Q&A Q2 DEC 2019 PDF

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Q&A Q2 DEC 2019QUESTION 2Forest Sdn Bhd (FSB) is a resident company involves in tourism business and has been operating an in-door theme park in Penang since 2005. Due to an overwhelming response from the foreign tourists to the theme park, the company has decided to expand its tourism projects ...

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Q&A Q2 DEC 2019 QUESTION 2 Forest Sdn Bhd (FSB) is a resident company involves in tourism business and has been operating an in-door theme park in Penang since 2005. Due to an overwhelming response from the foreign tourists to the theme park, the company has decided to expand its tourism projects by constructing a new out-door theme park. FSB is eligible to apply for Pioneer Status or Investment Tax Allowance incentives for the construction of the new theme park. However, FSB is uncertain whether to apply for Pioneer Status or Investment Tax Allowance for the new theme park project, therefore FSB is seeking your advice on the best incentives option. The followings are the forecasted financial information pertaining to the new theme park project of FSB for the years ended 31 October: 2020 2021 2022 Promoted business: RM RM RM Adjusted income/(loss) (1,245,000) 2,040,000 2,350,000 Balancing Charge 40,000 Capital allowances for the year 1,080,000 650,000 650,000 Interest Income 10,000 15,000 25,000 Approved donations to state government 8,000 18,000 15,000 The company is expected to incur the following expenditures for the new out-door theme park project to be embarked in 2020: Land Construction of road and other infrastructures Provision of buildings and structural improvement Amusement plant and machinery Planting of trees and plants

4,000,000 1,800,000 850,000

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-

1,500,000 780,000

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-

Required: a.

Determine the company’s chargeable income and the amount to be credited to the exempt income account for the year of assessment 2020 up to the year of assessment 2022 (if any) under the following tax incentives: i.Pioneer Status Incentive ii. Investment Tax Allowance incentive (16 marks)

b.

Analyze which incentive is more tax efficient to Forest Sdn Bhd. (3 marks)

c.

Jati Manufacturing Sdn Bhd is eligible for Reinvestment Allowance under Schedule 7A of ITA 1967. Discuss the eligibility criteria as outlined by the above legislation that has to be satisfied by the company. (3 marks) (Total: 22 marks)

SUGGESTED SOLUTION – Q2 DEC 2019 QUESTION 2 a. i. Pioneer Status Year of assessment Promoted Business (PB) Adjusted Income/(loss) Add: Balancing charge Less: Capital allowance b/f Capital allowance c/y Statutory Income Less: Exemption @ 70% of SI√ Deemed Total Income Other income - interest√ Aggregate income Less: Approved donation (full) Total income Add: Deemed Total Income Chargeable income Exempt Income Account Exemption @ 70% of SI Less: Non-Pioneer loss (c/y) Less: Pioneer loss (b/f) Amount credited into exempt income account

2020 RM

2021 RM

2022 RM

Nil√ (1,245,000) 40,000√ Nil (40,000) √ (1,040,000c/f) Nil√ Nil Nil

2,040,000√

2,350,000√

Nil (1,040,000) √ (650,000 ) √

nil (650,000)√

350,000√ 245,000√ 105,000

1,700,000√ 1,190,000√ 510,000

10,000 10,000 (8,000) 2,000 Nil 2,000√

15,000 15,000 (15,000) √ Nil 105,000 105,000√

25,000 25,000 (15,000) 10,000 510,000 520,000√

Nil Nil Nil

245,000 Nil (245,000) √ (1,000,000 c/f) Nil

1,190,000 Nil (1,000,000) √

Nil

190,000

a. ii. Investment Tax Allowance Year of assessment Statutory Income Less: ITA Utilized (W1) √ Statutory income after exemption Less: Business loss b/f

2020 RM Nil Nil Nil Nil

Add: Other income - interest Aggregate income Less: Approved donation (full) Total income/ Chargeable income

Nil 10,000 10,000 (8,000) 2,000

W1 Qualifying capital expenditure: Construction of road and other infrastructures

1,800,000√

2021 RM 350,000 (245,000) 105,000 (105,000) √ (1,140,000c/f) Nil 15,000 15,000 (15,000) Nil

2022 RM 1,700,000 (1,190,000) 510,000 (510,000) √ (630,000 c/f) Nil 25,000 25,000 (15,000) 10,000

Provision of buildings and structural improvement Amusement plant and machinery Planting of trees and plants Total QCE ITA b/f Add: CY ITA : 60% x QCE√ (W2) Total ITA Available Less: ITA Utilized and credited to exempt income account (ITA available vs 70% of SI w.i.l) ITA Unutilized c/f 70% of SI√

1,500,000√ 780,000√ 4,930,000 Nil 2,958,000 2,958,000 Nil 2,958,000 Nil

2,958,000 Nil 2,958,000 (245,000) √

2,713,000 Nil 2,713,000 (1,190,000) √

2,713,000 1,523,000 245,000 1,190,000 (32√ x ½ mark = 16 marks)

ITA√ is more tax efficient than PS to Forest Sdn Bhd because:

b. ⮚ ⮚

⮚

c.

850,000√

The chargeable income for 3 years under ITA of RM12,000 is lower than chargeable income of RM627,000 under PS√, hence leads to lower tax payable under ITA√ Exempt income account for 3 years under ITA of 1,435,000 is higher than 3-years exempt income under PS√ of RM190,000, hence higher exempt dividend available to the shareholders under ITA√. The unabsorbed business losses to be carried forward to future years of RM630,000√ under ITA can help to reduce future chargeable income of the company√ (6√ x ½ mark = 3 marks) Jati Manufacturing Sdn Bhd had fulfilled the following conditions to be eligible for the reinvestment allowance under Schedule 7A of the Income Tax Act (ITA) 1967 (as amended): 1. The company is a resident company in Malaysia√ 2. The company has been in operation for not less than 36 months√ 3. The company has incurred qualifying expenditure on a factory, plant or machinery used in Malaysia for the purpose of a qualifying project as per paragraph 8 (a) (expansion, modernization, automation or diversification of existing business). √ 4. The company does not enjoy any other tax incentive to be eligible for the said tax incentive. √ (Any 3√ x 1 mark = 3 marks) (Total: 22 marks)...