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Answer to Question 1 [25 marks]
Answer to Question 1(a) [19 marks]
See computation.

Answer to Question 1(b) [6 marks]

Bad debt recovered is subject to tax as the bad debt written off previously was tax deductible.
Single tier dividend is tax exempted.
Gain from disposal of asset is capital gain and therefore it is not taxable.
Sponsoring foreign art exhibition is specifically tax deductible * / (or deductible under Section
34(6)) (1) up to a max of RM200,000.
Newspaper advertisement is wholly and exclusively incurred for the production of the income
and therefore it is tax deductible.

Answer to Question 2 [20 marks]

Answer to Question 2(a) [17 marks]
See computation.

Answer to Question 2(b) [3 marks] Max 3 marks

The wife and the husband must be living together and did not in the basis year cease to live
together or to be husband and wife of each other.
The husband/wife elects in writing to have joint assessment with their spouses.
The taxpayer must have total income to be combined with his/her spouses.
The taxpayer if he/she a non resident, must be a Malaysian citizen

Answer to Question 3 [15 marks]

Answer to Question 3(a) [Max 3 marks]
The citizenship will not determine the resident status of the individuals.
Tax residence status of an individual is determined by the number of days he stays in Malaysia.
If he fulfils one of the situations under the Section 7(1)(a) to (d) of the ITA, 1967 he will be a tax resident
in Malaysia.
Although the engineers are non Malaysian, they would be tax resident in Malaysia in 2016/2017 as they
are expected to be in Malaysia for at least 182 days (1 year) in Malaysia fulfilling the Section 7(1)(a) of
the Income Tax Act, 1967.

Answer to Question 3(b) [2 marks]

The engineers would be exercising their employment in Malaysia and as such, their income will be
deemed derived from Malaysia by virtue of Section 13(2)(a) of the ITA 1967. . As such their income
would be subject to Malaysian tax.

Answer to Question 3(c) [8 marks]

1MSB shall within 1 month after paying/crediting contract payment* to Canociti Ltd, a non-resident
contractor* render an account and pay* the following amount of withholding (WT) to the Director
General of the Inland Revenue *
10 % of the service portion of the contract payment made to Canociti Ltd for the tax account of
Canociti Ltd.
3 % of the service portion of the contract payment for the tax account of the employees of
Canociti Ltd Noco.
The 10%+3% WT under Section 107A of the Income Tax Act, 1967 will be an advance tax (not final tax).
Cost of plant and materials of RM140M (RM200M@70%) are excluded from WT
as it is only the service portion of the contract payment of RM60M that will be subject to WT.
WT deduction is calculated on RM60M*13% which is RM7,800,000

Answer to Question 3(d) [2 marks]

Chargeable income = RM20,000,000
Tax payable at 25% = RM5,000,000
Less: WT paid (10%) = RM6,000,000
Balance tax repayable ; RM1,000,000

Answer to Question 5 [20 marks]
Answer to Question 5(A) [11 marks]
(B) 11 marks: max
It appears that when the badges of trade are used to test the facts of the case, it is highly that there is an
adventure or concern in the nature of trade and as such the gain would constitute income from business
and thus subject to tax.
The following badges of trade indicate adventure in trade:
Profit seeking motive
He bought it in good location and hopes to sell the property when price is right even in near future.
Number of similar transactions
This is his fourth transaction that he sold the property in 5 years. The frequency is high.
Type/nature of asset
The 1 property could be sold in the adventure of trade or may be hold for investment.
Interval between purchase and sale
The property was held for less than two years.
Method of finance
The borrowing is high which shows he took high risk just like those who are doing business.
Surrounding factors
This test appears to show that he was forced into selling because of his debts and therefore he may be able
to argue that he is not in the adventure of nature.
mark for the relevant badge of trade and the relevant discussion 1 mark
Conclusion: 2 marks

Answer to Question 5(B) [9 marks]

Answer to Question 5(B)(a)[3 marks]

QBE = 5,710,000


QPE =85,000


QPE = 96,000

Answer to Question 5(B)(b)[6 marks]

The cost of office and showroom of RM210,000 is not more than 10% of the aggregate amount of
factory of RM5,710,000. Therefore the QBE include not only on the factory but also the office and
The levelling land to prepare a site for the installation machine amounted to RM15,000 exceeds 10%
(i.e. : 15,000 / 100,000 =15%) of the aggregate cost incurred 1 and this cost will not form part of the
qualifying plant expenditure incurred on the machine. So the QPE is RM85,000
The cost of the alteration to the building to install the machinery and the installation cost is part of the
qualifying plant expenditure. There is no 10% rules to restrict the QPE.

Answer to Question 6 [20 marks]

Answer to Question 6(a) [3 marks]
TEMSB will be a tax resident company in Malaysia if the management and control of its business are
exercised in Malaysia at any one time during the basis year of a YA.
If any of the meetings of the directors are held in Malaysia, it is considered that the management and
control are exercised in Malaysia.

Answer to Question 6(b) [MAX 4 marks]

The tax advantages:
It will enjoy scale rate at 20% for the first RM500,000 chargeable income and the balance at 25%
since its paid up ordinary share capital is below RM2.5 million.
It can enjoy tax incentives provided it meets the relevant criteria.
It can claim 100% CA on small value assets incurred for business purposes and will not be subjected
to a maximum RM10,000.
It will not be required to submit estimate to IRB or pay tax instalments for the first two years of

Answer to Question 6(c) [3 marks]

Mr Ting and his wife will be taxed on its income accrued and derived from Malaysia and income
received in Malaysia based on Section 3 of the ITA.
However, their foreign income received in Malaysia will be exempted from tax.(Sch 6 para 28)
It will not matter whether they are resident/non resident or Malaysian/non Malaysian, they will be
taxed on income derived in Malaysia.

Answer to Question 6(d) [5 marks]

Compensation received by TEMSB RM20 million
Based on the facts in TESB, the compensation received from PJSB should be treated as capital
receipt and therefore not subject to tax
due to the following factors:
The contract terminated is the only one/major contract entered into by the company in its normal
course of business.
The contract was not terminated under a normal trading activity/course of business.

The profit making apparatus or the business structure of the company is destroyed.
This was seen in the company when it was forced to sell most of the assets due to huge liability
owing to creditors and bankers.

Answer to Question 6(e) [5 marks]

1 point each: 1 mark
An expense may not be necessary be given a deduction if it revenue in nature. There are some other
considerations or tests before it is granted a deduction.
The expense can be given a specific deduction under the Income Tax Act. Some non revenue expenses
(capital) are specifically allowed deduction.
The expense must not be specifically prohibited by any provision of the Act.
The expense will not be allowed a deduction if it is incurred for private or domestic purpose.
The expense is wholly and exclusively incurred in the production of gross income.