10,000 @ 10% of Chargeable gain (WIH) Net gain RPGT payable @ 20%√

-

(10,000)√ 79,500 15,900

AP by Gilbert : RM

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Purchase price Add: Legal fees Renovation

280,000√ 4,500√ 80,000√ 364,500 (12√ x ½ = 6 marks)

B

i. Status of MSB as a real property company: 15/10/2015 RM 600,000√ 1,200,000√ 1,800,000 900,000 2,700,000√

AP of shares in other RPC MV of real properties Defined Value of RP Other tangible assets Total Tangible Assets (TTA) DV of RP x 100% TTA

1,800,000 x 100 2,700,000 = 66.67% Not RPC√

10/12/2016 RM 600,000√ 1,700,000√ 2,300,000 700,000 3,000,000√ 2,300,000 x 100 3,000,000 =76.67% RPC√

15/10/2017 RM Nil√ 2,000,000√ 2,000,000 1,000,000 3,000,000√ 2,000,000 x 100 3,000,000 =66.67% Not RPC√ (12√ x ½ = 6 marks)

ii. Disposal of shares by Sufian to Zaki DOA : 10/6/2014 Not RPC DOD : 2/2/2017 RPC Deemed DOA is when the company first became RPC Deemed DOA : 10/12/2016√ (disposal within 2 years after the deemed DOA) RM Disposal value Consideration received (200,000 shares x RM3) 600,000√ Acquisition price: A ----- x C B = 200,000 shares ------------------------ x RM2,300,000 √ (438,095) 1,050,000 shares √ Chargeable Gain 161,905 Less: Sch 4 Exemption (16,191) RM10,000 @ 10% x Chargeable Gain (WIH) √ Net Gain 145,714 43,714 RPGT payable @ 30%√ (6√ x ½ = 3 marks) iii. Kamal ----------→ Zainal (son) DOA DOD

: :

1/6/2013 11/5/2015

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-

The land was inherited from his late father Devolution (transfer) of asset of a death person subject to no gain no loss transaction Disposal price deemed equal to acquisition price Para 3(a), Schedule 2 is applied No gain no loss situation√

Zainal --------land-------→ MSB -

Zainal transferred his land to his own controlled company√ Consideration received: RM Shares (200,000 shares x RM3) 600,000 Cash 250,000 ----------Total consideration 850,000 ======= Shares received: RM600,000 ---------------- x 100 = 71%√ RM850,000

-

Shares received less than 75% of the total consideration√ Disposal price is not deemed equal to acquisition price (Para 3(b), Sch 2 is not applied) Transfer of land is subject to RPGT√ However, the 200,000 shares received are not chargeable assets√ Subsequent disposal of these shares are not subject to RPGT

-

DOA DOD

: :

11/5/2015 (date of transfer of asset) 28/11/2017 (disposal within 3rd year after the DOA) RM

Disposal value Consideration received Acquisition price = MV at date of transfer Chargeable gain Less: Sch 4 exemption RM10,000 @ 10% x Chargeable Gain (WIH) Net Gain RPGT @ 30% -

850,000√ (650,000) √ 200,000 (20,000)√ 180,000 54,000

Disposal of 100,000 shares to Marisa on 30 December 2017 are not subject to RPGT because the shares are not chargeable assets. √ (10√ X ½ mark = 5 marks)

C. Three situations on which disposal deemed equal to market value: 1. A bargain is not at arm’s length or gift 2. A disposal of real property for a consideration that cannot be valued

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3. A disposal of real property in connection with loss of employment or termination (gratuity payment) 4. Transfer of real property for satisfaction of debt 5. Lump sum disposal of real property and other assets 6. Anti-avoidance provisions (where s25(2) applies) (Any 3√ x 1 mark = 3 marks) Total: 23 marks

QUESTION 4 A. i. The advance payment √ and the balance of payment √ are subject to withholding tax of 10% under s 109B for special classes of income (s 4A) √. Advance payment: RM50,000 x 10% = RM5,000√ Due date is on 24 April 2017√ Balance payment: (RM1,000,000 - RM50,000) x 10% = RM95,000√ Due date is on 8 November 2017√ ii.

The withholding tax is not applicable √ in the case as Naina Corporation did not charge any fees in providing the technical assistance to install the plant √. The reimbursement of ‘out-of-pocket’ expenses amounting to RM6,500 √ would not be subjected to withholding tax. √

iii.

The royalty payment is subject to withholding tax √ of 10% √ under S15√ RM2,000,000 x 10% = RM200,000√ Due date is on 30 October 2017√ (16 √ x ½ mark = 8 marks) Three advantages of Double Tax Agreement are:

B

• • • • •

To alleviate either wholly, or partially the burden of double taxation on the same income derived by a taxpayer Facilitate of world trade Promote transfer of technology Prevent international tax evasion and tax avoidance Provide double tax relief. (Any 3√ x 1 mark = 3 marks)

C. i.

The records that should be kept by the business includes: • Books of account recording receipt and payments or income and expenditure, √ • Supporting documents such as invoices, vouchers, receipts and such other documents that in the opinion of DG are necessary to verify the entries in any books of account; √ and • Any other records as may be specified by statutory order as provided in s 82(3). √

ii.

Generally, a tax audit covers a period of one (1) year of assessment, √ determined in accordance with the audit focus criteria of the department. However, the tax audit may be extended to cover a period up to five (5)

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years √ of assessment, pursuant to the issues uncovered during an audit. Further, this 5 year time limit is not applicable to cases involving fraud and tax evasion√ whether intentional or unintentional. (Any 5√ x 1 mark = 5 marks) (Total: 17 marks)

QUESTION 5 a. i.

Bendang Clay Art is required to register for GST because based on the future method√, the value of taxable supplies in January 2016 plus the expected value of taxable supplies for the 11 months immediately after that month√ (by 31 December 2016) exceed the threshold of RM500,000√ (RM280,000 + RM350,000 = RM630,000√). (4√ x ½ mark = 2 marks)

ii.

The time of supply and the output tax of the supply of the ceramic tiles:

Transaction Deposit paid of RM5,000 Paid the balance of RM10,000

Time of supply 1 April 2017√ 15 May 2017√

Output tax 6% x RM5,000 = RM300√ 6% x RM10,000 = RM600√ (4√ x ½ mark = 2 marks)

iii.

Gift to Teja Hotel -

The provision of gifts to Teja Hotel is deemed supply√ within the GST Act 2014 which is 6%. This is because under the GST rule, GST output can be charged if the total amount of gifts given to a same person per year is more than RM500. √

Gift to Team Event Group -

b.

The provision of gifts to Team Event Group is not deemed√ a supply since the total amount of gifts given is not more than RM500 (RM400 gifts value only). √ (4√x 1 mark= 4 marks)

GST Implications on the payments: RM220,000 for the remuneration of employees

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•

There is no GST implication on the remuneration of employees because it is out of scope supplies (non-business). √

RM45,000 on the purchased of goods (taxable supplies) from Keyon Sdn Bhd (a GST registrant). • • •

This purchase is subject to output tax of 6%.√ Kenyon Sdn Bhd will charge Tani Sdn Bhd RM2,700 (6% x RM45,000) as the GST output tax. √ Tani Sdn Bhd can claim this RM2,700 as their claimable input√ once the goods are supplied to the customer. (4√ x 1 mark= 4 marks) (Total: 12 marks)

END OF SUGGESTED SOLUTION...