CONFIDENTIAL 2 MIAQE SEPTEMBER 2017

The following tax rates are to be used in answering the questions.

Income tax rates

(a) Companies 24%

(b) Small companies

Chargeable income: On first RM500,000 19%
Subsequent Balance 24%

(c) Resident individuals

Chargeable Income Rate Cumulative Tax

RM RM
First 2,500 0 0
Next 2,500 0 0
On 5,000 0
Next 5,000 1 50
On 10,000 50
Next 10,000 1 100
On 20,000 150
Next 15,000 5 750
On 35,000 900
Next 15,000 10 1,500
On 50,000 2,400
Next 20,000 16 3,200
On 70,000 5,600
Next 30,000 21 6,300
On 100,000 11,900
Next 50,000 24 12,000
On 150,000 23,900
Next 100,000 24 24,000
On 250,000 47,900
Next 150,000 24.5 36,750
On 400,000 84,650
Next 200,000 25 50,000
On 600,000 134,650
Next 400,000 26 104,000
On 1,000,000 238,650
Exceeding 1,000,000 28

(d) Non-resident individuals 25%

CONFIDENTIAL 3 MIAQE SEPTEMBER 2017

Benefits-in-kind (BIK) scale rates as per Inland Revenue Board (IRB) guidelines

Cost of car when new Annual Annual

prescribed prescribed
benefit of benefit of
motorcar petrol
RM RM RM
Up to 50,000 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

The value of the car benefit equivalent to half of the above rates is taken if the car
provided is more than five years old.

Prescribed value of household furnishings, apparatus and appliances

Category Type of Benefit Annual

Prescribed
value of BIK
provided
RM
1 Semi-furnished with furniture in the lounge,
dining room or bedroom. 840
2 Semi-furnished with furniture as in Category 1 and
one or two of the following:
air-conditioners 1,680
curtains and alike
carpets
3 Fully furnished with benefits as in Category 1 and 2 3,360
plus one or more of kitchen equipment, crockery,
utensils and appliances.

Other benefits RM per month

Household servant 400

Gardener 300
Driver 600
CONFIDENTIAL 4 MIAQE SEPTEMBER 2017

Rates of Capital Allowances

Motor Vehicles/ Plant & Computers Others Industrial

Heavy Machinery Building
Machinery

Initial allowance 20% 20% 20% 20% 10%

Annual 20% 14% 80% 10% 3%
allowance

Real property gains tax

With effect from 01.01.2014 the tax rates that apply depending on the holding
period from the date of acquisition of the asset at follows:

Period of Disposal Company Individual Individual

(Citizens and (Non-Citizens)
Permanent Resident)
(%) (%) (%)
Within 3 years 30 30 30
In the 4th year 20 20 30
In year 5 15 15 30
In its 6th year onwards 5 0 5

Goods and services tax (GST)

Standard rate 6%
Registration limit RM500,000
CONFIDENTIAL 5 MIAQE SEPTEMBER 2017

QUESTION 1

MM Manufacturing Sdn Bhd (the company) is a Malaysian resident company, involves in

manufacturing leather based sofas and furnitures. The company has a paid up capital of RM6
million and eighty one percent of these shares are held by Malaysian citizens.

The company which closes the accounts on 30 June each year, has appended its result for
the year ended 30 June 2017.

MM Manufacturing Sdn Bhd

Statement of Profit or Loss for the year ended 30 June 2017

Note RM000 RM000

Sales 528,000
Less: Cost of sales 287,000
Gross profit 241,000
Add: Other income
Dividend 1 55
Interest 2 48
Insurance recovery 3 54 157
241,157
Less: Expenses
Remuneration 4 1,560
Compensation to a director 5 124
Loan interest 6 125
Entertainment 7 610
Depreciation 119
Repairs and maintenance 8 425
Bad and doubtful debts 9 852
Motor vehicle expenses 10 114
Lease charges 11 320
Advertisement, publicity and patent 12 750
Professional fees 13 78
Insurance 14 110
Foreign exchange loss 15 47
Donation 16 200 5,434
Profit before taxation 235,723

The company has provided the following notes and information to the accounts:

Notes to the accounts:

1. Dividend

The company had invested in a local company listed on Bursa Malaysia. In May 2017
it received a single tier dividend of RM30,000 from the investment.
CONFIDENTIAL 6 MIAQE SEPTEMBER 2017

The company also received a foreign dividend of RM25,000 from investment in a

company in Vietnam where it exports some of its products, and this money was
remitted to Malaysia in February 2017.

2. Interest

RM48,000 was received from customers who settled their trading debt for August
2016.

3. Insurance recovery

The company received RM54,000 compensation from an insurance company for raw
materials destroyed during a flash flood at the factory.

4. Remuneration

The remuneration charges include the following payments to Wan Musa, a managing
director who holds 35% of the companys shares:

Particulars RM000

a. Salary 422
b. EPF contribution 93
c. One free overseas trip 35
Total 550

5. Compensation to a director

A long serving director, Sulaiman was found to be engaged in some activities deemed
not conducive to the companys reputation. He was given an option to resign voluntarily
and the following compensation package was negotiated:

i. A lump sum payment of RM100,000 upon tendering his resignation; and

ii. An annual pension of RM24,000 payable for the next five years. The pension
is payable subject to the condition that Sulaiman will not engage in any
employment or business in direct competition with the companys business.
Furthermore he is not allowed to disclose or divulge any information pertaining
to the companys operation allowed, management and other matters.

Sulaiman left the company on 1 May 2017 and he was paid a compensation of
RM124,000.

6. Loan interest

RM40,000 is interest on a loan taken for an investment in a company in Vietnam. The

balance of RM85,000 was interest paid to a local bank for a loan for the working capital.
CONFIDENTIAL 7 MIAQE SEPTEMBER 2017

7. Entertainment

i. Entertainment of suppliers amounted to RM150,000.

ii. Disbursement of RM180,000 was made to the marketing and sales staff on
their entertainment expenses incurred on existing customers of the company.

iii. The company spent RM40,000 for its annual dinner of which the staff and their
family were invited.

iv. Free gifts to customers purchasing the companys products during festive
occasions amounted to RM80,000.

v. RM160,000 was incurred for promoting the companys new product of leather
sofa, paid to various dealers during the year.

8. Repairs and maintenance

The company extended its administrative office during the year at a cost of
RM300,000. The factory roof was badly damaged during recent storm. The company
spent RM20,000 to replace the entire roof with similar roof. The balance of RM105,000
refers to the maintenance of the machinery.

9. Bad and doubtful debts

i. Long overdue trade debts totaling RM182,000 were written off during the year.

ii. Generally the company found that about 10% of its outstanding debtors have
difficulty settling the debts and accordingly made provisions for trade of
RM440,000 in the accounts for the year.

iii. The company had identified several loan debtors who are either experiencing
slow business, had filed for bankruptcy or have passed away and for these
customers the company made a provision of RM230,000.

10. Motor vehicle expenses

i. RM22,000 relates to traffic offences by the companys marketing staff relating

to speeding and illegal parking.

ii. The company acquired a damaged lorry at a bargain price of RM5,000 from a
motor dealer and spent RM40,000 for repairs. A new lorry of a similar type
would have cost the company RM175,000. On the advice of its new accountant,
the company had claimed capital allowance of RM5,000 and charged the repair
cost of RM40,000 to the profit and loss accounts.

iii. RM52,000 refers to the maintenance of the companys motor vehicles used in
the business.
CONFIDENTIAL 8 MIAQE SEPTEMBER 2017

11. Lease charges

i. A saloon car for occasional business use was leased in July 2016 for which
RM70,000 was paid during the year. (The leased car would have cost
RM950,000 when new.)

ii. A machine was leased during the year for RM150,000 to replace a faulty
machine for two months, pending its repair.

iii. The company had a 30-year lease over the factory building in which it carries
out its manufacturing activities. As at 1 July 2016 the company has a remaining
term of 20 years left on the lease. The original terms of the lease were
unfavorable, and the company then decided to re-negotiate the terms of the
lease with the owners. The owner agreed to the revised lease under which the
company will pay a much lower rent on the factory building for the remaining
period of the lease, giving rise to a savings of RM2 million over the said period.
In consideration for the revised lease, the company paid a lump sum of
RM100,000 to the owner.

12. Advertisement, publicity and patent

i. RM600,000 was spent on advertising the companys products in local dailies.

ii. RM150,000 was spent to promote the companys own brand name in the
course of sponsoring an approved international event held in Putrajaya,
Malaysia.

iii. The company also holds a Malaysian patent which is properly registered under
the relevant laws in Malaysia. The patent was originally obtained through the
acquisition of a proprietary right costing RM500,000 from a foreign company
two years ago.

13. Professional fees

In 2014, the company had entered into an agreement with four other companies to sell
their products at an agreed price. However in breach of this agreement, the company
sold its product to an old customer at a lower price to the detriment of the other parties
to the agreement. The parties then filed a civil suit for damages. As a result, the
company paid RM40,000 in damages to the parties. The legal fee incurred to defend
the case was RM8,000. Both these expenses were charged in the accounts.

Other details of the professional fees incurred during the year are as follows:

Particulars of expenditure RM000

i. Secretarial fees 10
ii. Income tax filing fees 15
iii. GST appeal 5
Total 30

14. Insurance
CONFIDENTIAL 9 MIAQE SEPTEMBER 2017

The company paid premiums of RM30,000 to a local insurance company for the import
of raw materials and RM35,000 for the export of furnitures to Vietnam. RM45,000
was premium to cover its trading stocks, machinery and business premises from flood
and fire.

15. Foreign exchange loss

The realized loss of RM15,000 was on the import of trading stock and another
RM12,000 on import of machinery spare parts. An unrealised loss of RM20,000 was
incurred on the import of a production machine in May 2017.

16. Donation

The company made a cash donation of RM200,000 to the Federal Government in May
2017.

17. Other information:

For the year of assessment 2017, the company is claiming capital allowance of
RM45,600,000 on its qualifying plant and machinery and other assets used in the
business.

Required:

Based on the information given, compute the chargeable income of MM Manufacturing

Sdn Bhd for the year of assessment 2017.

Note:
i. Your computation should start with the profit before taxation figure and follow the
description used in the profit and loss account, and where applicable the
description used in the notes to the accounts. In making your tax adjustments to
the entries, you should indicate Nil where no adjustments are made or are not
required. You do not need to explain the adjustments that you are making.
ii. Round up all figures to the nearest thousand.

(Total: 20 marks)

QUESTION 2

A. En. Segar had acquired a landed property from Mr. Kamal for RM274,725. He signed
the agreement on 15 July 2014 and settled the payment using a bank loan on 30
September 2014. The property ownership was then transferred to his name on 30
November 2014. In acquiring the property, En. Segar incurred stamp duty of RM4,495
and legal fees of RM2,373.

Upon acquisition, En. Segar spent RM37,851 on extending and renovating the
property. On 10 April 2015, the property was partially damaged by fire and he received
insurance compensation of RM48,420. In September 2015, the property was flooded
and he managed to make an insurance recovery of RM12,088 from his insurer.

In October 2016, En. Segar was approached by a buyer to purchase the property who
paid a deposit of RM6,600 and proceeded to make an application for a bank loan. The
CONFIDENTIAL 10 MIAQE SEPTEMBER 2017

buyer however, was not successful in his application and as per the agreement, En
Segar then forfeited the deposit of RM6,600.

En. Segars ex-wife had filed a claim on the property and En Segar retained a lawyer
to successfully defend his right to total ownership. The legal fee was RM7,700.

En. Segar sold the property to Raymond for RM354,200 and an agreement for the sale
was signed on 15 April 2017. The payment was fully settled on 16 May 2017. The
ownership was transferred to Raymond on 17 June 2017.

In securing a buyer for the property, En Segar had incurred the following expenditure:

valuation fee RM5,495

brokerage fee RM7,692
advertisement: RM977

En. Segar had incurred an interest charge of RM51,318 on the bank loan he took to
buy the property.

Required:

In relation to the Real Property Gains Tax 1976 (as amended), compute the chargeable
gain arising from the disposal of the property, after exemption under Schedule 4 of the
said Act.

Note:
Ignore any tax effects and implications arising on account of the application of the
Goods and Services Tax Act 2014 (as amended) in your determination of the
chargeable gain.
(10 marks)

B. Puncak Co-operative Society (society) caters for the fruit farmers in the Puncak Alam
district. The society closes the accounts on 31 December each year. The accounts for
the year ended 31 December 2016 showed the following result:

Puncak Co-operative Society

Statement of Profit or Loss for the year ended 31 December 2016

RM RM
Sales 1,581,440
Less: Cost of goods sold 336,000
Gross profit 1,245,440
Add:
Member's entrance fee 21,130
Member's subscription 78,887
Rental of farm machinery to non-members 5,600
Interest from loan to members 12,678 118,295
1,363,735

RM RM
CONFIDENTIAL 11 MIAQE SEPTEMBER 2017

Less: Expenses
Secretarial fees 23,166
Accounting fees 29,736
Depreciation 3,739
Donation 56,448
Zakat Perniagaan 33,600
Veterinary services 268,800
Transport 35,618
Repairs and maintenance 103,652
Office rent 11,060
Interest on member's savings 5,027
Utilities charges 95,157 666,003
Audited net profit 697,732
Less:
Contribution to Universiti Malaya 19,040
Co-op Development Trust Fund 16,800
Statutory reserve fund 39,200 75,040
Unappropriated profits 622,692

The society has provided the following information:

RM
Capital allowance for YA 2016 10,000

Member's fund at 1 January 2016 RM

Paid up share capital 1,200,000
Share premium account 50,000
Statutory reserve fund 122,000
Reserves from revaluation of assets 225,000
Balance of profit and loss appropriation account b/f 185,000
Total 1,782,000

The society was registered in the year 2000.

Required:

Compute the chargeable income of Puncak Co-operative Society for the year of
assessment 2016.
(10 marks)
(Total: 20 marks)

QUESTION 3
CONFIDENTIAL 12 MIAQE SEPTEMBER 2017

A. Ravi Fashion Sdn Bhd (the company) makes designer batik clothing and fashion
accessories and has a factory in Kepong where these products are produced. The
company export its products to the United States and was very successful. However
in recent years the demand for its products began to wane and profits were declining.
In order to remain in business and to overcome the declining profits, the company took
several steps including downsizing the workforce.

In doing so, some of the senior employees were retrenched and some excess
machineries were sold off. The company paid the retrenched employees a sum of RM3
million. This amount was charged to the profit and loss account for the year ended 30
June 2017.

Required:

With reference to the Income Tax Act 1967 (as amended), discuss whether the claim
of RM3 million by Ravi Fashion Sdn Bhd would be deductible in arriving at the adjusted
income from its business for the year of assessment 2017.

Note:
Candidates are encouraged to quote the relevant provisions of the law and case laws
where appropriate.
(5 marks)

B. Mr. Raymond Chan (Raymond) is the human resource manager and also a Director
holding 30% shares of Acme Sdn Bhd (the company) that carries on a business of
manufacturing paper. As a human resource manager, Mr. Raymond is in charge of
the companys recruitment, payroll and related employee matters including deducting
and remitting statutory contributions and payments like employee provident fund (EPF)
and income tax to the relevant agencies.

For the financial year ended 30 June 2016 the routine audit by the external auditors
found that RM200,000 were recorded in the books of the company as contributions to
the EPF but a check with the EPF office showed that the money was not credited to
the respective employees account. Raymond could not explain the discrepancy to the
satisfaction of the auditors or the management, and was subsequently sacked. The
company could not recover the money and later written off the sum in the profit and
loss account for the year ended 30 June 2017.

Required:

Based on the information provided, discuss whether Acme Sdn Bhd could claim the
sum written off as deductible expense in arriving at the adjusted business income
under the Income Tax Act 1967 (as amended).

Note:
Candidates are encouraged to quote the relevant provisions of the law and case laws
where appropriate.
(5 marks)
(Total: 10 marks)

QUESTION 4
CONFIDENTIAL 13 MIAQE SEPTEMBER 2017

A. Encik Badrul retired from Gemilang Sdn Bhd since November 2016 at the age of 58.
He provides the following information for the year ended 2016:

i. Business Income: Business I RM) Business II (RM)

Adjusted income /(loss) RM(20,000) RM80,000

Balancing charge 1,800 -
Capital allowance 2,800 8,000
Unabsorbed loss from 2015 3,000 2,000

ii. Dividend income:

RM
Dynamic Bhd (Single tier ) 6,000
Aloyy Bhd (Pioneer Status) 4,000
Amanah Saham Wawasan (ASW) 8,000

iii. Interest income:

RM3,600 interest on savings in Bank Simpanan Nasional (BSN)

iv. Gross employment income received during 2016 was RM220,000.

v. Rental income:
Taman Taman
Cahaya Desa
RM RM
Monthly rent 2,000 3, 000
Cost of air-conditioner 2,000 -
Annual quit rent and assessment 1,600 2,000
Repairs 4,000 3,000

vi. Donation and zakat:

Encik Badrul made cash donation of RM2,000 to Yayasan Kasih (approved

institution). He paid zakat of RM40,000 to Pusat Pungutan Zakat (PPZ)
Selangor.

vii. Information about Encik Badruls wife, Puan Sofia for 2016 are as follows:

a. On 1 January 2016, Puan Sofia commenced employment as a human

resource manager in Mawar Sdn Bhd. Her net salary after deducting
12% employees provident fund (EPF) is RM145,200 per annum.

b. The employers contribution for EPF was RM46,800.

c. She received a personal computer worth RM3,000 for her personal use
as a gift from her employer.
CONFIDENTIAL 14 MIAQE SEPTEMBER 2017

d. Hotel accommodation provided by the employer for the month of

January 2016 at a cost of RM200 per day for 30 days.

e. A payment of RM3,000 for her internet subscription.

f. Puan Sofia donated books worth RM4,600 to Rumah Amal, an

approved charitable institution in Malaysia.

viii. Other payments made by Encik Badrul and Puan Sofia during 2016:

Encik Badrul Puan Sofia

RM RM
Life insurance premium 7,961 4,979
Medical insurance premium 3,094
Educational insurance premium 1,738
Personal computer 2,000
Magazines and books 200 923
Medical expenses for parents 2,379
Medical expenses for children 3,600
Full medical check-up (Self) 544 384

ix. They have three children:

a. Yusmira, 22, married and studying at International Medical College,

Cyberjaya.
b. Ariel, 20, single and studying at the Victoria University, Australia.
c. Delima, 19, studying at the Centre for Foundation and Studies,
University of Malaya.

Note:
i. It was agreed that the children reliefs would be claimed by Encik Badrul.
ii. Both Encik Badrul and Puan Sofia are Malaysian resident and they elected
separate assessment for the year of assessment 2016.

Required:

Calculate the income tax payable for Encik Badrul and Puan Sofia for the year of
assessment 2016.
(14 marks)

B. Goods and Services Tax (GST) was implemented in Malaysia on 1 April 2015. The
purpose of implementing the GST is to enhance the capability, effectiveness and
transparency of tax administration in Malaysia.

Required:

a. Explain the meaning of taxable person under the GST Act 2014.
(1 mark)
CONFIDENTIAL 15 MIAQE SEPTEMBER 2017

b. Titi Tinggi Sdn Bhd (the company) is a manufacturing company which is

registered for goods and services tax (GST) purposes and submits its GST
returns on a monthly basis. The company recorded the following transactions
in May 2016:

Transactions RM000
i. Supplied tinted glasses to NMA Sdn Bhd, a GST 400,000
registered company. The tinted glasses were
delivered on 3 May 2016 and the invoice was issued
on 15 May 2016.

ii. Rented out a forklift to another manufacturing 10,000

company, Elnina Sdn Bhd, a non-GST registrant. The
rental was for ten days from 5 May 2016 and the
invoice was issued on 14 May 2016.

iii. Disposed off office tables on 17 May 2016 to Palam 3,000

Sdn Bhd, a non-GST registrant. The tables were
acquired by Titi Tinggi Sdn Bhd on 11 October 2014.

iv. Rewards its excellent employee for not taking any 2,000
medical leave. The award was given during the
companys annual dinner on 29 May 2016.

v. Input tax recorded by the company for June 2016 . 18,000

All the amounts stated above are excluding of any
applicable GST.

Required:

Compute the net amount of GST payable or recoverable by Titi Tinggi Sdn Bhd
for the month of June 2016.
(5 marks)
(Total: 20 marks)

QUESTION 5

A. Mr Alex, a tax resident, died domiciled in Malaysia on 1 July 2016. According to his
will, Mrs Stella, a tax resident was appointed as an executor of the estate. Mr Alexs
income and expenditure for the year ended 31 December 2016 is as follows:

Business Income RM
Adjusted income 160,000
Balancing charge 2,000
Capital allowance 18,000

Dividend (single tier):

Received on 2 March 2016 6,000
CONFIDENTIAL 16 MIAQE SEPTEMBER 2017

RM
Interest on fixed deposit in RHB Bank (received on 10 October 2016) 10,000

Foreign income:
Royalty income received from Singapore. 35,000
Only RM25,000 was remitted to Malaysia on 15 August 2016.

Rental income per month 2,000

(The house was first rented out on 1 March 2016)

Expenditures incurred during the year of assessment 2016:

Cash contributions to an approved institution on 1 May 2016 6,000

Annuity payable per month to Mr Alexs parents 3,400
Executor fees of RM10,000 was paid to Mrs Stella in December 2016.

Note: At the time of his death, Mr Alex who is a single parent, has two children, both
under 18 years old.

Required:

Compute the income tax payable of Mr Alex and the executor of his estate for the year
of assessment 2016.
(10 marks)

B. TP Sdn Bhd which was incorporated and resident in Malaysia is a company involves
in the property development and construction business. In June 2014 the company
was awarded a two-year contract to build a theme park in Sungai Petani Kedah and a
2-storey shopping mall in Bangkok, Thailand. The company obtained a loan from Bank
of Thailand, a non-resident bank to finance the projects. The following interest was
paid to Bank of Thailand on 21 May 2016:

i. RM320,000 to finance the project in Sungai Petani Kedah.

ii. RM480,000 to finance the project in Bangkok, Thailand.

In July 2016 the company entered into an agreement with a company from Japan,
Hokkaida Ltd for the rental of a plant and machinery, supplying of materials and
technical advice for its project in Sungai Petani, Kedah. TP Sdn Bhd incurred the
following expenses:

RM
i. Rental of plant and machinery 440,000
ii. Supplying of materials 3,900,000
iii. Technical advice 270,000

(The engineer at Hokkaida Ltd provide TP Sdn Bhd on the technical advice of the
handling of the machine through a video conference in Japan).

In November 2016, TP Sdn Bhd engaged Utada Hikaru, a singer from Japan to perform
during the launching of its new theme park and shopping mall in Sungai Petani, Kedah
and Bangkok, Thailand respectively. The following are the fees paid to Utada Hikaru:

i. RM70,000 for the performance in Sungai Petani, Kedah.

CONFIDENTIAL 17 MIAQE SEPTEMBER 2017

ii. RM100,000 for the performance in Bangkok, Thailand.

Required:

i. Discuss whether each of the above payment is subject to withholding tax. Give
reasons for your answers.
(8 marks)

ii. Advise TP Sdn Bhd on the tax implications if the company paid the amount of
withholding tax on the interest paid to Bank of Thailand to the tax authority on
28 August 2016 (calculation is required).
(2 marks)
(Total: 20 marks)
QUESTION 6

Kelly Castle Sdn Bhd, a resident company located in Batu Pahat, Johor involves in
manufacturing promoted products which is eligible for investment incentives.
The summarised adjusted income/(losses) and capital expenditure for the relevant years are
as follows:

Year ending 30 June 2016 2017

RM RM
Adjusted income/(loss) 300,000 2,000,000
Balancing charge 30,000 -
Capital allowances for the year 370,000 300,000

Capital expenditure:
Buildings 2,220,000 -
Plant and machinery 260,000 1,600,000
Office equipment 340,000 240,000
Motor vehicles 560,000 -

Note:
There is an unabsorbed business losses from the year of assessment 2015 amounted to
RM120,000.

Required:

i. Compute the chargeable income and the amount to be credited to the exempt income
account by Kelly Castle Sdn Bhd for both investment tax allowance and pioneer status
for all the relevant years of assessment.
(8 marks)

ii. Advise Kelly Castle Sdn Bhd whether to apply for investment tax allowances or pioneer
status incentives. (Give reasons to support your answers).
(2 marks)
(Total: 10 marks)

END OF QUESTION PAPER