Answers

FOUNDATIONS IN ACCOUNTANCY Paper FTX (MYS) Foundations in Taxation (Malaysia)

December 2011 Answers and Marking Scheme

Notes: (1) All references to legislation or public rulings shown in square brackets are for information only and do not form part of the answer expected from candidates. (2) Marks indicated with a * are awarded for the allocation of the appropriate description to the figure calculated, not for the figure itself. Section A 1 B Not entitled to claim personal relief and his chargeable income is taxed at a flat rate of 26%. The chargeable income will be based on the gross income without the benefit of a claim for personal relief and he is not entitled to use the scale rates because he is non-resident.

RM10,000 Income from the translation of books or literary works at the specific request of an approved agency/Ministry is entitled to an exemption of income of RM12,000. [Paragraph 32A, Schedule 6]

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. A company is entitled to claim the annual allowance only if the asset was used as at the last day of the basis period.

Office: Entitled

R&D: Entitled

The office area part of the industrial building, is less than 10% of the cost of construction of the whole building and therefore, will be eligible for industrial building allowance (IBA). The research and development part of an industrial building is entitled to IBA based on the full cost.

RM1,000 Child relief is only available for Nick and not for Norlina as she is married even though she is pursuing her full time studies in a local university.

Bob and Pat would be entitled to claim. Only partners who are still in the business at the end of the basis period are entitled to claim capital allowances.

RM10,000 The maximum donations that a company can claim is restricted to 10% of its aggregate income.

Within 30 days of the date of assessment.

20% If the service tax is not paid by the due date, which is 28 days from the end of the taxable period, there is a penalty of 10% for every succeeding period of 30 days or part thereof, subject to a maximum of 50%.

10 C

Reduce the acquisition price. The deposit forfeited will be adjusted by reducing the acquisition price on the subsequent disposal by the disposer. (20 marks)

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Section B 1 (a) Alan Tax computation for the year of assessment 2011 RM Employment income Salary Bonus (declared in YA 2010) Cost of living allowances Entrance fee Car benefit as per table Car more than five years old (six years) (5,000 x ) Car used for six months only (2,500 x ) Mobile phone Hotel accommodation benefit 3% x Section 13(1)(a) 3% x 150,000 = 4,500 1 month/12 months x 4,500 Domestic help (400 x 6 months) Gross income from employment Less: Professional subscription fees (paid by employer) Adjusted/statutory income from employment Dividend income (foreign source income exemption) Aggregate income Less: Approved donation (in kind) Total income Less: Personal reliefs Personal relief EPF and life insurance premium (maximum) Child Purchase of laptop (not eligible, claim once in three years only) Broadband subscription (maximum) 5,000 2,500 1,250 Nil RM 120,000 Nil 10,000 20,000 150,000

Marks

1 1

375 2,400 154,025 Nil 154,025 Nil 154,025 Nil 154,025 9,000 6,000 1,000 Nil 500 (16,500) 137,525 14,325 9,757 24,082

1 1 1 * 1 * 1 * 1 1 1

Chargeable income Tax liability: Tax on first RM100,000 Tax on next RM37,525 x 26% Tax charged/payable

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Marks (b) Mary Tax computation for the year of assessment 2011 RM Business income Profit before tax Add: Depreciation Entertainment of bankers Tax fees Adjusted income Less: Capital allowances Statutory income Less: Unabsorbed business loss brought forward Statutory income Directors fee Aggregate income Less: Approved donation (restricted to 7% of aggregate income) Total income Less: Personal reliefs Personal relief Life insurance premiums

RM 100,000 10,000 1,000 1,000 112,000 (4,000) 108,000 (68,000) 40,000 1,000 41,000 (1,000) 40,000 * * 1 * 1 * (10,000) 30,000 475 700 1,175 (400) 775

9,000 1,000

Chargeable income Tax liability: Tax on first RM20,000 Tax on next RM10,000 x 7% Tax charged Less: Tax rebate (chargeable income does not exceed RM35,000) Tax payable

1 10 27

(a)

Bunga Sdn Bhd Capital allowance for assets acquired in 2011 Asset Qualifying expenditure RM Initial allowance Rate RM Annual allowance Rate RM Total RM

New passenger vehicle (restricted) Lorry Commercial van Secondhand passenger vehicle (restricted)

100,000 200,000 160,000

20% 20% 20%

20,000 40,000 32,000

20% 20% 20%

20,000 40,000 32,000

40,000 1 + + + 80,000 ++ 64,000 ++

50,000

20%

10,000

20%

10,000

20,000 1 + + + 204,000 8

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Marks (b) Computation of balancing charge/balancing allowance (i) Office equipment RM Disposal value Less: Qualifying expenditure Less: Capital allowance YA 2009 Initial allowance IA 20% Annual allowance AA 10% Less: Capital allowance YA 2010 Annual allowance AA 10% Total capital allowances claimed Residual expenditure Balancing charge Balancing charge restricted to capital allowances claimed (ii) Furniture and fittings RM Disposal value Less: Qualifying expenditure Less: Capital allowance YA 2010 Initial allowance IA 20% Annual allowance AA 10% RM 12,000 RM 11,000

10,000 (2,000) (1,000) (3,000) (1,000) (4,000) (6,000) 5,000 4,000

20,000 (4,000) (2,000) (6,000) (14,000) 2,000

Residual expenditure Balancing allowance

(c)

Computation of statutory income RM Adjusted income Add: Balancing charge (from part (b)) Less: Balancing allowance (from part (b)) Capital allowances Brought forward assets Current year assets (from part (a)) (2,000) (16,000) (204,000) (222,000) 382,000 RM 600,000 4,000 604,000

Statutory income

* 3

(d)

A notional allowance will need to be computed for the year of assessment 2010 even though there was no capital allowance claimed. This will reduce the residual expenditure in arriving at the balancing adjustments when the asset is disposed of.

1 1 2 19

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Marks 3 (a) Wilson (i) The allowable loss of RM80,000 arising from the disposal of the shop lot is available for set off against any chargeable gains from any future disposal of real property. There is no time limit for the utilisation of the allowable loss. 1 1 2 RM Disposal consideration Less: Incidental expenses: Agents commission Disposal price Less: Acquisition consideration (1/3 x 3,000,000) Add: Incidental expenses relating to acquisition: Stamp duty Legal fees RM 84,000 6,000 90,000 30,000 (1,030,000) 420,000 Nil 420,000 (80,000) 340,000 RM 1,500,000 (50,000) 1,450,000 1,000,000

(ii)

Computation of chargeable gain on disposal of land * 1

Apportioned for one acre (90,000 x 1/3) Acquisition price Chargeable gain Less: Schedule 4 exemption for individuals

* * 1

(Not entitled as it is a disposal of a part of a chargeable asset) Chargeable gain Less: Allowable loss Chargeable gain

1 7

(b)

Invent Sdn Bhd (i) The contract payment by Invent Sdn Bhd to Jade Inc would be subject to withholding tax at the rate of 10% in respect of corporate income tax and 3% in respect of the income tax payable by the contractors employees. The tax would be charged on the service portion of the contract value, which would be determined based on the gross contract value less the plant and machinery costs. [Section 107A of the Income Tax Act, 1967] Contract value Less: Plant and equipment Service portion Withholding at 10% on account of Jade Incs corporate income tax Withholding at 3% on account of Jade Incs employees income tax RM 1,200,000 (200,000) 1,000,000 100,000 30,000

1+1 1

5 1 1 2 1

(ii)

The withholding tax rate applicable would be 10% and it would be charged on the gross value of the lease payment by Invent Sdn Bhd to Ruby Ltd. The withholding tax would be RM1,000 (10% x 10,000).

(iii) The responsibility for payment of the withholding tax to the Inland Revenue Board would lie with the resident person, Invent Sdn Bhd.

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(iv) The withholding tax suffered by Jade Inc is not the final tax. The withholding tax suffered by Ruby Ltd is the final tax.

Marks 1 1 2 19

(a)

Jolly Sdn Bhd (i) The taxable period is every two months, so the taxable period relates to the months January and February 2011. The sales tax must be remitted by the 28th day from the end of the taxable period, so the due date for the sales tax to be remitted for this tax period is 28 March 2011. + + 2

(ii)

The conditions for recovering a refund of sales tax for bad debts written off are: 1. 2. 3. 4. The debtor has been declared bankrupt. The debtor has been placed under receivership. The debtor has not paid the whole or any part of the payment in respect of the taxable goods six months after the sales tax is paid. The whole or part of the sale has been provided or written off as a bad debt in the profit and loss account of the taxable person.

Note: marks will also be awarded for any other acceptable basis not shown above. Any TWO conditions only required 1 mark each, maximum (b) Sea Sdn Bhd Sale of scrap from stocks Gain on sale of fixed asset Expenses related to companys AGM Provision for bad debts at 1% of the sales made in the year Taxable Not taxable Not tax deductible Not tax deductible Revenue in nature and incidental to business income Capital in nature as it relates to a fixed asset Expenses not incurred in the production of gross income General provision and not an accrual +1 +1 +1 +1 6 2

(c)

Solar Sdn Bhd (i) The due date for the submission of the companys tax return to the Inland Revenue Board is within seven months from the close of the accounting year end, i.e. on or before 31 July 2012. The due date for the submission of the companys initial tax estimate is 30 days before the commencement of the basis period for the year of assessment 2011, i.e. in the case of the year of assessment 2011, on or before 1 December 2010. 1+

1+ 3 1++ 2 15

(ii)

The first instalment payment in respect of the year of assessment 2011 is due in the second month of the basis period, i.e. by 10 February 2011, and the last instalment is due on 10 January 2012.

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