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AC/NOV 2005/TAX320

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE

TAXATION 1

COURSE CODE

TAX320

EXAMINATION

NOVEMBER 2005

TIME

3 HOURS

INSTRUCTIONS TO CANDIDATES
1.

This question paper consists of five (5) questions.

2.

Answer ALL questions. Start each answer on a new page.

3.

Do not bring any material into the examination room unless permission is given by the
invigilator.

4.

Please check to make sure that this examination pack consists of:
i)
ii)
iii)
iv)
v)

the Question Paper

an Answer Booklet - provided by the Faculty
A one-page Appendix 1 (Income Tax rate table)
A two-page Appendix 2 (Benefit-in-kind scale rates per Inland Revenue Board
Guidelines)
A one-page Appendix 3 (Capital Allowance rate for Plant & Machinery)

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 10 printed pages
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AC/NOV 2005ATAX320

QUESTION 1

(A)

Encik Poon first came to Malaysia on 1 April 2000. He left Malaysia permanently in
2005. Details of his stay in Malaysia are as follows:

*
**

Year

In Malaysia

No of days

2000

1 April to 31 May
15 November to 22 December

61 days
38 days

2001

27 March to 1 July
24 September to 24 December

97 days
92 days

2002

6 June to 16 October*
26 October to 28 December**

133 days
63 days

2003

3 January to 18 January

16 days

2004

2 April to 11 July

101 days

2005

3 March to 7 May

66 days

Encik Poon was in Greece from 17 October to 25 October 2002 to attend a

business conference.
He was in Taiwan from 29 December 2002 to 2 January 2003 on social visits.

Required:
Determine the resident status of Encik Poon for the years of assessment 2000 to
2005 inclusive. Provide explanation for each answer.
(12 marks)
(B)

Encik Razi is the sole-proprietor of a business selling traditional herbs. The annual
gross takings of his business are in the range of RM100.000 to RM120,000 since he
started his business in the year 2003.
Required:
(i)

State briefly Encik Razi's obligation with regard to tax compliance under the
self-assessment system.
(3 marks)

(ii)

Under the self-assessment system, the submission of the tax return is

deemed to be the making of an assessment (Form J). In this respect, what is
the taxpayer's right of appeal?
(2 marks)

(iii)

State four key differences between the self-assessment system and the
traditional/official tax system?
(4 marks)

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(C)

AC/NOV 2005/TAX320

Encik Ken is a fresh graduate from the Faculty of Information Technology of a local
private university. He wonders if he should operate a sole proprietorship (an IT
consultancy business). He seeks your advice on certain tax matters.
Required:
Explain to Encik Ken with regard to:
(i)

What is the basis period for a sole-proprietorship?

(2 marks)

(ii)

The use of a car for business purpose.

(1 mark)

(iii)

Tax treatment of adjusted business loss.

(1 mark)
(Total: 25 marks)

QUESTION 2

Mr. Wong, aged 52, is the factory manager of Smart Electronics Sdn Bhd, which
manufactures electronic components for export to its holding company based in the United
States of America.
He has been working with Smart Electronics Sdn Bhd for the past 101/2 years. Due to the
economic recession in the United States of America, Smart Electronics Sdn Bhd has been
asked to cut production by half and has offered Voluntarily Separation Scheme (VSS) to
some of its employees including Mr. Wong.
Mr. Wong opted for the VSS and officially ceased to work for the company on 31 October
2005 and was paid a sum amounting to 101/2 months of his last drawn salary. Other details of
his remuneration for the year 2005 are as follows:

Salary: RM9.790 (net after deducting EPF 11%) per month

Incentive bonus: 2 months gross salary (Smart Electronics Sdn Bhd ends its accounts on 31
July each year)
Mobile phone: Smart Electronics Sdn Bhd paid for the phone rental and all business calls
which totaled RM1,500 for the period of employment. The phone was owned by Mr. Wong.
Entertainment allowance: RM2.400 per month
Utilities paid by the company: RM4.500
Dental expenses for Mr. Wong and his family paid by the company: RM2.000
Car (7 years old and costs RM158,000 when new). Fuel costs: RM4,800

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AC/NOV 2005/TAX320

Additional notes:

a.

Smart Electronics Sdn Bhd also provided Mr. Wong with a driver (salary RM800 per
month), a servant (salary RM1,000 per month) and a gardener (salary RM700 per
month).

b.

The company also paid for his life insurance premium amounting to RM5,000 and
also contributed RM3,000 towards the tuition fees of Mr. Wong's second child who is
studying in Australia.

c.

In February 2005, the second child was hospitalized in London and had to undergo
surgery to remove her appendix. The surgery and hospitalization costs amounted to
RM15,000 were paid by the company.

d.

Mr. Wong and his family went to New Zealand for their holiday and Smart Electronic
Sdn Bhd paid RM6,500 for their air fare.

e.

Mr. Wong was provided by the company with a fully furnished bungalow. The rental
of the unfurnished bungalow is RM2.500 per month. The value of furniture is RM500
per month.

f.

Upon resignation, Mr. Wong withdrew RM120,000 from an unapproved provident

fund, of which 55% was contributed by the company. His EPF withdrawals amounted
to RM560.000 of which RM200.000 were contributions from his past employers,
RM160,000 were contributions by Mr. Wong himself and the balance were
accumulated interests to-date.

g.

Mr. Wong incurred the following expenses in 2005:

RM10,000 for entertainment of suppliers and customers on the employer's

behalf;
RM5.000 on petrol and toll charges for traveling between his house and
office.
RM500 per month was paid as rent to the company for the bungalow
provided.

Required:
Compute the adjusted income from employment of Mr. Wong for the year of assessment
2005.
(18 marks)

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AC/NOV 2005/TAX320

QUESTION 3

(A)

Encik Amir is the sole owner of Amir Enterprise which sells hardware in Jitra. The
following is the forecasted Trading Profit and Loss account for the year ended 31
December 2005.

Trading Profit and Loss account for the year ended 31 December 2005
Notes

Sales
Less: Cost of goods sold

RM

RM

2,250,000
(1,750,000)
500,000

GROSS PROFIT

Add:

Dividend
Gain on disposal of fixed asset
Rental loss

6,000
1,950
(1.000)

506,950
Less: Expenses
Salary
Bonus
Employee Provident Fund
Entertainment
Fines and penalties
Donations
Office rental
Office expenses
Postage and courier
Printing and stationery
Quit rent and assessment
Registration fee
Staff benefit
Sundry expenses
Accounting fees
Maintenance
Telephone
Water and electricity
Bank charges
Legal expense
Depreciation
Net profit before tax

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1
2
3
4
5
6
7
8

9
10
11

12
13
14

15

78,000
20,000
22,540
45,000
3,200
15,000
24,000
18,000
3,500
18,000
650
380
8,000
6,000
3,520
14,500
6,000
7,150
1,080
7,800
35.000
(337,320)
1
69,630

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AC/NOV 2005ATAX320

Notes to the account:

1.

Salary comprise of

Encik Amir
Normal Employees
Disabled Employee

2.

6,800
10,800
4,940

Entertainment incurred was for the following:

Encik Amir's family gathering
Annual dinner for staff
Purchase of home theatre set for En Amir

5.

10,000
8,800
1,200

Employee provident fund comprise of

Encik Amir
Normal Employees
Disabled Employee

4.

30,000
36,000
12,000

Bonus was paid to

Encik Amir
Normal Employees
Disabled Employee

3.

RM

25,000
6,000
14,000

Fines and penalties were paid for:

Parking ticket for van
Penalty for late payment of income tax

900
2,300

6.

During the year, Encik Amir donated clothing valued at RM5.000 to a Disaster
Fund and the balance is a cash donation to Kedah Public library, to be
claimed under section 34(6)(g).

7.

Encik Amir rented a 3-storey shop lot. His family occupies the third floor while
the second floor is rented out to an insurance agency. The business is carried
out on the first floor.

8.

Office expenses represent cost incurred in installing new cabinets and

shelves for the business.

9.

The quit rent and assessment expenditure was for the whole building.

10.

The registration fee was in respect of the annual membership fee paid to the
Kedah Traders' Association.

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AC/NOV 2005/TAX320

11.

Staff benefit represent payment for an employee's leave passage to Phuket

Island.

12.

Maintenance comprise of:

Repairs to the office equipments

Upkeep of van
Repairs to Encik Amir's new house.

RM
5,000
6,000
3,500

13.

Inland Revenue Board agreed that a quarter (1/4) of the telephone expenses
was for private purpose.

14.

Inland Revenue Board agreed that one half (1/2) of the water and electricity
was for private purpose.

15.

Legal expense was in respect of the purchase of Encik Amir's new house.

16.

Capital allowance for the year amounted to RM50,000, while balancing

charge was RM500.

17.

During the year, Amir gave away goods costing RM10,000 to his relatives.
This was not recorded anywhere in the books. The mark-up for goods sold to
customers is 20% on cost of sales.

Required:
Compute the statutory business income of Amir Enterprise for the year of assessment 2005.
(17 marks)

(B)

Badges of trade are used to determine whether a person is engaged in trading. State
and explain any three (3) badges of trade.
(3 marks)
(Total: 20 marks)

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AC/NOV 2005/TAX320

QUESTION 4

Tech Creative Sdn Bhd which prepares its accounts to 31 October annually, carries on a
manufacturing business. Its head office is based in Seberang Perai, Pulau Pinang and it
also has a branch in Singapore. Details of its expenditures on plant and machinery are as
follows:
(a)

On 1 January 2000 a machine was acquired at a cost of RM275.000, which was to

be used in the business in Singapore. However, in August 2002, it was brought into
Malaysia to be used in the business in Seberang Perai. The market value and net
book value on 1 August 2002 were RM210,000 and RM195,000 respectively.
Before it could be used, necessary repairs at a cost of RM25.000 was incurred. The
company also incured RM30.000 for installation and RM36.000 for the site
preparation. On 15 October 2004, the machine was sent for major repairs and was
not used until 21 February 2005. On 30 June 2005, the machine was sold for
RM150,000. The annual allowance rate is 14%.

(b)

On 1 August 2002, a Honda CRV (not for commercial use) was bought on hire
purchase. The cash price of the car was RM110,000 and a deposit of RM25,000
was paid on 1 August 2002. Installment payment is RM2.100 per month for 48
months commencing from 1 September 2002. It was agreed with the IRB that 1/3 of
the car was used for private purposes. On 1 January 2005, the motor vehicle was
sold for RM85.000. The rate of annual allowance is 20%.

Required:

Calculate the capital allowances, balancing allowances and charges (if any) for Tech
Creative Sdn Bhd for all the relevant years of assessment up to year of assessment 2005.
(12 marks)

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AC/NOV 2005/TAX320

QUESTION 5

Encik Jeffrey, is a Marketing Manager with a manufacturing company in Kuala Lumpur.

During the year 2005 he received the following incomes:
a)

Employment income: RM48.000 (gross, before EPF contributions at 11 %)

b)

Dividend income:
From Malaysia
From Singapore (not remitted)

Gross
RM25.000
S$15,000

Tax deducted at source

RM7.000
S$3,600

(The Malaysian-Singapore exchange rate at 31 December 2005 is RM2.30: S$1.00)

c)

Interest income of RM5.700 from a 15-month fixed deposit (RM120,000) in Maybank

Berhad

d)

Interest income of RM19,000 from a 6-month fixed deposit (RM350.000) in Public

Bank Bhd.

e)

Interest income of RM2.500 from bonds issued by the Malaysian government.

f)

Royalties of RM26.000 from the publisher of a book on marketing authored by Encik

Jeffrey.

g)

Rental income of RM1.800 per month. He paid RM1.200 each month (inclusive of
interest RM450) to service the loan taken to purchase the property. He also paid
RM1.350 per annum for assessment and quit rent. Repairs and extension of the
kitchen were RM4.500 and RM10,000 respectively.

Encik Jeffrey's wife, Puan Juriah sells cakes from the house to supplement her husband's
income. She earned RM8.000 for the year 2005.

Encik Jeffrey furnished the following additional particulars for the preparation of the tax
return for the year of assessment 2005:
a.

He has four (4) children from his marriage with Puan Juriah:

Anis, 21 years old, who is studying in the University of Glasgow, Scotland.

She works part time and earned RM4.000 in 2005.

Agos, 19 years old, who is studying in Universiti Putra Malaysia.

Arman, 15 years old, schooling.

Arsyad, 8 years old, suffers from bone cancer. He has been paralysed since
birth. Encik Jeffrey spent RM8.000 for his treatment and an additional
RM1,500 to purchase a wheelchair for him.

b.

Encik Jeffrey also has a daughter, Erina, from his previous marriage. Erina, 23 years
old, is studying in Universiti Malaya. He incurred RM6.000 while his ex-wife incurred
RM4.000 on the child's maintenance for the year 2005.

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AC/NOV 2005/TAX320

c.

Encik Jeffrey was directed by the court to pay RM500 per month as alimony to his
ex-wife.

d.

Encik Jeffrey incurred RM6.500 medical expenses for his mother who was
hospitalised.

e.

A life policy (capital sum: RM70.000) was taken out on Puan Juriah's life for a
premium of RM2.100 which was +paid by Encik Jeffrey.

f.

Encik Jeffrey attended a course for 2 months to enhance his knowledge in

information technology and incurred RM3.500 for the fees.

g.

Encik Jeffrey paid a premium of RM3.700 on education insurance for the benefit of
his children.

h.

Puan Juriah incurred RM800 to purchase books and other reading materials.

i.

Encik Jeffrey also made Zakat and Fitrah contributions amounting to RM5.500.
However, he only has receipts for RM4.500.

j.

Encik Jeffrey and Puan Juriah donated RM10,700 and RM850 respectively to an
approved institution.

k.

Encik Jeffrey spent RM4,500 to purchase a personal computer for his children.

I.

With respect to the dividend income earned by Mr. Jeffrey, the investments (both in
Malaysia and Singapore) were financed through a term loan. Interest incurred on the
loan in 2005 amounted to RM9.600 of which one-third (1/3) pertained to the cost of
the Malaysian investments and the balance pertained to the cost of the Singaporebased investments.

Required:

(i)

Calculate the income tax payable for Encik Jeffrey and Puan Juriah for the year of
assessment 2005. Puan Juriah elected for combined assessment and both are
resident for tax purposes.
(22 marks)

(ii)

Based on the facts presented in the question, Puan Juriah should not have elected
for joint assessment. Explain why Puan Juriah should not have elected for joint
assessment. (You are not required to calculate the amount of tax saved.)
(3 marks)
(Total: 25 marks)

END OF QUESTION PAPER

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APPENDIX 1 (1)

AC/NOV 2005/TAX320

THE TAX RATES APPLICABLE WITH EFFECT FROM YA 2002

Chargeable Income

(RM)

Rate (%)

Tax Payable
(RM)

On the first
On the next

2,500
2,500

0
1

0
25

On the first
On the next

5,000
5,000

150

On the first
On the next

10,000
10,000

175
300

On the first
On the next

20,000

15,000

475
1,050

On the first
On the next

35,000
15,000

13

1,525
1,950

On the first
On the next

50,000
20,000

19

3,475
3,800

On the first
On the next

70,000
30,000

24

7,275
7,200

On the first
On the next

100,000
50,000

27

14,475
13,500

On the first
On the next

150,000
100,000

27

27,975
27,000

On the first

250,000

Above

250,000

25

54,975
28

Selected Personal Deductions

Self
Wife/husband
Child - basic
Life insurance and approved schemes

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RM
8,000
3,000

1,000
6,000 maximum

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APPENDIX 2(1)

AC/NOV 2005/TAX320

TAXABLE VALUE OF MOTOR VEHICLES PROVIDED BY EMPLOYER

New Vehicles Costing

RM

Annual Value
RM

Fuel (per ar
RM

50,000

and below

1,200

600

50,001

75,000

2,400

900

75,001

100,000

3,600

1,200

100,001

150,000

5,000

1,500

150,001

200,000

7,000

1,800

200,001

250,000

9,000

2,100

250,001

350,000

15,000

2,400

350,001

500,000

21,250

2,700

500,001

and above

25,000

3,000

Others
Types of BIK

Mobile telephone (rental and charges)

Driver
Gardener
Domestic servant

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Annual value of BIK

RM
600
7,200
3,600
4,800

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APPENDIX 2 (2)

AC/NOV 2005/TAX320

PRESCRIBED AVERAGE LIFE SPAN

Prescribed
Average life span

Asset
(1)

Motorcar

(2)

Furniture and fittings:

Curtains, carpets
Furniture, sewing machine
Air-conditioner
Refrigerator

5 years
15 years
8 years
10 years

Kitchen equipment (i.e. crockery, rice cooker, electric

kettle, toaster, coffee-maker, gas cooker, dryer,
food processor, etc)

6 years

Entertainment and Recreation

Piano
Organ
Colour television, video player, stereo set
Swimming pool (detachable), sauna

20 years
10 years
7 years
15 years

Miscellaneous
Mobile telephone

10 years

(3)

(4)

(5)

8 years

VALUE OF BENEFITS

(i)

Semi-furnished with furniture in the lounge,

dinning room, or bedrooms

)
)

RM70 per month

(RM840 per annum)

(ii)

Semi-furnished with furniture as in (i) above and

one or more of the following:
Air-conditioners
Curtains
Carpets

)
)
)

RM140 per month

(RM1,680 per annum)

)
)

RM280 per month

(RM3,360 per annum)

(iii)

Fully-furnished with benefits as in (i) and

(ii) above plus one or more of kitchen
equipment, crockery, utensils and appliances

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APPENDIX 3(1)

AC/NOV 2005/TAX320

Capital Allowances - Plant and machinery

Assets
Computers, information technology equipment
and computer software
Motor vehicles, heavy machinery
Plant and machinery - general
Office equipment, furniture and fittings

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Annual allowance rates

40%
20%
14%
10%

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