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TUTORIAL QUESTIONS – IHCs Compiled by: Dr Nor Azrina Mohd Yusof Semester Oct 2021 – Feb 20221TOPIC 4B: IHCsTUTORIAL QUESTIONSUNLISTED HOLDING COMPANIESQUESTION 1 – JUNE 2018 QA. Berakah Sdn Bhd, an unlisted investment holding of which sole activity is the making of investment. Given below is the Sta...

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TUTORIAL QUESTIONS – IHCs Compiled by: Dr Nor Azrina Mohd Yusof Semester Oct 2021 – Feb 2022

TOPIC 4B: IHCs TUTORIAL QUESTIONS UNLISTED HOLDING COMPANIES QUESTION 1 – JUNE 2018 Q2

A.

Berakah Sdn Bhd, an unlisted investment holding of which sole activity is the making of investment. Given below is the Statement of Profit or Loss for the year ended 31 December 2021. RM Income Dividend income (single tier) Interest income Rental income

100,000 80,000 200,000

Expenses Directors’ remuneration Employees’ salaries Management fees Accounting, audit and secretarial fees Interest: - incurred on shares acquired - incurred on deposit placed - incurred on properties acquired Fund management expenses (on shared acquired) Quit rent and assessment on properties Repair and maintenance on properties Net profit

380,000

6,000 48,000 12,000 5,000 30,000 60,000 32,500 10,000 10,000 21,000

234,500

145,500

Required: Calculate the chargeable income of the company for the year of assessment 2021. (11 marks) B.

Naimah and Rahmat wishes to transfer a shophouse and a factory owned by them respectively to NR Sdn Bhd on 1 January 2021. NR Sdn Bhd main business activity is renting of property. The company will begin to receive rents from 1 January 2021 and closes its accounts to 31 December every year. Required: Advise whether the company is an investment holding company under Section 60F of the ITA 1967. (4 marks) (Total: 15 marks)

1

QUESTION 2 – JUNE 2019 Q2 A.

Kirrihilli Investment Sdn Bhd (KISB) is an investment holding company, not listed in Bursa Malaysia. The income received and expenses incurred by the company for the year of assessment 2021 are provided below: Income: Management service fees (Malaysia) Dividend (Single tier from Malaysia) Interest Other income (Malaysia) Expenses: Telephone charges, printing and stationeries Accounting and audit fee Directors’ fees Provision for doubtful debt Salaries and allowances

Note

1 2

RM 29,000 42,000 72,500 60,800

3,450 3,000 30,000 5,000 49,770

Additional information: 1.

Interest income consisted of foreign source (RM22,500) and income derived from Malaysia (RM50,000).

2.

Other income consisted of the distributions of income from property trust fund (RM20,000) and unit trust (RM40,800).

Required:

a. Compute the amount of permitted expenses for the year of assessment 2021. (6 marks) b. Compute the total income of the company for the year of assessment 2021. (4 marks) B.

Megalodon Bhd is an investment holding company, listed on the Bursa Malaysia. The income derived from the holding of investments included interest and dividend income. In 2021, the company set up an advisory service business, which was not the main activity of the company. During the year, the company received advisory fees amounting to RM38,000. It was revealed that RM41,000 expenses were incurred in generating income from the advisory services. Advise the company on the treatment of the following items: a. the chargeability of interest income b. the chargeability of the advisory fees (RM38,000) C. the deductibility of the expenses (RM41,000) incurred in generating income from the advisory services (5 marks) (Total: 15 marks)

QUESTION 3 – DEC 2019 Q2 Maratik Sdn Bhd, an investment holding company (Unlisted IHC) derives income from dividend, rent, interest and real estate consultancy services. Below are particulars pertaining to Maratik Sdn Bhd’s income, expenses and capital allowances for the year of assessment 2021: Gross income from: Dividend from shares in companies listed on Bursa Malaysia Rental of properties in Selangor Interest on fixed deR° sits in banks in Malaysia

RM 680,000 1,900,000 100,000

Real estate consultancy services in Malaysia

450,000

Expenses directly attributable to: Dividend Rent Real estate consultancy services

RM 110,000 800,000 150,000

Other expenses Director's fees Salaries Management fees Audit fees Depreciation

RM 15,000 51,000 10,500 6,000 18.000

Note: The real estate consultancy services are not Maratik Sdn Bhd’s main business activity. Required: a.

For the year of assessment 2021, compute the total income of Maratik Sdn Bhd. (show all workings and round up to the nearest ringgit). (15 marks)

b.

Maratik Sdn Bhd plans to dispose all the shares that it invested in the listed companies in early 2021 and has no plan to acquire additional shares. Assume in 2021 all other income remains the same, discuss the INC status of Maratik Sdn Bhd. (5 marks) (Total: 20 marks)

QUESTION 4 – FEB 2021 Q2 Fortune Holding Sdn Bhd is an unlisted Investment Holding Company located in Petaling Jaya, Selangor. The company’s Statement of Profit or Loss for the year ended 31 December 2021 is as follows: INCOME Rental – Shop house in Kuala Lumpur Rental – Factory in Thailand (remit) Gross dividend income: Rotan Furniture Sdn Bhd Temasik Ptd. (Singapore) (not remit) Tahan Lasak Berhad Interest income: Hong Kong (remit) Malaysia Management service fees Distribution from property trust fund EXPENSES Depreciation Rental and utilities Salaries and allowances Interest expense Director fees Repairs and maintenance Accounting and secretarial fees Audit fees Printing and stationery

RM 55,000 15,500 25,000 12,000 34,000 8,000 27,000

71,000

35,000 50,000 30,000

50,000 45,000 87,500 25,000 33,000 29,000 6,000 4,000 2,000

Notes: 1. 2.

RM5,000 of interest expenses and half of repairs and maintenance expenses relates to shop house in Kuala Lumpur. Rotan Furniture Sdn Bhd is a pioneer status company.

Required: a.

Calculate the chargeable income of the company for the year of assessment 2021. (15 marks)

b.

Explain the tax treatment of the management services fees income if Fortune Holding Sdn Bhd is to be listed on the Bursa Malaysia. (5 marks) (Total: 20 marks)

QUESTION 5 – JULY 2021 Q2

Megah Holdings Sdn Bhd is a resident investment holding company (unlisted on Bursa) with a paid-up capital of RM7 million. Its income is derived mainly from investments. The investments consist of fixed deposit in local financial institutions, shares in companies listed on the Bursa Malaysia and some real properties including shop lots. There is no support or maintenance services provided for the shop lots. The company has produced the following result for the financial year ended 31 December 2021: Megah Holdings Sdn Bhd Statement of profit or loss for the year ended 31 December 2021 Gross income RM RM Fixed deposit interest 100,171 Rent - shop lots 81,754 Dividends (Malaysian single tier) Investment 1 26,952 Investment 2 117,915 144,867 Management fees 120,000 Total gross income Less: Expenses Director's remuneration Staff salary Accounting and secretarial fees Audit fees Interest charges (loan for investment) Printing and stationary Management expenses Office rent Quit rent and assessment (shop lots) Entertainment Depreciation Net profit

446,792

80,777 48,466 16,159 32,073 62,888 3,230 45,233 80,640 3,257 4,845 7,000

(384,568) 62,224

Additional information: 1. Single tier dividends were received from the investments made in two lots of shares and rental income from the shop lot. The details of the investment are as follows: Cost of investment RM Shop lot 1,179,150 Investment 1 - shares 2,080,806 Investment 2 - shares 1,173,500 Total cost of investments

4,433,456

2. Megah Holdings Sdn Bhd took substantial loans to make the investments in the shop lots and the shares, for which interest charges incurred were charged in the accounts. Required:

a. Compute the chargeable income of Megah Holdings Sdn Bhd for the year of assessment 2021(Show all the relevant workings). (15 marks) b. Megah Holdings Sdn Bhd plans to dispose all the shares that it invested in the listed companies in early 2021 and has no plan to acquire additional shares. Assume in 2021 all other income remains the same, discuss the IHC status of Megah Holdings Sdn Bhd. (5 marks) (Total: 20 marks) ******************************************************************************************************* LISTED HOLDING COMPANIES

QUESTION 6 – JULY 2017 Q2 Mewah Bersatu Holdings Berhad is an investment holding company which is listed on Bursa Malaysia. The Statement of Profit or Loss for the year ended 31 December 2021 is as follows:

Interest Interest expense Net interest income Gross dividend income: Pioneer dividend Foreign dividend Single tier dividend

RM 2,250,000 (1,250,000) 1,000,000 30,000,000 10,000,000 20,000,000 60,000,000 5,000,000 66,000,000

Management fees Net income Expenses Staff costs Depreciation Rental and utilities Repairs and maintenance IT expenses Notes: Unabsorbed losses brought forward Current year capital allowances

800,000 50,000 130,000 7,500 5,000

RM3,000,000 RM2,615,000

Required: For the year of assessment 2021, calculate the statutory income of Mewah Bersatu a. Holdings Berhad. (10 marks) An unlisted investment holding company is allowed to deduct a portion of permitted b. expenses. Explained how the amount of permitted expenses allowable is determined. (5 marks) (Total: 15 marks)

QUESTION 7 – DEC 2018 Q2

A.

Geelong Bhd is an investment holding company listed on the Bursa Malaysia. The income and expenses of the company for the year of assessment 2021 are provided below. Source of Income (Malaysia) Interest Dividend (single tier) Rental Management fees Total

Gross Income (RM) Nil 450,000 280,000 70,000 800,000

Direct Expenses (RM) 95,000 122,000 80,000 100,000 397,000

Additional information:

1.

The company carries a business activity (Business A) but is not considered as the main activity. Management fees amounting to RM70,000 was received from this business activity.

2.

The common expenses and common capital allowances for the year of assessment 2021 were RM160,000 and RM90,000, respectively. Common expenses and common capital allowances are determined based on gross income.

Required:

B.

a.

Calculate the amount of common expenses and common capital allowances under each source of income. (4 marks)

b.

Calculate the chargeable income of Geelong Bhd for the year of assessment 2021. (6 marks)

Rockingham Sdn Bhd (RSB) commenced operation in year 2019 and its main activity is the holding of investments. In September 2020, RSB sold all its investments except fixed deposit to be used as a capital to start a business of selling hand phones in 2021 as its main activity. The following information is provided for the year of assessment 2019, 2020 and 2021. Source of Year of Year of Year of Income assessment assessment assessment 2019 (RM) 2020 (RM) 2021 (RM) (Malaysia) Business 60,000 Rent (non-business) 48,000 48,000 24,000 Dividend 20,000 Interest 10,000 10,000 26,000 Required: Advise whether the company is an investment holding company under Section 60F of the Income tax Act 1967 for the year 2019, 2020 and 2021. Show all computations. (5 marks) (Total: 15 marks)

TUTORIAL QUESTIONS – REITs Compiled by: Dr Nor Azrina Mohd Yusof Semester Oct 2021 – Feb 2022

QUESTION 8 – JULY 2020 Q2 A.

Innovest Bhd is an investment holding company listed on the Bursa Malaysia. Its main activity is investment in several companies, fixed deposits and properties located in Malaysia. In addition, the company provides professional advisory services and, in return, receives advisory fee. The advisory business is a sideline activity, which is not carried out actively. The income and expenses of the company for the year of assessment 2021 are provided below. Source of Income Dividend (single-tier) Interest Income Rental Income Advisory Fee

Note 1 1 1 2

Gross Income (RM) 400,000 530,000 310,000 30,000

Additional information: 1.

The total common expenses for the year of assessment 2021 was RM120,000.

2.

The revenue expenses and capital allowances of the advisory business for the year of assessment 2021 were RM36,000 and RM48,000, respectively.

3.

The company borrowed a loan facility amounting to RM700,000. The loan was used to finance investments in fixed deposit (RM450,000) and properties (RM250,000). The total interest on loan for the year of assessment 2021 was RM72,000.

Required: a.

b.

B.

Calculate the total income of Innovest Bhd for the year of assessment 2021. Show all workings. (12 marks) Assuming there is an adjusted loss from the advisory business. Discuss the tax treatment of the adjusted loss with reference to the provision of subsections 43(2) and 44(2) of the ITA 1967. (3 marks)

Cahaya Sdn Bhd (CSB) is an investment holding company, not listed on Bursa Malaysia. CSB has taken a loan to finance its investment in a real estate investment trust and fixed deposits. Interest expense is charged on the loan facility in the year of assessment 2021. The other expenses incurred for that year of assessment were directors’ fees, salaries and allowances, and office maintenance cost, which do not satisfy subsection 33(1). Discuss the deductibility of the above expenses. (Note: CSB received income from all its investment). (5 marks) (Total: 20 marks)

END OF QUESTIONS 9...