FOUNDATIONS IN ACCOUNTANCY

Foundations in Taxation (Malaysia)

Monday 5 December 2011

Time allowed Reading and planning: Writing:

15 minutes 3 hours

This paper is divided into two sections: Section A ALL TEN questions are compulsory and MUST be attempted Section B ALL FOUR questions are compulsory and MUST be attempted Tax rates and allowances are on pages 24. Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor. This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

Paper FTX (MYS)

SUPPLEMENTARY INSTRUCTIONS 1. 2. 3. Calculations and workings should be made to the nearest RM. All apportionments should be made to the nearest whole month. All workings should be shown.

TAX RATES AND ALLOWANCES The following tax rates, allowances and values to be used in answering the questions. Income tax rates Resident individuals Chargeable income First Next Next Next Next Next Next Exceeding RM 2,500 2,500 15,000 15,000 15,000 20,000 30,000 100,000 (0 2,500) (2,501 5,000) (5,001 20,000) (20,001 35,000) (35,001 50,000) (50,001 70,000) (70,001 100,000) Rate % 0 1 3 7 12 19 24 26 Cumulative tax RM 0 25 475 1,525 3,325 7,125 14,325

Resident company Paid up ordinary share capital First RM500,000 20% 25% Excess over RM500,000 25% 25%

RM2,500,000 or less More than RM2,500,000 Non-residents Company Individual

25% 26%

Personal reliefs and allowances Self Disabled self, additional Medical expenses expended for parents Medical expenses expended on self, spouse or child with serious disease, including up to RM500 for medical examination Basic supporting equipment for disabled self, spouse, child or parent Purchase of sports equipment Fees expended for skills or qualifications Expenses on books for personal use Spouse relief Disabled spouse, additional Child Child higher rate Disabled child Disabled child additional Life insurance premiums and contributions to approved funds Deferred annuity premiums Medical and/or education insurance premiums for self, spouse or child Purchase of a personal computer Broadband subscription Deposit for a child into the National Education Savings Scheme Rebates Chargeable income not exceeding RM35,000 Individual Individual entitled to a deduction in respect of a spouse or former wife RM 9,000 6,000 5,000 5,000 5,000 300 5,000 1,000 3,000 3,500 1,000 4,000 5,000 4,000 6,000 1,000 3,000 3,000 500 3,000

(maximum) (maximum) (maximum) (maximum) (maximum) (maximum)

(each) (each) (each) (each) (maximum) (maximum) (maximum) (maximum) (maximum) (maximum)

RM 400 800

Value of benefits in kind Car scale Cost of car (when new) RM Up to 50,000 50,001 to 75,000 75,001 to 100,000 100,001 to 150,000 150,001 to 200,000 200,001 to 250,000 250,001 to 350,000 350,001 to 500,000 500,001 and above Prescribed annual value of private usage of car RM 1,200 2,400 3,600 5,000 7,000 9,000 15,000 21,250 25,000

The value of the car benefit equal to half the prescribed annual value (above) is taken if the car provided is more than five (5) years old. Where a driver is provided by the employer, the value of the benefit per month is fixed at RM600.

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Other benefits Household furnishings, apparatus and appliances Semi-furnished with furniture in the lounge, dining room, or bedroom Semi-furnished with furniture as above plus air-conditioners and/or curtains and carpets Fully furnished premises Domestic help Gardener RM per month 70 140 280 400 300

Capital allowances Initial allowance (IA) Rate % 10 20 20 20 Annual allowance (AA) Rate % 3 14 20 10

Industrial buildings Plant and machinery general Motor vehicles and heavy machinery Office equipment, furniture and fittings

Real property gains tax Disposal by companies and other than companies Rate % Date of disposal Disposal within two years after date of acquisition Disposal in the third year after date of acquisition Disposal in the fourth year after date of acquisition Disposal in the fifth year after date of acquisition or thereafter 30 20 15 5

Note: An exemption is granted which reduces the effective rate to 5% where the disposal takes place within five years of the date of acquisition and to nil thereafter.

Sales and service tax Sales tax Service tax Rate % 10 5

Section A ALL TEN questions are compulsory and MUST be attempted Please use the space provided on the inside cover of the Candidate Answer Booklet to indicate your chosen answer to each multiple choice question. Each question within this section is worth 2 marks. 1 Jeeves, a Malaysian citizen who had lived abroad in Iceland for over 15 years, decided to return to Malaysia on 1 October 2011. He was gainfully employed from 1 October 2011 as a chief accountant in a Malaysian company. Based on a schedule of days in and out of Malaysia, he was confirmed as a non-resident for the year of assessment 2011. Which of the following statements describes Jeeves entitlement to the personal relief and the basis of taxing his income earned in Malaysia for the year of assessment 2011? A B C D Entitled to claim personal relief and his chargeable income is taxed at the flat rate of 26% Not entitled to claim personal relief and his chargeable income is taxed at the flat rate of 26% Entitled to claim personal relief and his chargeable income is taxed at scaled rates Not entitled to claim personal relief and his chargeable income is taxed at scaled rates

Bryan works in a local university as a lecturer in the language and literature faculty. During his spare time, he helps translate books and literary materials. During the year of assessment 2011, he was approached by the Ministry of Higher Education to translate two books and was paid a fee of RM22,000. It was confirmed that the payment was not regarded as emoluments arising from the exercise of his official duties. What is the amount of the translation fee income that will be assessable to tax, after taking into account any exemption that may be available for Bryan in respect of the translation fee? A B C D RM2,000 RM22,000 RM12,000 RM10,000

West Manufacturing Sdn Bhd closes its accounts annually on 31 December and has been in operation for ten years. The company acquired a mould machine on 8 May 2008 and disposed of it on 30 December 2011. Which of the following statements describes the tax treatment for annual allowance purposes of the mould machine for the year of assessment 2011 by West Manufacturing Sdn Bhd? A B C D The company is entitled to claim the annual allowance based on the number of days the asset is used during the year of assessment 2011 The company is entitled to claim the full amount of annual allowance for the year of assessment 2011 because the asset was used for almost one year during the basis period The company is not entitled to claim the annual allowance for the year of assessment 2011 as the asset was not in use as at the last day of the basis period The company is entitled to claim the annual allowance in the year of disposal as long as the asset was used for one day during the year of assessment 2011

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Profits Sdn Bhd built a new factory and a new administration office. The office area was 8% of the total premises. The company also constructed a research and development (R&D) complex and the R&D area was 12% of the total premises. Which of the following describes Profits Sdn Bhds entitlement to claim industrial building allowance (IBA) on the office and R&D areas? A B C D Office: Office: Office: Office: Entitled Not entitled Not entitled Entitled R&D: R&D: R&D: R&D: Entitled Not entitled Entitled Not entitled

Norlina is a single parent and she has two children, Nick and Nina. During the year ended 31 December 2011, Nick, aged 15, studied in school and Nina, aged 20, was married and pursued a full time law degree in a local university. What is the amount of child relief that Norlina would be entitled to claim for the year of assessment 2011 in respect of both her children? A B C D RM4,000 RM5,000 RM1,000 RM8,000

Bob and Hank ran a partnership business selling fruits for many years. On 1 December 2011, Hank decided to cease to be a partner and Pat was admitted to the partnership on the same day. The partnership incurred qualifying expenditure during the year ended 31 December 2011 and the partners were entitled to claim capital allowances during the year ended 31 December 2011. Which partner/partners would be entitled to claim capital allowances for the year of assessment 2011? A B C D Bob, Hank and Pat would be entitled to claim Pat would be entitled to claim Bob and Pat would be entitled to claim Hank would be entitled to claim

Pot Sdn Bhd has an accounting year end of 31 December. The following details relate to the companys tax computation for the year of assessment 2011 based on the financial year ended 31 December 2011: Aggregate income Cash donations to approved charitable institutions RM 100,000 10,500

What is the amount of cash donations that can be set off against the aggregate income? A B C D RM10,500 RM10,000 RM7,000 Nil

Sachin received an additional assessment in respect of his personal income tax for the year of assessment 2009 for RM25,000 dated 15 March 2011. What is the due date for Sachin to settle the tax arising from the additional assessment raised? A B C D Within Within Within Within one month 60 days of 90 days of 30 days of of the date the date of the date of the date of of assessment assessment assessment assessment

Good Services Sdn Bhd provides management services and is licensed for service tax purposes. For the taxable period January and February 2011, the company missed the due date and only submitted its service tax form and settled the service tax to the Royal Customs and Excise Department on 2 May 2011. What is the rate of penalty, if any, that will apply because of the late payment of service tax? A B C D 20% 50% 0% 10%

10 Venu acquired a house on 5 April 2009 for RM250,000. He was offered RM300,000 for the house on 1 August 2011 from a potential acquirer, Rita, and in this regard, Rita placed a deposit with Venu of RM3,000. However, due to a low credit rating, Rita could not secure a loan and the deposit was forfeited to Venu. What is the real property gains tax impact of the deposit forfeited on a future disposal of the property by Venu? A B C D Increase the disposal price Reduce the disposal price Reduce the acquisition price Increase the acquisition price (20 marks)

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Section B ALL FOUR questions are compulsory and MUST be attempted 1 Alan, a Malaysian, is employed as a finance manager by a company based in Kuala Lumpur. On 1 June 2011, Alan was transferred to the companys Penang office on a promotion. Alan was initially provided with hotel accommodation in Penang by his employer where he stayed for a month, after which he found his own accommodation. From 1 July 2011, Alan was provided with a domestic help and a six-year-old car by his employer. The company did not provide any fuel for the car. Alan is married to Mary and they have one child, Mia, who is aged ten. Details relating to Alans income and expenditure for the year to 31 December 2011 are as follows: RM Income Salary Cost of living allowances Dividend income (foreign dividend remitted) Expenditure Contributions to the Employers Provident Fund Life insurance premiums Broadband subscription (paid by Alan) Purchase of laptop (a claim for a computer was made in 2010) Benefits provided by Alans employer Hotel expenses incurred by employer for one month Mobile phone (phone provided and bills paid by employer) Car benefit six-year-old car, costing Domestic help (provided by employer) Professional fees paid to accounting body (paid by employer) Entrance fee for recreation club individual membership (paid by employer) 120,000 10,000 2,400 6,100 6,200 600 1,800 850 600 110,000 6,000 575 20,000

Alan received a bonus of RM10,000 on 11 January 2011 and it was established that his employer had paid the bonus in respect of his performance in 2010 and it was included in his Form EA (employees income paid by employer) for 2010. Alan declared all his income based on his Form EA for the year of assessment 2010. In 2011, Alan donated computers to an approved institution valued at RM3,000. It was agreed that Alan would claim child relief. Mary runs a bakery business. The profits before tax of her business for the year ended 31 December 2011 are expected to be RM100,000. Included in arriving at these profits before tax are the following items: Depreciation Entertainment of bankers Tax fees for preparing tax return RM 10,000 1,000 1,000

The capital allowances for Marys business for the year of assessment 2011 have been computed as RM4,000 and there was an unabsorbed business loss of RM68,000 brought forward from the previous year. Mary is also a director of a public listed company and received a directors fee of RM1,000. Mary donated RM1,000 to an approved institution and had the necessary supporting documents to claim and she paid life insurance premiums for the year 2011 totalling RM1,000.

Required: Assuming that Alan and Mary do not elect for combined assessment, compute the chargeable income and income tax payable for the year of assessment 2011 by: (a) Alan; and (b) Mary. (17 marks) (10 marks)

Notes: (1) You should indicate by the use of the word nil any item referred to in the question for which no adjusting entry needs to be made in the tax computation. (2) Marks will be awarded for the use of accurate technical terms to describe the figures comprising the stages in the computation of chargeable income. (27 marks)

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Bunga Sdn Bhd is in the transportation and logistics business and closes its accounts to 31 December annually. The company has been in operations for more than five years. The company acquired the following assets during the year ended 31 December 2011: Cost RM 120,000 200,000 160,000 101,000

(i) (ii) (iii) (iv)

New passenger motor vehicle Lorry Company van (with commercial licence) Second-hand passenger motor vehicle

During the year ended 31 December 2011, the following assets were disposed of: Qualifying expenditure RM Assets acquired in 2009 Office equipment Assets acquired in 2010 Furniture and fittings 10,000 20,000 Disposal proceeds RM 11,000 12,000

The companys adjusted income for the year of assessment 2011 is RM600,000. The total capital allowances for the assets brought forward other than those disposed of in the year, is RM16,000. Required: (a) Compute the capital allowances for the new assets acquired in 2011. (8 marks)

(b) Compute the residual expenditure and the balancing charge(s) and/or balancing allowance(s) in respect of the assets disposed of during the year of assessment 2011. (6 marks) Notes: 1. You are NOT required to apply the accelerated rates for capital allowances. 2. You should assume that the provisions of Paragraph 71 of the Income Tax Act, 1967 are not applicable and therefore no claw back of capital allowances claimed for the assets disposed of within two years of acquisition will be made. (3 marks)

(c) Compute the statutory income for Bunga Sdn Bhd for the year of assessment 2011.

(d) State the tax implication(s) when the equipment is subsequently disposed of, if the office equipment acquired in 2009 was not used during the year of assessment 2010 and the company did not claim any annual allowance for that year. (2 marks) (19 marks)

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(a) Wilson acquired a three-storey shop lot in Bukit Selayang for RM300,000 on 1 February 2010. Due to a cashflow constraint, he disposed of the property for RM230,000 on 3 December 2010 and the allowable loss from the above disposal was agreed by the Inland Revenue Board to be RM80,000. Wilson acquired a three acre plot of land in Banting for RM3,000,000 on 2 January 2011. He incurred stamp duty of RM84,000 in respect of the acquisition and legal fees of RM6,000. Wilson received an attractive offer for part of the three acre plot and disposed of one acre of the land for RM1,500,000. He incurred agency commission of RM50,000 for assistance with the disposal. Required: (i) Explain for real property gains tax purposes the treatment of the allowable loss of RM80,000 and state whether there is any time limit for the loss to be utilised; (2 marks)

(ii) Compute the chargeable gain arising from the disposal of the one acre of land, assuming that the disposal of the land is regarded as part of the larger chargeable asset and any available allowable losses from the disposal of the shop lot are utilised. Note: You are not required to compute the real property gains tax. (7 marks)

(b) Invent Sdn Bhd, a Malaysian company, awarded a contract to a non-resident company, Jade Inc, based in Japan to build a bridge in Johor, Malaysia. Relevant details relating to the contract awarded to Jade Inc are as follows: Gross value of the contract Period of the contract RM1,200,000 24 months

Included in the contract value of RM1,200,000 is RM200,000 for the supply of plant and machinery. Invent Sdn Bhd will also lease a crane from a non-resident company in Singapore, Ruby Ltd in respect of the above contract. The lease amount is RM10,000. Required: (i) In respect of the contract payment to Jade Inc: (1) state the withholding tax rate(s) applicable; (2) explain the basis used to determined the amount(s) that will be subject to withholding tax; and (3) compute the withholding tax payable; (5 marks) (ii) State the withholding tax rate applicable to the payment to Ruby Ltd for the crane lease rental and compute the withholding tax payable; (2 marks) (iii) State the person who would be responsible for deducting the withholding tax and remitting it to the Inland Revenue Board; (1 mark) (iv) State whether or not the withholding tax suffered by Jade Inc and Ruby Ltd is the final tax. (2 marks) (19 marks)

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(a) Jolly Sdn Bhd is a manufacturer. The company has a sales tax licence and is required to impose sales tax on its goods at the rate of 10%. Jolly issued the following invoices as detailed below: Date of issue 5 January 2011 6 February 2011 Customer A Sdn Bhd B Sdn Bhd Goods value RM 10,000 10,000 Sales tax RM 1,000 1,000 Total RM 11,000 11,000

Both A Sdn Bhd and B Sdn Bhd settled the full amount due, based on the invoices issued, on 30 August 2011. Required: (i) State the taxable period and the due date for Jolly Sdn Bhd to settle the sales tax arising from the invoices issued to A Sdn Bhd and B Sdn Bhd; (2 marks)

(ii) State ANY TWO conditions that a taxable person is required to meet before a claim for a refund of sales tax paid can be made for a bad debt written-off. (2 marks) (b) Sea Sdn Bhd closes its accounts annually to 31 December. Information regarding the companys income and expenditure for the year ended 31 December 2011 is shown below: Income (i) Sale of scrap from stocks (ii) Gain on sale of fixed asset Expenditure (i) Expenses related to the companys annual general meeting (AGM) (ii) Provision for bad debts at 1% of the sales made in the year Required: For each item, state, with reasons, whether the income is taxable and the expenditure is deductible in arriving at the adjusted income for the year of assessment 2011. (6 marks) (c) Solar Sdn Bhd is a trading company with an accounting year end of 31 December. Its basis period for the year of assessment 2011 is from 1 January 2011 to 31 December 2011. Required: (i) State the due date for the submission of Solar Sdn Bhds: (1) income tax return for the year of assessment 2011; and (2) initial tax estimate for the year of assessment 2011. (3 marks)

(ii) State the due date for the first instalment and the due date for the last instalment to be paid by Solar Sdn Bhd to the Inland Revenue Board in respect of the tax instalment scheme for the year of assessment 2011. (2 marks) (15 marks)

End of Question Paper

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