TAX467 Personal Income Tax Tutorial and SS En Arshad PDF

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TAX467 Personal Income Tax Comprehensive Tutorial January 2022Arshad Bin Ismail works as a Director with Pharma Bhd. He has been working with PharmaBhd's since 1 June 2000. In the basis year for the year of assessment 2020, he made a totalof RM278,675 in employment income.Arshad also runs a furnitur...

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TAX467 Personal Income Tax Comprehensive Tutorial January 2022 Arshad Bin Ismail works as a Director with Pharma Bhd. He has been working with Pharma Bhd's since 1 June 2000. In the basis year for the year of assessment 2020, he made a total of RM278,675.00 in employment income.

Arshad also runs a furniture business via AI Furniture Enterprise on 1 June 2017. The income statement for the year ended 31 December 2020 of SA Furniture Enterprise is as follows: Note Revenue Sales Less: Cost of sales Other Income Expenditure Salaries, bonus and EPF Rental Depreciation Insurance Bad Debt Renovation Utilities Bank charges Medical Entertainment Net Profit

RM 844,600 (260,000)

1

2 3 4 5 6 7 8 9 10

120,400 72,000 19,050 4,500 5,400 38,000 14,400 23,650 4,200 10,900

RM

584,600 21,600 606,200

(312,500) 293,700

Notes to the accounts: 1. Other income comprises of RM 16,100 commission from Fella Design Malaysia and RM5,500 profit from fixed deposit in CIMB Term Investment Account-i. 2. Salary, bonus and EPF paid to a disabled employee amounted to RM 21,600 salary, RM 3,600 bonus and 2,800 EPF respectively while for normal employees; salaries RM 72,000, bonus RM 6,000 and EPF RM 14,400. 3. Rental is for a three-storey shop house. The first two floors are for Arshad’s. business and the third floor is occupied by his cousin, Ariffin. 4.Insurance premium paid comprise of: a. Fire insurance for the three-storey shop house

RM 3,000

b. Life insurance for Aidid

RM 1,500

5. Bad debts comprise of: a. Specific provision

RM3,200

b. General provision

RM1,400

c.Trade debts written off

RM 800

6. Renovation expenses covers for storage expansion. 7. Utilities include RM 3,600 for Ariffin’s consumption. 8. Bank charges include interest of RM 1,320 on Arshad’s house loan. 9. Medical expenses comprise of RM 960 for Arshad’s family and RM3,240 for his employees. 10.Entertainment expenses comprise of RM5,200 hampers to customers and RM 5,700 annual dinner for employees.

AI Furniture Non-Current assets are as follows: Asset Office Equipment

Date Acquired 1 July 2017

Particulars The office equipment was purchased by cash for RM 21,000.

Isuzu 1 Tonne Lorry

2 March 2018

The cost of Isuzu 1 Tonne Lorry was RM 145,000. Deposit paid on 2 March 2018 RM25,000. Hire purchase loan is RM165,000. Term of repayment 60 months. The first instalment of RM2,750 commenced on 2 March 2018. The Isuzu 1 Tonne Lorry was disposed on 3 January 2020 for RM30,000.

Nissan Van

Delivery 4 January 2020

Safe Cabinet

1 February 2020

The delivery van was purchased on cash for RM88,000. Two units of safe cabinets of RM 1,200 each paid by cash.

Other Information: In April 2020 Arshad received a single-tier dividend of RM5,000.00 from Evergreen Bhd, a Malaysian resident company. His account with Maybank Islamic has also been credited with RM2,000.00 being profit made on his Fixed Deposit-i account with the bank.

Arshad’s spouse Farzana Binti Ibrahim is a full-time housewife. She owns a house in Shah Alam which she bought in 2018 with her own saving and a personal loan from Bank Rakyat. From the total of RM60,000 loan taken, RM10,000 was used by Farzana for personal purposes and the balance was used to help her finance the purchase of the house. The house was rented out since 2019 and the following is a statement of her rental income and expenses for the basis year 2020.

Statement of rental income for the period 1 January 2020 - 31 December 2020

RM Gross rental received * January 2020 to March 2020 (RM1,000 per month) June 2020 to December 2020 (RM1,100 per month) Refundable rental deposit from new tenant

RM

3,000 7,700 2,200 12,900

Less: Expenses Quit rent and assessment Fire insurance premium on building Replacement of damaged windows Installation of kitchen cabinets Refund of one-month deposit to previous tenant Commission to cousin for finding replacement tenant Interest on loan ** loss from rental

250 870 1,750 6,500 1,000 300 4,800

15,470 (2,570)

* The house was vacant from April 2020 to May 2020 (2 months) ** Interest on loan is based on the whole loan amount taken from Bank Rakyat In 2020, Farzana received RM1,000 from her uncle as a commission for her success in finding a buyer for the sale of land owned by him. Other Information: 1. Arshad and Farzana were blessed with four children: • Hadif – 20 years old, unmarried, studying degree of mechanical engineering in Universiti Teknologi Petronas (UTP) • Ayra – 19 years old, unmarried, pursuing diploma in accountancy in Universiti Teknologi Mara, Malacca Branch • Alysa – 13 years, studying in Sekolah Rendah Integrasi Pintar, Bukit Jelutong, Shah Alam • Aidid – 8 years old, disabled child, attending special education program in special need school in Subang Jaya, Shah Alam (In the year 2020, Arshad incurred maintenance expenses for Hadif, Ayra and Alysa amounted to RM 12,000, RM 5,500 and RM 9,800 respectively). 2. Farzana purchased a special wheelchair for Aidid costing RM6,200. 3. Arshad paid monthly life insurance premium for himself and her wife, Farzana amounted to RM400 and RM250 respectively. 4. Arshad also spent medical insurance for all his children amounted to RM3,500. 5. Arshad and Farzana have incurred the followings for Skim Simpanan Pendidikan Nasional (SSPN) of all their children:

Amount deposited in 2020 Withdrawals

Arshad (RM) 5,400 -

Farzana (RM) 3,500 800

6. To maintain a healthy lifestyle, Arshad spent RM500 for gym membership and purchase of sports equipment totalled RM2,800. 7. Arshad and Farzana has undergone full medical check-up in KPJ Specialist Hospital, Klang. Both paid RM600 each for the medical check-up cost. 8. Farzana’s mother has been bedridden since March 2019 due to stroke. Farzana incurred RM2,700 for her mother’s medical expenses. 9. Since Arshad is the only child, he took care of both his parents (Malaysian citizen). His father is a retired police officer aged 72 years old, received monthly pension of RM1,800, while his mother 68 years old is a full-time housewife. 10. Farzana donated 5 hampers worth RM500 for sports day at Damai Disabled Person Association Malaysia (approved institution) while Arshad donated RM2,000 cash to Akademi Perubatan Malaysia (approved institution) 11. Arshad and Farzana paid zakat on their savings amounted to RM52,000 and RM12,500 respectively. Required: 1. Compute the tax payable in respect of Arshad and Farzana for the year of assessment 2020.

SOLUTION QUESTION 1 Business Income Tax Computation of AI Furniture Enterprise for the year of assessment 2020 Notes (RM) (RM) + Sec 4 (a) business source income Net profit as per account or Profit before taxation 293,700 Less: Other Income (other than Sec 4(a)) Commission from Fella Design 1 16,100 Profit from fixed deposit in CIMB Term Investment 1 5,500 Fund Add: Non-allowable expenses: Salaries and bonus- Normal employees 2 Nil Salaries and bonus- Disabled employee 2 25,200 EPF (normal and disabled employees – 2 Nil RM 103,200 x 19% vs RM17,200) Rental – AI Furniture (2/3 x RM72,000) 3 Nil Rental – Ariffin (1/3 x RM72,000) 3 24,000 Depreciation 19,050 Fire insurance – AI Furniture (2/3 x RM3,000) 4 Nil Fire Insurance – Ariffin (1/3 x RM3,000) 4 1,000 Life Insurance - Aidid 4 1,500 Bad debts: Specific provision 5 Nil

Bad debts: General provision Bad debts: Trade debts written off Renovation for storage expansion Utilities - Business Utilities - Ariffin Bank Charges – business Bank Charges – Interest on Arshad’s house loan Medical expenses – Arshad’s family Medical expenses - employees Entertainment – Hampers to customers (50%) Entertainment – Annual dinner employees

5 5 6 7 7 8 8 9 9 10 10 46,800

ADJUSTED BUSINESS INCOME Add: Balancing Charge Less: Capital Allowance STATUTORY BUSINESS INCOME

1,400 Nil 38,000 Nil 3,600 Nil 1,320 960 Nil 2,600 Nil 387,130 340,330 36,600 (39,700) 337,230

OFFICE EQUIPMENT YA 2017

2018 2019 2020

Qualifying Expenditure Initial Allowance (20% x 21,000) Annual Allowance (10%) RE Annual Allowance (10%) RE Annual Allowance (10%) RE Annual Allowance (10%) RE

RM 21,000 (4,200) (2,100) 14,700 (2,100) 12,600 (2,100) 10,500 (2,100) 8,400

LORRY

YA 2018

YA 2019

YA 2020

Qualifying Expenditture : 25,000 √+(2,000 x 10 = 20,000) = 45,000 Less : IA (20% x 45,000) AA (20%x 45,000) Residual Expenditure New QE (2,000 x 12 = 24,000) Less: IA (20%x 24,000) AA (20% x 69,000) Residual Expenditure Disposal Balancing Allowance Since the asset was owned less than 2 years, therefore Balancing Charge is equal to capital allowances clawed back = RM 36,600 Cash Price RM 145,000 Deposit RM 25,000

RM 45,000 (9,000) (9,000) 27,000 24,000 (4,800) (13,800) 32,400 30,000 2,400

Hire Purchase Price RM 165,000 Interest RM 45,000 Installment exclude interest :RM2,750-750=2,000 NISSAN DELIVERY VAN

YA 2020

Qualifying Expenditure Initial Allowance (20% x 88,000) Annual Allowance (20% x 88,000) RE

RM 88,000 (17,600) (17,600) 52,800

STEEL CABINET

YA 2020

Qualifying Expenditure Accelerated Capital Allowance RE

RM 2,400 (2,400) 0

Computation of tax payable of Arshad and Farzana for YA 2020 Arshad Farzana RM RM Section 4 (a) Business Income Adjusted income 340,330 + Balancing charge 37,600 - Capital Allowance (39,700) STATUTORY BUSINESS 337,230 Nil INCOME Section 4(b) Employment Income Salary etc Section 4 (c ) Dividend and Interest Dividend – Evergreen Bhd Interest – Fixed deposit MBB Interest – From FD in CIMB Section 4(d) Rental Income Section 4(f) Other Income Commission from Fella Design Commission from selling of uncle’s land AGGREGRATE INCOME Less: Approved Institution (10% x 617,905 Vs 2,000) TOTAL INCOME Total Joint Income Less: Reliefs:Personal Relief - Self - Wife Children – Hadif (20 y.old) -Ayra (19 y.old) - Alysa (13 y.old) -Aidid ( 8 y.old)(disabled) Basic Supporting equipment EPF - restrict 4,000 Life Insurance – restrict 3,000 Medical Insurance SSPN Lifestyle Medical examination expenses Parental care – Father & Mother CHARGEABLE INCOME

278,675

Nil

Exempted Exempted 5,500 3,530

16,100 1,000

637,505

4,530

(2,000) Nil 635,505 640,035 (9,000) (4,000) (8,000) (8,000) (2,000) (6,000) (6,000) (7,000) (3,000) (8,000) (2,500) (500) (3,000) 573,035

4,530

Tax payable: Tax on the first RM400,000 Tax on the balance 173,035@25%

83,650 43,258 126,908

Less: Rebate Zakat Tax payable Less: Monthly Tax deductions Balance of tax payable

(64,500) 72,028 (19,300) 52,728

COMPUTATION OF RENTAL INCOME Statement of rental income for the period 1 January 2020- 31 December 2020 RM RM Gross rental received January 2020 to March 2020 3,000 (RM1,000 per month) June 2020 to December 2020 7,700 (RM1,100 per month) Refundable rental deposit from new tenant Nil 10,700 Less: Expenses Quit rent and assessment 250 Fire insurance premium on 870 building Replacement of damaged air conditioner 1,750 Installation of kitchen cabinets Nil Refund of one-month deposit to Nil previous tenant Commission to cousin for finding replacement tenant 300 Interest on loan (4,800 x 50/60) 4,000 7,170 Adjusted/ Statutory rental income 3,530...