Preparing Taxation Computations

(Malaysia)

Paper T9 (MYS)
ACCA CERTIFIED ACCOUNTING TECHNICIAN EXAMINATION

ADVANCED LEVEL TUESDAY 13 DECEMBER 2005

The following tax rates, allowances and values are to be used in answering the questions.

Rates of income tax Resident company Paid up capital RM2,500,000 or less More than RM2,500,000 Chargeable income First RM500,000 20% 28% In excess of RM500,000 28% 28% 28%

Non-resident person (company and individual) Resident individuals Chargeable income RM RM 2,500 (0-2,500) 2,500 (2,501-5,000) 15,000 (5,001-20,000) 15,000 (20,001-35,000) 15,000 (35,001-50,000) 20,000 (50,001-70,000) 30,000 (70,001-100,000) 150,000 (100,001-250,000) 250,000 Personal reliefs and allowances Self Medical expenses expanded for parents Basic supporting equipment for disabled self, spouse, child or parent Disabled self Fees expanded for skills or qualifications Medical expanses expended on self, spouse or child with serious disease, including up to RM500 for medical examination Expenses on books for personal use Spouse relief Disabled spouse Child Disabled child Life insurance premiums and contributions to approved provident funds Medical or education insurance premiums for self, spouse or child Rebates Rate % 0 1 3 7 13 19 24 27 28

First Next Next Next Next Next Next Next Exceeding

Cumulative tax RM 0 25 475 1,525 3,475 7,275 14,475 54,975

RM 8,000 5,000 maximum 5,000 maximum 6,000 5,000 maximum 5,000 700 3,000 3,500 1,000 5,000 6,000 3,000 maximum maximum each each maximum maximum

Resident individual chargeable income up to RM35,000 Resident individual who has been given a deduction in respect of wife (or former wife) or husband chargeable income up to RM35,000 - additional Rates of real property gains tax

RM 350 350

Disposal within the following period after acquisition

Individual Citizen or permanent resident % 30 20 15 5 nil Non-citizen or non-permanent resident % 30 30 30 30 5

Company

Within two years In the third year In the fourth year In the fifth year In the sixth year and thereafter

% 30 20 15 5 5

Value of benefits in kind Car benefit scale Cost of car (when new) RM Up to 50,000 50,001- 75,000 75,001-100,000 100,001-150,000 150,001-200,000 200,001-250,000 250,001-350,000 350,001-500,000 500,001 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 Fuel per annum RM 600 900 1,200 1,500 1,800 2,100 2,400 2,700 3,000

The value of the car benefit equal to half the prescribed annual value (above) is taken if the car provided is more than five years old, but the value of fuel provided remains unchanged. Where a driver is provided by the employer, the value of the benefit is fixed at RM600 per month. Other benefits Household furnishings, apparatus & appliances Semi-furnished with furniture in the lounge dining room, or bedrooms Semi-furnished with furniture as above and one or more of the following: air-conditioners, curtains, carpets Fully furnished premises Domestic servant Gardener Capital allowances Initial allowance (%) rate 20 20 20 10 Annual allowance (%) rate 20 14 10 3

RM70 per month RM140 per month RM280 per month RM400 per month RM300 per month

Motor vehicles and heavy machinery Plant and machinery Office equipment, furniture and fittings Industrial building Computer, information technology

equipment & computer software

20

40

ALL FOUR questions are compulsory and MUST be attempted 1. Having lived and worked abroad for many years, Mr Teng (57-years-old) and Mrs Teng (50 years old) returned to Malaysia to take up residence on 1 February 2004. On 1 March 2004, Mr and Mrs Teng jointly bought a house in Port Dickson. It was let out for rent with effect from 1 August 2004. Mr and Mrs Teng each received a half share of the rental income. The statement of rental income for the house in Port Dickson for the period ended 31 December 2004 was as follows: RM Rental income (1 August 2004 31 December 2004) Less expenditure: Quit rent & assessment (1 March 2004 31 December 2004) Extension of the kitchen and installation of air-conditioners Real estate agents fee for introducing the tenant Deposits for water and electricity Total Rental income 3,800 19,000 10,000 3,500 36,300 13,700 RM 50,000

Mrs Teng holds 40% of the shareholding in the family plantation company in Malaysia while her brother holds the remaining 60%. On 18 May 2004, she received a net dividend of RM21,600 from the family plantation company. On 1 July 2004, Mrs Teng commenced employment as the finance director of the family plantation company. Her remuneration package is as follows: Monthly salary Contributions to the EPF (employer 12%, employee 11%) Free accommodation in a fully furnished apartment in Kuala Lumpur: Monthly rental for apartment Monthly rental of furnishings Exclusive use of a company car (cost of the car when new in 2003: RM230,000) Free fuel One domestic servant RM 2,500 5,000 1,500

On 1 April 2004, Mr Teng was appointed as a technical adviser to a research company and received a monthly salary of RM7,000. There were no other benefits or payments, not even the contribution to the EPF. However, he is entitled to a gratuity of RM10,000 for every nine months service. He thus received RM10,000 on 31 December 2004. Mr Teng, a fellow of the International Research Association, paid the annual subscription of RM5,000 for the calendar year 2004. For the year ended 31 December 2004, Mr Teng received pension income of RM60,000 in Malaysia from his former employment overseas while Mrs Teng received interest income of RM1,680 from her savings deposited overseas.

On 1 December 2004, the Tengs legally adopted a 12-year old disabled child and Mr Teng immediately spent RM7,500 on an artificial leg for him. He also bought a medical policy for the child, paying an annual premium of RM3,900. The Tengs spent alternate weekends volunteering at two orphanages (both approved for tax purposes). In the calendar year 2004, Mr Teng made donations totaling RM12,050 in cash while Mrs Teng contributed RM1,500 in the form of books, food and clothing to the orphanages. Required: Compute the income tax payable by Mr Teng and Mrs Teng for the year assessment of 2004. You should assume that there is no election for combined assessment and that Mr Teng claims for child relief. Whenever relevant, give reasons for your treatment and indicate by the use of nil any item referred to in the question for which no adjusting entry needs to be made in the tax computation. Show all workings. Marks will be awarded for the use of accurate technical terms to describe the figures calculated at various stages of the computation. (31 marks)

2. (a) Mr Tan commenced business as a printer in 2002. He makes up his accounts to 31

December annually. Upon commencement of his business Mr Tan acquired the following assets: RM Printing machine 150,000 Office equipment 35,000 Delivery truck 85,000 Personal computer system 1 15,000 In the year 2004, he acquired additional assets for the business as follows: Personal computer system 2 Furnitures and fittings RM 10,000 5,000

In 2004, Mr Tan also disposed of personal computer system 1 for RM1,000 as it had become obsolete. Required:

(i) (ii)

Calculate the residual expenditure of each of the assets at the end of the year of assessment 2003. (9 marks) Calculate the capital allowances for all business assets for the year of assessment 2004 and state the residual expenditure of each asset at the end of the year of assessment 2004. (7 marks) Calculate the balancing allowance or balancing charge in respect of personal computer system 1 disposed of in 2004. (2 marks)

(iii)

(b) The sole proprietor of Mamak Shop seeks your advice as to whether he is subject to the service tax provisions. In 2004, his monthly turnover was consistently around RM20,000. In January 2005, he expanded his business premises to accommodate more tables for eat-in customers. Immediately thereafter, his monthly turnover increased to RM32,000. As regular customer, you note that Mamak Shop sells food, beverages, snacks and tobacco products in a shophouse. Required:

(i)

State, with reasons, whether Mamak Shop is subject to the service tax provisions in 2004 and 2005 respectively. (4 marks) Assuming that Mamak Shop is subject to the service tax provisions at some point during 2005, state when Mamak Shop should apply for a service tax licence and what is first taxable period will be. (2marks) (24 marks)

(ii)

3. Father acquired a piece of land on 1 February 1999 at a cost of RM420,000. On 5 February 2003, Father transferred the land to Son as a gift. On 3 July 2004, Son sold the land to Mr A, a third party, for RM450,000. Mr A incurred stamp duty of RM8,000 and legal fees of RM1,000 in acquiring the land from Son. He built a house at a cost of RM600,000 on the land. After living in the house for three months, he disposed of the land and house for RM1,350,000 on 6 September 2005. Father, Son and Mr A are all citizens of Malaysia. Required: (a) Compute the real property gains tax liability, if any, for (i) Father in respect of the transfer of the land; marks) (ii) Son in respect of the sale of the land; and marks) (iii) Mr A in respect of the sale of the land and house. marks) (2 (4 (6

(b) State, with reasons, whether Son and Mr A are entitled to elect for the exemption of
private residence. You should assume that neither of them had previously elected for the exemption. (4 marks)

(c) Compute the real property gains tax liability for Father if he had not transferred the
land to Son, and Father himself had sold the land to Mr A for RM450,000 on 3 July 2004. (3 marks) (19 marks)

4. (a) Mr Globetrotter arrived in Kuala Lumpur for the first time on 29 June 2002 and remained in Malaysia until his departure for the UK on 5 February 2003. Thereafter, he returned to Malaysia on several occasions as follows: 2 February 2004 to 31 may 2004; 8 July 2004 to 30 August 2004; and 20 December 2004 to 15 April 2005. Required:

(i) (ii)

State, with reasonsm the residence status of Mr Globetrotter in Malaysia for each of the years of assessment 2002 to 2005. (7 marks) Briefly explain two differences between the tax treatment of a resident individual and a non-resident individual. (4 marks)

(b) Encik Ahmad runs the family retail business. He also works part-time as an accountant with a manufacturing company drawing a salary of RM3,500 a month. He wants to know more about the self-assessment system. Requried: Explain to Encik Ahmad, with respect to the self-assessment system for individuals, the following: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) The deadline for submitting his tax return for the year of assessment 2005. The deadline for submitting his tax return for the year of assessment 2005 if he did not have the retail business source. How the tax payments will be made with respect to his employment income and business income. The penalty for late payment of tax installment payments. The due dates for paying the balance of any tax due. The basis period for Encik Ahmads business for the year of assessment 2005. The timeframe for a valid appeal against an assessment. If the Inland Revenue Board cannot come to an agreement with Encik Ahmad in the case of an appeal, to whom the appeal will be forwarded for determination. (15 marks) (26 marks) (End of Question Paper)

December 2005 Answers and Marking Scheme PREPARING TAXATION COMPUTATIONS (MALAYSIA) Paper T9(MYS) ACCA Certified Accounting Technician Examination Advanced Level Marks 1. Employment income Research company Salary (7000 x 9) Gratuity Less Annual subscription Statutory income from employment Rent Rental received Less Quit rent and assessment (5/10 x 3,800) Kitchen & air-conditioners (capital expenditure) Estate agents fee (initial, therefore not revenue in nature) Deposits (capital in nature) Rental income Half share (1/2 x 48,100) Pension (foreign remittance is exempted) Aggregate income Less Approved donation Total income Personal reliefs Self Disabled child relief Medical insurance (3,900 restricted to) Basic support equipment artificial leg (7,500 restricted to) Chargeable income Tax on first RM50,000 On next RM9,000 at 19% Tax charged 8,000 5,000 3,000 5,000 (21,000) 59,000 3,475.00 1,710.00 5,185.00
1 1

Mr Teng Tax computation YA2004 RM RM 63,000 10,000 73,000 (5,000) 68,000 50,000 (1,900) nil nil nil 48,100 24,050 nil 92,050 12,050 80,000 1 1 1 /2* 1
1

1 1 1

/2 1 1 1 1

/2* /2 1 1 1

/2*

/2

Note: Marks indicated with a * are awarded for the allocation of the appropriate description to the figure calculated, not for the figure itself.

Marks Mrs Teng Tax computation YA2004 RM Employment income Salary (2,500 x 6) Car benefit (6/12 x 9,000) Fuel (6/12 x 2,100) Full furnishings (6 x 80) Domestic servant (6 x 400) Accommodation benefit (5,000 x 6) [no comparison with s.13(1)(a): director of a controlled company] Statutory income from employment Half share of rental income Dividend from family company (21,600 / 72 x 100) Interest from overseas deposits (remittance exempted) Aggregate income Less Approved donation (in kind) Total income Personal reliefs Self EPF (15,000 x 11%) Chargeable income Tax on first RM70,000 Tax on next RM29,030 at 24% Tax charged Less s.110 set-off 30,000 x 28% Tax payable 8,000 1,650 (9,650) 99,030 7,275.00 6,967.20 14,242.20 8,400.00 5,842.20
1 1

RM 15,000 4,500 1,050 1,680 2,400 30,000 54,630 24,050 30,000 nil 108,680 nil 108,680
1 1

/2 1 1 1 1 1 1 1 1 1

/2* 1 1 /2*
1 1

/2 /2

/2*

/2 1

/2* 31

Note: Marks indicated with a * are awarded for the allocation for the appropriate description to the figure calculated, not for the figure itself.

2. (a)
(i) YA2002

Printing Machine RM
QPE 150,000 Initial allowance 20% 30,000 Annual allowance 14%

Office equipment RM 35,000 7,000 10% 3,500 24,500 10% 3,500 21,000

Delivery truck RM 85,000 17,000 20% 17,000 51,000 20% 17,000 34,000

Personal computer system 1 RM 15,000 3,000 40% 6,000 6,000 40% 6,000 0

Personal computer system 2 RM

Furniture & Fittings RM 1 2 2

R.E. YA2003
Annual allowance R.E.

21,000 99,000 14% 21,000 78,000

2 2 9

Marks
(ii) YA2004
QPE Initial allowance 20% Annual allowance R.E. Disposed

10,000 14% 21,000 57,000 10% 3,500 17,500 20% 17,000 17,000 n.a. n.a. n.a. 2,000 40% 4,000 4,000

5,000 1,000 10% 500 3,500

1 1 21/2 21/2 7_

(iii) Disposal of personal computer system 1

R.E. Disposal value Balancing charge

nil 1,000 1,000

1 1 2

(b) Service tax Mamak Shop? (i) Mamak Shop provides food, drinks and tobacco products. This is a taxable service. In 2004 Mamak Shops turnover is about RM240,000 (20,000 x 12). This is below the minimum annual sales turnover of RM300,000 for service tax to be applicable. For 2004, Mamak Shop is not a taxable person and therefore not subject to service tax. In 2005, the sales turnover for the first six months would have rendered the cumulative annual turnover to exceed RM300,000 i.e. RM120,000 (July to Dec 2004: 20,000 x 6) + RM192,000 (Jan to June 2005: 32,000 x 6) Effective from July 2005, Mamak shop is a taxable person providing a taxable service.
1

/2

1
1

/2

1 1 4

(iii)

Mamak Shop should apply for a service tax licence on 1 July 2005 because its turnover has exceeded RM300,000 by 30 June 2005 1 The first taxable period will be July/August 2005. 1 2 24

3.

(a) Computation of real property gains tax (RPGT)

RM For Father Gift from Father to Son deemed at no-gain-no-loss Disposal date : 5 February 2003 Disposal price (deemed to be at acquisition price) Acquisition date: 1 February 1999 Acquisition price Chargeable gain RPGT For Son Disposal date: 3 July 2004 Disposal price Acquisition date: 5 February 2003 Acquisition price (deemed at acquisition price of Father) Chargeable gain Schedule 4 exemption Greater of 10% of 30,000 or 5,000

RM
1

/2 /2 /2

420,000 420,000 nil nil

1 1

/2*

450,000 420,000 30,000 5,000 25,000

/2

1
1

/2* 1

Marks

Disposal within two years RPGT at 30% For Mr A Disposal date: 6 September 2005 Disposal consideration Less Enhancement cost cost of house construction Disposal price Acquisition date: 3 July 2004 Acquisition cost of land Stamp duty Legal fee Acquisition price Chargeable gain Schedule 4 exemption The greater of 10% (of 291,000) or 5,000 Disposal within two years RPGT at 30%

7,500.00

/2 /2

1,350,000 600,000 750,000 450,000 8,000 1,000 459,000 291,000 29,100 261,900 78,570.00

/2 /2

1 1

/2*

1 1

/2 /2 1 /2
1 1

/2* /2* 1

/2 /2 12
1

Notes: Marks indicated with a * are awarded for the allocation of the appropriate description to the figure calculated, not for the figure itself. (b) Private residence exemption Son He is not eligible for the private residence exemption because - the property he sold was land. - therefore not fit for residential purposes. Mr A He is eligible for the private residence exemption because: - he has not elected for this once-in-a-lifetime exemption before - he has built a house and lived in it i.e. the property he sold is fit for residential purposes
1 1

/2 /2 1 /2 /2

1 1

1 4

(c) Disposal by Father direct to Mr A Disposal date: 3 July 2004 Disposal price Acquisition date: 1 February 1999 Acquisition price Chargeable gain Schedule 4 exemption Greater of 10% of 30,000 or 5,000 Disposal in the 6th year RPGT at 0% RM 450,000 420,000 30,000 5,000 25,000 Nil
1

/2 /2

1 1

/2* /2

1 1

/2 /2 3

19 4. (a) (i) Residence status of Mr Globetrotter YA2002 In Malaysia from 29 June 2002 to 31 December 2002 186 days Residence under s.7(1)(a): in Malaysia for an aggregate of 182days or more YA2003 In Malaysia from 1 January 2003 to 5 February 203 36 days Resident under s.7(1)(b): in Malaysia for less than 182 days but that period is linked to a period of 182 consecutive days in 2002 (see above) YA2004 In Malaysia during 2 February 2004 to 31 May 2004 8 July 2004 to 30 August 2004 20 December 2004 to 31 Decemebr 2004
1

/2 1 /2

1 1

120 days 54 days 12 days 186 days Resident under s.7(1)(a): in Malaysia for an aggregate of 182 days or more YA2005 In Malaysia during 1 January 2005 to 15 April 2005 - 105 days Resident under s.7(1)(c): in Malaysia for 90 days or more and resident or in Malaysia for 90 days for three out of four immediately preceding basis years. (ii) Two differences in tax treatment between a resident individual and a non resident individual A resident individual is eligible for personal reliefs and rebates while a non-resident is not eligible; A resident individual is taxed at scale rates from 0% to 28% While a non-resident individual is taxed at the fixed rate of 28%

/2 1 /2

1 7

1+1 1 1 4

(b) Self-assessment system for Encik Ahmad:

(i) The deadline for submitting his tax return for the year of assessment 2005 As Encik Ahmad has a business source of income, he should submit his tax return for the year of assessment 2005 by 30 June 2006 The deadline for submitting his tax return for the year of assessment 2005 if he did not have the retail business source If he does not have a business source of income, the deadline to submit his tax return for the year of assessment 2005 is 30 April 2006. How the tax installment will be prescribed with respect to his employment income and business income The schedular tax deductions will be made from his monthly remuneration from employment. With regards to the business source, the IRB will issue the tax installment scheme with six bimonthly installments. Each installment should be paid within 30 days of the due date.

1 1

(ii)

(iii)

1 1 1 1

(iv)

The penalty for late payment of tax installment payments A 10% penalty is leviable for late payment of tax installment

(v)

The due dates for paying the balance of tax in respect of the year of assessment 2005 are 30 June 2006 where there is a business source. 1 30 April 2006 in all other cases. 1 The basis period for Encik Ahmads business Under the self-assessment system, all businesses carried on by individuals have the calendar year as their basis period. Therefore, the basis period for Encik Ahmads retail business for the year of assessment 2005 is 1 January 2005 to 31 December 2005. The timeframe for a valid appeal against an assessment A taxpayer must lodge an appeal to the IRB within 30 days of the deemed assessment on submission of the tax return. If the Inland Revenue Board cannot come to an agreement with Encik Ahmad in the case of a dispute, to whom will the appeal be forwarded for determination. The appeal will be forwarded to the Special Commissioners of Income Tax for determination 1 1 1

(vi)

(vii)

(viii)

1 15 26