Co Tax Kooair Without Answers

Sunway University College Course Notes Paper F6 Taxation
PUBLIC RULING NO. 6/2006 DATE OF ISSUE: 6 JULY 2006
TAX TREATMENT OF LEGAL AND PROFESSIONAL EXPENSES

MALAYSIA Date of Issue: 6 July 2006 4. General principle 4.1 Generally, legal or professional expenses are deductible where these are incurred in the maintenance of trade rights or trade facilities, existing or alleged to exist and are not deductible, as being of a capital nature, where incurred for the purpose of acquiring new rights or facilities. The deductibility of expenses incurred to maintain alleged trade rights does not depend upon whether the action is successful or not. 4.2 Legal and professional expenses which are not wholly and exclusively incurred in the production of gross income or prohibited from deduction under subsection 39(1) of the ITA are not deductible. 5. Deductible expenses 5.1 Debt collection Legal and other expenses incurred by a person in the course of collecting trade debts from customers. 5.2 Renewal of loans Legal expense incurred by a finance company in renewing existing loans. 5.3 Preparation of accounts (a) Ordinary expenses of keeping books and preparing financial records and accounts including charges for accountancy work. (b) Statutory audit fees expenditure [P.U.(A) 129 - Income Tax (Deduction For Audit Expenditure) Rules 2006] 5.4 Defending title to property Legal expenses incurred in connection with defending a person's title to the ownership of an asset that is used in the business. The title to the ownership by the person remains the same and had been maintained with nothing added or taken away. 5.5 Legal expenses incurred by a landlord Legal expenses including litigation costs incurred on renewal of a lease. 5.6 Defending an action connected with a trade or breach of trading contracts (a) Expenditure incurred by a person in resisting a claim that he has broken a trading contract is allowable unless the breach was deliberate and dishonest. Examples: (b) Averting a threat to the goodwill of a business. (c) Preservation and / or protection of a capital asset that does not result in the creation of a new asset. (d) Where litigation ensues after a customer withholds payments wholly or in part on the grounds of inferior workmanship, sub-standard material, non-fulfilment of contract requirements or for other reasons, the legal action is regarded as an ordinary incident of trade. (e) Defending legal action taken against a professional in respect of negligence in undertaking work for a client.
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5.7 Legal cost incurred in disputes over trading contracts when incurred for (a) Enforcement of a contract for the supply to a litigant of goods which would be resold for profit. (b) Attempting to recover sums which would have been taxable if received. (c) Claims for compensation for trading goods lost in transit. 6. Non-deductible legal and professional expenses The following are examples of legal and professional expenses which will not qualify for deduction: 6.1 Debt collection Legal and other expenses incurred by a person in the collection of non-trade debts and loans of a capital nature. 6.2 Renewal of loan (a) Legal expenses incurred by a trading or commercial company. (b) Legal expenses on renewal of a mortgage on premises. (c) Cost of raising additional capital whether by means of a loan or otherwise (this will also apply to a person carrying on a business of banking or money-lending). 6.3 Annual corporate filings and meeting expenses (a) Secretarial fees. (b) Annual general meeting expenses. 6.4 Income tax returns (a) Cost of filing of tax returns and tax computations. (b) Cost of appeal against income tax assessment i.e. to the Special Commissioners of Income Tax and the Courts. 6.5 Legal expense incurred by a landlord When a property is let for the first time by the owner or lessor. 6.6 Cost of defence in a fraud case The cost of defending criminal prosecution or in connection with unlawful acts in the operation of a business. 6.7 Legal expenses incurred in connection with: (a) The formation, renewal, variation or dissolution of a partnership. (b) Obtaining a trading licence. (c) Increasing or reducing share capital or altering the Memorandum and Articles of Association of a company. (d) Floatation, registration, winding up or liquidation of a company. (e) Obtaining new leases, mortgages, loan or credit facilities. (f) Legal fees relating to income already earned eg. income tax appeals. (g) Costs of legal proceedings incurred in pursuing a claim for unlawful or unjust dismissal by an employee. 7. Effective Date This Ruling is effective for the year of assessment 2006 and subsequent years of assessment. Director General of Inland Revenue
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State whether the following is deductible:

1. Legal fee incurred on collection of trade debts 2. Legal fee incurred on collection of non-trade debt. 3. Legal expenses incurred by a trading or commercial company in renewing existing loans. 4. Cost of raising additional capital whether by means of a loan . 5. Cost of book keeping and preparing financial records and accounts including charges for accountancy work. 7. Audit fee 8. Legal expenses incurred on renewal of a lease. 9. Cost of averting a threat to the goodwill of a business. 10. Cost of litigation incurred after a customer withholds payments wholly or in part on the grounds of inferior workmanship, sub-standard material. 11. Defending legal action taken against a professional in respect of negligence in undertaking work for a client. 12. Claims for compensation for trading goods lost in transit. 13. Renewal of leases and licenses. 14. Claim for compensation for trading goods destroyed, defective or lost in transit. 15. Legal fees and agency fees incurred in connection with employment agreements as well as in connection with preparation of trading contracts or agreements. 16. Secretarial fees. 17. Annual general meeting expenses. 18. Cost of filing of tax returns and tax computations. 19. Cost of appeal against income tax assessment i.e. to the Special Commissioners of Income Tax and the Courts. 20. Legal fee on first tenancy agreement for the owner or lessor. 21. Legal fee on: (a) The formation, renewal, variation or dissolution of a partnership. (b) The transfer of a mortgage on business premises. (c) The acquisition of capital assets or the sale or transfer of capital assets. (d) Obtaining a trading licence. (e) Increasing or reducing share capital or altering the Memorandum and Articles of Association of a company. (f) Floatation, registration, winding up or liquidation of a company. (g) Costs of legal proceedings incurred in pursuing a claim for unlawful or unjust dismissal by an employee. (h) Fees for revaluation of land.
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Public Ruling- tax treatment of leave passage For employer

Air fare Leav e passage Food & accommodation Treated as entertainmnet for staff So deductible Not deductible for company unless it is family day, a yearly event, and leave passage in Msia
For employee
Leave passage for immediate family including spouse, and children If not for staff or his immediate family Fully taxable
If for staff or his immediate family
Local trip 3X exempted including meals and accommodation 1 overseas leave passage for travel up to a maximum of RM3000 is tax exempt
Key-man insurance For employer If for investment in nature ie endowment not deductible for company If for loss of profit- deductible for company if the company is the beneficiary. For employee Regardless of the type of insurance, the employee is only taxable if he or his family are the beneficiaries. If the employer is the beneficiary, he is not taxable at all. Professional indemnity insurance 1. A professional indemnity insurance is a policy taken to protect the insured against liability for the persons negligence.to protect the insured against liability for the persons negligence. The insurance is to cover the liability that would otherwise be borne by the person such as the cost of defending the suit and the cost of the award. 1. Normally it is to cover a personal laibility or risk. So to cover claim made against the personal assets of the person and is not wholly and exclusively incurred in the production of income 2. But for Lawyers registered with the Bar Council Accountants registered with the Malaysia Institute of Accountants Where purchase of professional indemnity insurance si compulsory 3. For profession who is not engaged in professional practice but carries on some other business or is in employment Normally not deductible Premium paid is dedutible
Premium paid is not deductibel
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4. Other profession/it is purchased by purchased by a company It is a statutory requirement to practise as a professional Purchase of professional indemnity insurance is a requirement regulated by statute or by-laws
Premium paid is deductible
5. If the premium is allowable, any proceeds received in connection with a Taxable on the professionla indemnity insurance is taxable. recovery Deductibility of loss of cash Public Ruling 1. Banking of cash takings is necessary for the operations of the business. Loss of cash by robbery/theft while in transit to the bank 2. Cash is embezzled by an agent who is assigned to collect the cash Deductible Deductible
3. Loss of cash not incidental to business eg A money changer brought back cash from office to keep in his strong Not deductible room at his house. Thieves broke in and stole the cash. 4. Embezzlement by employee Arises directly from the necessity of delegating certain duties of the Deductible business to subordinates. 5. Employee who is involved in the embezzlement is a relative to the proprietor. This is not a trade loss since the proprietor chooses to overlook the theft Not deductible especially if he continues to employ the offender 6. Embezzlement by sole proprietor, partner , director or administrator who Not Deductible in control of the business operations 7. if the loss of cash is allowable, recoveries of: insurance payment from the offender legal action should be taxable as income of the business when such recoveries are Taxable received. 8. Supporting documents are needed to claim deduction police report bank statement letter of termination of employment minutes of board of directors meeting proof recovery action
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S34
Approved pension scheme Scientific research
S34(6) 1. Equipment to assist disabled employee 2. Publication in national language on approved cultural, literary, professional, scientific or technical books . 3. Contributions to public or school libraries (max RM100,000) 4. Revenue expenditure on maintenance of child care centre 5. Managing approved musical or cultural group 6. Sponsor approved local or foreign arts Max for foreign arts is RM200,000 Max for both RM500,000 7. Scholarship full time students no means of his own parents total monthly income =< RM5,000. 8. Revenue expenditure to obtain accreditation for a laboratory or as a certification body certified by Dept of Standards Malaysia 9. double deduction on revenue expenditure to obtain certification for recognized quality systems and standards and halal certification evidenced by JAKIM 9. Practical training expenditure on Resident individual and Not employee 10. Expenditure on participating in international standardization activities approved by the Dept of Standards Malaysia
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S39
1. payments such as royalty or interest contract payment consultancy fee installation fee rent of moveable property where withholding tax has not being paid 2. lease rental of motor vehicle purchase cost >150,000, max deduction is RM50,000 purchase cost = < 150,000, max deduction is RM100,000 3. leave passage (but local leave passage on a yearly event is deductible)
4. entertainment\ (see next page)
Entertainment means: Provision of food, drink, recreation or hospitality ; or Provision of accommodation or travel;
Recreation or hospitality include: Trip to a theme park Stay at holiday resort Tickets to a show or theatre; and Gifts and give-aways
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Tax treatment for entertainment
Normally 50% deductible ie Entertainment allowance Entertained suppliers
Entertainment is 100% deductible if: 1. Entertainment on staff ie free meals & refreshment, annual dinners, outings, family day For outing & family day cost of travel- not deductible as it is leave passage food & accommodation is 100% deductible 2. provision of entertainment in the ordinary course of business ie free cultural shows by hotels to entertain their customers meals provided by airlines 3. Provisional gifts at trade fairs outside Malaysia Ie Small souvenirs, samples, bags and travel tickets 4. Samples ie Complimentary drink provided by restaurant Free samples of drinks to schools Free sample of products 5. Entertainment of cultural or sporting events such as fees paid to artistes or sportsmen, cost of passage, accommodation , food or recreation or t-shirt for sportsment 6. Promotional gifts within Malaysia restricted to non-products of company must have conspicuous logo gifts must be available to the public at large not to selected persons only. 7. entertainment related wholly to sales food & drinks for launching new products redemption vouchers given for purchase made discount vouchers fee gifts for purchase exceeding a certain amount redemption of gifts base on accumulated points lucky draws to customers trips as an incentive to dealers for achieving sales target 8. the provision of leave passage to facilitate a yearly event within Malaysia which involves The employer The employee; and The immediate family members of the employee
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Tax adjustments-Company taxation

Cost of sales include: Advertising costs amounting to RM1,000 for newspaper announcements stating that a particular agent was no longer authorised to represent the company Sales includes a sum of RM200,000 received by the company as t e first instalment under an agreement signed with a shoe company in China. This was for a license to use Fashenshus patents, designs and know how in consideration for a sum of RM1 million payable in annual instalments over a period of five years. Fashenshu also agreed not to grant any such licence to other parties in China or Hong Kong. Fashenshu had never made such an agreement before. It is incurred in the normal course of business, so deductible.
The sum of RM1 million constitutes a capital receipt. This is because with regard to the China and Hong Kong market , Fashenshu has parted with a capital asset (patent, designs and know-how) for a purchase price(Evans Medical Supplies Ltd v Moriarty) The fact tha the consideration is payable in instalments does not after the character of the receipt, therefore it is not taxable.
Cost of sales includes a sum of RM3,200 written off in respect fo a consignment of vegetables damaged in an accident in the course of its transportation from the companys farm to the restaurants.
Damaged stock-in-trade written off constitutes a trading loss therefore deductible.
Stock withdrawn for own use Cost of sales includes i. an amount of RM6000 written off in respect of 100 units of product which were destroyed as they were found to contain materials harmful to health A provision of RM4000 for the foreign exchange loss which the company expects to incur when paying for raw materials purchased On a festive day the company gave away toys costing RM10,000(market value RM12,000) as prizes to children at a nearby orphanage A consignment of telecommunication(stock) equipment imported by the company which was damaged. A consignment of telecommunication equipment imported by the company which was damaged. The company received RM120,000 compensation from the insurer. Three units of telecommunication equipment from the opening stock were transferred to fixed asset. The cost price for the three units was RM80,000 and the normal selling price is RM96,000.
ii.
iii.
iv. v.
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vi.
The companys products which is furniture costing RM24,700 was donated to an approved orphanage. The selling price was RM26,000 .
Trading stock disposed by way of donation is not in the normal course of business. It is deemd to have been disposed at market value, therefore added back RM26,000 The sale of furniture to a staff member at a discount is an normal incidence of trade. Therefore on adjustment.
A set of bedroom furniture costing RM6,400 sold to a member of staff at 5% discount. The selling price was RM7,000.
Embezzlement RM61,000 embezzled by the marketing director. Capital loss from misappropriation of capital of the company. So it is not deductible.
AGM expenses Expenses incurred in resepct of the annual general meeting of shareholders comprise the csot of food and refreshments provided at the meeting. Not incurred in the incomeproducing process. Rather they are incurred after the income has been produced, therefore added back.
Stocks The companys trading stocks stated after deducting a general provision of 5% for obsolescence wereas follows; 30.11.2004 30.11.2005 RM6.20 million RM5.63 million A general provision is not realised. So not deductible
Insurance compensation Insurance moneys were paid by the insurance company in respect of It is insured gainst loss of profits, the death in an accident of the companys chief operating officer. not capital investment in nature. The company is the beneficiary of a policy which compensates the So deductible. company for loss of profits resulting from death/disabledemnt by accident of its key personnel. Repairs to premises includes: (i) A sum of RM37,000 reovered from an insurance company for the cost of repair to the factory which was damaged by fire; and (ii) RM44,000 incurred on the said repairs The full amount of the insurance money is taxable as it is for repair which is a deductible expense in ascertaining adjusted income. The cost of repair is deductible as business expense.
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Freight and insurance includes premiums amounting to RM20,000 paid under a policy on the lives of the senior executives of the company. The objective of the policy is to provide the company with sufficient funds to pay retirement gratuities.
The insurance is investment in nature as the objective is to creat a asset in the form of fund for retiremet gratuities . This fund is of enduring benefit. So not deductible.
Insurance premiums of RM21,000 on the lives of the key personnel. The intention is to provide the company with funds which it may, at its discretion, use to make payments to their dependents in the eventof the premature death of the key personnel. Insurance premiums include a sum of RM48,000 paid to Kargo Insurance Bhd, a company incorporated in Malaysia, to undertake risks on the importation fo raw materials.
Insurance premums in respect in respect of imported raw materials qualify for double deduction as te risks are insured with an insurance company incorporated in Malaysia. Insurance premiums do not qualify for double deduction as the risks are insured with a company not incorporated in Malaysia.
Insurance premiums amount to RM452,000 insured with foreign companies for the export of cargo. An amount of RM24,000 was paid to an insurance company incorporated in Chile as premium for insuring goods imported by the company Freight includes RM99,000 premium paid to Dowell Insurance Bhd, a company incorporated in Malaysia, for goods imported The freight charges are for shipping the furniture manufactured by the company from Sarawak to Port Klang.
Freight charges incurred by manufacturers for the shipment of their manufactured goods for Sabah/Sarawak to any port in Peninsular Malaysia qualifies for double deduction. Export credit insurance premiums qualify for double deduction as they are paid to Malaysia Export Credit Insurance Berhad (MEISB) Income Tax (Deductions of Premiums for Export Credit Insurance) Rules 1985
Company paid export credit insurance premiums of RM554,000 to Malaysia Export Credit InsuranceBhd.
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salaries and wages The EPF contributions made by the company at the rate of 21% in respect of its key personnel amounting to RM273,000. The EPF contributions made by the employer are deductible subject to the maximum rate of 19%, of remuneration . Therefore the excess is added back. Remuneration of disbled employees specifically qualifies for double deduction under the Income Tax (Deductions for the Employment of Disabled Persons) Rules 1982.
Remuneration of disbled employees amounting to RM77,000.
Leave passage Cost of holiday package to Canada in September 2004 amounting to RM25,000 for Encik Hooi, Head of the Human Resource Department . The cost is made up of the cost of air fare of RM15,000 and the cost of accommodation and food of RM10,000. Leave passage in respect of the cost of airfare is disallowable under the Act. The cost of accommodation and food is allowable as entertainment expenses provided to employees as per the Public Ruling. Leave passage in respect of the air fares (overseas and local) is specifically disallowed under S39.
RM82,000 was incurred on leave passage provided to senior management during their periods fo leave for purposes of spending vacation tiem with their spouses and children . The sum comprises: Overseas air fares Local air fares 48.000 34,000 82,000
A family day staff trip to Sabah for which the company incurred RM9,000 on the cost of travel, RM8,000 on food and drinks and RM14,000 on accommodation.
Leave passage of RM9,000 is specifically allowed by the Act. Food and accommodation is allowed as entertainment for staff. Cost of equipment of RM18,500 purchased to enable the companys Purchase of equipment to assist disabled employees to label its footwear which is its products. disabled employees to perform their work is specifically allowed under the Act. Therefore deductible.
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Extension to the childcare centre
Extension cost qualifies for industrial building allowance Revenue expenditure in respect of a childcare centre provided for employees is specially allowed under the Act.
Maintenance of the centre
International trade fair held in Malaysia RM329,000 was incurred on participation in an international trade fair held in Kuala Lumpur. Both the trade fair and the companys participation were approved by the Miinistry of International Trade and Industry. Thd aim of the trade fair was to promote exports. Included in the expenditure is the cost of exhibits of RM8,000. Advertising includes RM20,000 incurred in participating in international trade fair held in Kuala Lumpu r. The trade fair and the company's participation were approved by the Minister of International Trade and Industry. Details of the expenditure are as follows: Cost of exhibits Overtime pay to staff Rental of exhibition space 12 3 5 20 Expenditure incurred on participation in an approved international trade fair excetp for the cost of exhibits qualifies for double deduction as the trade fair was held in Kuala Lumpur, the aim ws to promote exports and the companys participation was approved by the relevant authority.
Training The human resource departmetn of the company organised cooking and food preparation classes for twenty unemployed youths who were afterwards sent to the restaurants for practical training . The training cost per person amounted to RM880. Two of the trainees were non-residents of Malaysia. Expenses incurred on the practical training of nonemployees of the company are specifically allowed under the Act provided the trainees are Malaysian tax residents. So the cost incurred on 2 of the trainees are disallowed as they are non Malaysian tax residents.
Halal certification The expenditure incurred on halal certification consists of: Capital expenditure Revenue expenditure 1,000 450 1,450 Expenditure incurred on halal certification is specifically allowed a double deduction under the Act but restricted to revenue expenditure only, therefore add back to RM1,000.
The certificate was issued to the company on 10 April 2003
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Publication of cultural book RM29,000 was incurred on the publication of a cultural book in the national language approved by the Dewan Bahasa and Pustaka.
The cost of publication of a cultural book in the national language is specifically allowed by S34(6)(f) of the Act. As all the stipulated conditions are fulfilled ie the book is of cultural , literary, professional, scientific or technical nature and te publication has the approval of the relevant authority.
Scholaships Scholarship to undergraduates 48,000 The expenditure incurred on the provision of scholarship is an allowable deduction under S34(6)(l) of the Act provided the following conditions are satisfied: The student is studying full time at a Malaysian educational institution for a diplomaor a degree; The student has no means of his own His paents/guardians earn a total monthly inome nto exceeded RM5,000.
The scholarships were awarded to Encik Ali (RM26,000) and Cik Kalsom(RM22,000) who studied full tiem on a degree course at Universiti Teknologi Mara. They did nto have any means fo their own. Alis parents earned total monthly income of RM4,500 whereas Kalsoms guardian earned a total monthly income of RM6,000.
Removal expenses Rental fo premises includes removal expenses amounting to RM16,000 form the existing place of business of business to new premises as the company expanded its business. Removal is due to the expansion of the companys business and therefore represents an asset of enduring benefit. So not deductible. The compensation paid for the cancellation of the contract is in connection with a fixed asset therefore of a capital nature. The payment is a capital expenditure as it was paid to get rid of a lease which has become an onerous liabillity. It resulting in an eduring benefit to the company.
Rental of premises includes the payment of RM27,000 to a company for the cancellation of a contract to install a high-tech security system.
Included in rental is a sum of RM25,000 paid in respect of the early termination of the lease of a building which the company vacated in February 2004. The lease was to have run for another 10 year. The building was no longer suitable as a showroom for the companys goods due ot the construction of a toll plaza.
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Lease rental The company entered inot a car lease agreement on 1 April 2004 and commenced the lease rental payemnt on 6 April 2004 at RM5,750 per month. The new car cost is RM155,000. The year end of the company is 30 November 2004. Lease rentals are deductible up to the maximum of RM50,000 where the cost of the motor vehicle exceeds RM150,000. As the total lease rentals incurred amount to RM46,000 (RM5,750 x 8 months), so no adjustment is necessary. Deduction of lease rental is computed as follows: Jan to Apr 03 (6500x4) 26,000 May 03 to Apr 04 (6500x12) 78,000 104,000 restricted to (100,000) 4,000 Deduction of lease rentals in respect of private motor vehicles is restricted to RM100,000 where the cost of the car does not exceed RM150,000. Year end of company is 31 May 2005 Motor vehicles expenses include lease rental s for 2 new cars as follows: i. A new Proton leased for a period of 24 months at RM6,720 per month commencing in February 2004. The car costing RM144,000 when new. A new Toyota leased for a period of 24 months at RM8,400 per month commencing in August 2004. The car cost RM190,000 when new.
Motor vehicles expenses includes lease rentals in respect of a motor car of RM6,500 per month under an agreement for a period of 24 months commencing on 1 January 2003. The purchase price fo the car in January 2004 was RM145,000. The year end of the company is 30 April 2004.
ii.
Lease rentals for the Proton are deductible up to RM100,000 as the purchase cost does not exceed 150,000. Feb-May 02 6,720 x 4 26,880 June May 2003 6,720 x 12 80,640 107,520 restricted to 100,000 Add back 7,520 Lease rental for Toyota are deductible up to RM50,000 only as the purchase cost exceeds RM150,000. Aug02-May03 8,400 x 10 84,000 restricted to 50,000 Add back 34,000
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Raise finances for the company Legal fee amounting to RM6,000 of securing bank loan for expansion of the companys business. It is incurred to a bank loan for the purpose of business expansion , and thus not deductible. Brings enduring benefit to the company. So not deductible. Cash contributions to sponsor approved foreign arts are deductible subject to the maximum of RM220,000 Cash donations to public library quality for deduction under the Act, up to the limit of RM100,000.
Entrance fee to a trade association
Cash contribution to sponsor foreign arts approved by the Ministry of Culture, Arts and Tourism of RM211,000
Cash donation to a public library amounting to RM18,000
Advertising RM75,000 in respect of product licensing in Japan for purposes of promoting the company products. Expenses on product licensing overseas for the purposes of promoting exports by a resident company is specifically allowed by an exemption order-Income Tax(Deduction for Promotion of Exprots No 2) Rules 2002.
Trade mark On 1 December 2004, the company purchased a trade mark for RM217,000 incurring legal cost of 8,000 . The trade mark cost comprise: Amortisation of cost of purchase of trade mark Royalty paid for the use of trade mark before the date of purchase The cost of purchasin gthe trade mark including the legal fees is specifically allowable , therefore no adjustment Income Tax (Deduction for Cost of Acquisition of Proprietory Rights) Rules, 2002 Royalty paid for the use of trade mark is revenue in nature, so no adjustment.
225,000 235,000 460,000
Withholding tax Consultancy fees of RM800,000 paid to a non-resident company on 3 March 2006 for technical advice rendered in Malaysia. The withholding tax of 10%(RM80,000) was remitted to the Inland Revenue Board on 20 April 2006. The 10% tax increase (RM8,000) due to late payment of the tax remains unpaid. The consultancy fees are specifically disallowed because part of the increased tax (RM8,000) remains unpaid.
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Repairs Repairs includes a sum of RM16,000 in respect of tools whch have a life span of 2 years. This comprises RM4,000 for tools replaced and RM12,000 for additional tools. For assets with life span of 2 years and below, the assets are deductible on replacement basis. Instead of capital allowance Initial cost is not deductible. As above
The company incurred RM62,000 on the purchase of cutlery and glassware: of which RM27,000 was in respect of the replacement of old and broken items. Entertainment Entertainment allwoance of RM500,000 to its amanging director and the marketing executives.
It is specifically 50% disallowed by the Act as it is not incurred wholly to sales. Following from the above the EPF is also 50% disallowed.
EPF contributions of RM60,000 made by the company in respect of the above entertainment allowance. Entertainment allowance amounting to RM600,000 which are not directly related to sales EPF contributions at the rate of 22% amounting to RM594,000 in respect of the directors salaries (RM2,100,000) and the above entertainment allowances. Cost of maintainiing a holiday bungalow in Penang used by senior executives of the company, RM30,000. Cost of maintaining a holiday bungalow in Langkawi used exclusively by the companys clients, RM42,000. 50%x600,000x22%=66,000 50%x600,000x3% = 9,000 2,100,000 x 3% = 63,000
Maintenance of the holiday bangalow falls within the definition of entertainment. This is entertainment for staff. Therefore deductible. This is entertainment of clients. Therefore deductible It is a staff cost. So deductible.
The rental of RM1,900 per month in respect of the restaurant premises in Johor Bahru. About 40% of this is attributable to a flat on the upper floor occupied rent free by a director. Foreign exchange loss (net) Realised loss(trade) Realised gain (purchase of equipment) Unrealised loss(trade0 105 (43) 188 250
Realised loss on foreign exchange in respect of trade transaction is trading loss, therefore deductible. Unrealised loss is only a provision therefore not deductible. The foreign exchange gan though realised is nto taxablle as it is of a capital nature.
A gain on foreign exchange amouting to RM28,000 was made on a payment for the purchase of a machine from Japan. The payment was made in September 2004. The year end of the company is 30 November 2004.
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Donations Donations comprises: Cash donated to approved institutions Cash contributions to public libraries 449 119 568 Donations are not allowable in computing adjusted income but they are allowable in computing total income but in case of a company, the deduction is limited to 5% fo its aggregate income. In the case fo the cash contributions to public librariesm the company can choose to claim deduction under one of the two sections of the Act. Under S34(6)(g) deduction is against the gross income fo the business source and restricted to RM100,000. Deduction under S44(8), on the other hand , is against the aggregate income of all sources of income and the maximum allowed is only RM20,000. Therefore, the company should make a claim under S34(6)(g) because the company gets additional deduction of RM75,000 ie (RM100,000 20,000 (5% x 100,000)
Miscellaneous expense comprise: Approved donation Unapproved doantion Foreign exchange gain realised from debts arising from sales of footwear 20 9 (18) 11
Double deduction for salary of disabled staff Included in salaries and wages was a monthly salary of RM1,600 to a physically disabled person who was employed as a telephone operator for 10 months Provision for bad debts Bad debt written off * Increase in specific provision(trade) Decrease in general provision(trade) 252,000 43,000 (87,000) 208,000
*On 7 March 2004 the directors of Ming Sdn Bhd passed a resolution to forgive a debt amounting to RM252,000 owed by the subsidiary company of a listed company for goods supplied. The resolution was passed to facilitate Mings acquisition fo the subsidiary company.
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Bad debts written off(trade) 79,000 Increase in general provision from RM100,000 to RM199,999 99,000 Foreign exchange gain realised from debts Arising from sales of footwear (122,000) 56,000 Bad debts written off Net increase in specific provision Net increase in general provision Bad debts recovered 83 271 350 (60) 644
RM10,000 of the bad debts written off is in respect of a car loan to an ex-employee; RM33,000 of the specific provision relates to non-trade debts; RM20,000 of the bad debts recovered relates to non-trade debts Bad and doubtful debts comprise: 1. The company is in the business of oerating restaurants food catering. i. Bad debt written off in respect of advances amounting to RM6,800 made to a farmer against farm produce which ws not delivered due to the familys untimely death.
Advances unrecoverable from thefarmer, though made against farm produce to be delivered, constitute an investment of capital as the main ohjective was to obtain the source of raw materials. Therefore to be added back. Trade and specific provision. So deductible.
ii. A provision fo RM1,200 made in respect of food supplied to a hostel. 2. Bad and doubtful debts Bad debts written off during the year Net increase in specific provision Net increase in general provision Bad debts recovered during the year Profit and loss account 183 33 193 409 (28) 381
Onlu trade debts written off/recovered are deductible/taxable, hence the loan written off is added back.
All the debts are trade debts except for a sum of RM23,000 written off which is in respect of a loan made to an ex-employee.
For a provision to qualify for deduction it must be sepcific and in respect of trade debts, therefore the general provision is added back.
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3. Bad debt recovered Specific provision b/f General provision b/f Bad debts written off Specific provision c/f General provision c/f
(119) (951) (1,205) 120 1,375 1,799 1,019
The specific provision carried forward includes a sum of RM13,000, being the balance of a personal loan granted to a director who has now resigned from the Board. Bad & doubtful debts compries: Bad debt written off of which RM9000 is in respect of debts taken over from vendor when the business was acquired years ago Recovery of debts written off by vendor Increase in specific provision of which RM60,000 is non-trade Decrease in general provision of which RM24,000 is non-trade
600 (13) 1,420 (174) 1,833
Other income Year end of company is 30 April 2004 Other income comprises dividend income as follows: Date received 10.8.03 14.2.04 RM 100,000 (exempt) 103,000 (gross before deduction of tax) Rental income is a separate source, therefore to be deducted from the computation. However, foreign income remitted by a resiident company is tax exempt by Para 28 Schedule 6. Interest income comprises: interest arising on a saving account with Southern Finance Bhd credited monthly from Aug 2003 to April 2004 interest accrued on a fixed deposit of RM90,000 with Hong Leong Finance Bhd for 6 months which matured on 4 June 2004
Other income is in respect of the gross rents of RM185 derived from a property in Africa and recived in Malaysia. Year end of company is 31 May 2004.
430
1,570 2,000
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Accelated capital allowances 1. Capital expenditure incurred on plant and machinery for the purpose of the business of manfacturing company which are used exclusively for recycling of wastes or for the further processing of the wastes into a finished product will qualify for accelerated capital allowance as follows; IA 40% AA 20% 2. Qualifying plant expenditure incurred on computers and information technology equipment for the purpose of business will qualify for accelerated capital allowance as follows: IA - 20% AA 40% Capital allowances Year end of company is 30 September 2003 On 5 April 2003 the company pruchased new equipment for RM70,000. The Ministry of Energy, Communications and Multimedia certified that the equipment is used by the company exclusively for conserving energy. The residual expenditure as at 30 September 2002 in respect of the lorry was RM49,000. The lorry was sold for RM51,000 on 11 November 2002. Capital expenditure incurred on plant and machinery as certified by the Ministry fo Energy, Communications and Multimedia as plant or machinery used exclusively for conservation of energy will qualify for accelerated capital allowance as follows; Equipment IA 40% AA 20% 70,000 28,000 14,000 28,000
Lorry RE 49,000 Sales proceeds 51,000 Balancing charge 2,000 Staff welfare is in respect of the construction cost of a child care centre amounting to RM50,000. Enduring benefit. So not deductible Instead qualify for industrial building allowance at rate of: IA nil AA 10% IBA = 10% x 50,000 = 5,000. Note: The same would applies to an old folks home which is approved by the Social Welfare Department.
Hire purchase assets Year end of company 30 November 2002 The hire purchase interest is in respect of a new motor car costing RM132,000. The car was purchased on 2 January 2002 whereupon a deposit of RM60,000 was paid. The monthly instalment of RM3,500 which includes interest of RM500 commenced on 2 February 2002 Year end of company 31 May 2001 i. Maintenance of plant and machinery includes the installation cost of a machine amounting to RM17,000. ii. On 14 January 2001, the company purchased a machine at a cost of RM183,000. The sum of RM17,000 mentioned above was incurred on preparing the site for installation fo this machine. The machine commenced to be used for the business two weeks after acquisition. Q/E (60,000 + 3,000x10) YA 2002 IA 20% AA20%
90,000 18,000 18,000 54,000
enduring benefit , so not deductible. Para 2 Schedule 3 Site preparation cost Total cost = < 10% 17/183+17 = 8.5% < 10% So the site preparation cost of 17,000 also qualify for CA. Q/E 183 + 17 IA 20% AA14%
200,000 40,000 28,000 132,000
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Expenses
Deductible
Not deductible
+ ve column nil
+ve column xx
Expenses
Double deduction?
No
Yes
-ve column nil
-ve column xx
Expenses approved by the Minister
For the purpose of business
Not for the purpose of business
Double deduction
Single deduction
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QUESTION 1
Section A BOTH questions are compulsory and MUST be attempted
Kooair Sdn Bhd (Kooair) is a manufacturer of air-conditioners under the brand name Cool. The air-conditioners are of export quality. Cool is a Malaysian brand name registered by Kooair. 80% of the issued share capital of Kooair is Malaysian owned. The profit and loss account of the company for the year ended 30 April 2006 is as follows: Note Sales Rental income Less: Cost of sales Less: Repairs and maintenance Professional fees Marketing and advertising Training Provision for bad debts Employees Provident Fund contributions Provision for warranty Motor vehicle expenses Entertainment Salaries and allowances Finance charges Profit before taxation Notes: (1) The rental income is derived from overseas and was remitted to Malaysia in January 2006. (2) Repairs and maintenance includes the installation of an additional air-conditioner manufactured by the company in the managing directors office costing RM1,800. The selling price of the airconditioner was RM2,000. (3) Professional fees includes: (i) Consultancy fees of RM800,000 paid to a non-resident company on 3 March 2006 for technical advice rendered in Malaysia. The withholding tax of 10% (RM80,000) was remitted to the Inland Revenue Board on 20 April 2006. The 10% tax increase (RM8,000) due to late payment of the tax remains unpaid. (ii) The sum of RM199,000 in respect of professional fees paid to a company resident in Malaysia for advertising Cool air-conditioners on behalf of Kooair on television Malaysia. (4) Marketing and advertising includes: (i) Expenditure of RM126,000 for participating in international standardisation activities approved by the Department of Standards Malaysia. (ii) The sum of RM289,000 was incurred in sponsoring foreign cultural activity approved by the Ministry of Culture, Arts and Tourism.
RM000s 1
RM000s 78,690 170 78,860 48,532 30,328
2 3 4 5 6 7 8 9 10
1,045 1,909 1,334 167 (13) 1,920 449 2,802 66 9,600 2,749 22,028 8,300
(5) Training includes practical training programmes conducted by Kooair at a cost of RM33,000 in respect of three resident individuals who are employed by a component manufacturer, and not by Kooair. (6) Provision for bad debts comprises: Bad debts written off (i) General provision brought forward General provision carried forward Specific provision brought forward (ii) Specific provision carried forward Bad debts recovered (iii) RM 535,000 (411,000) 270,000 (188,000) 303,000 (522,000) (13,000)
(i) Included in the bad debts written off was a sum of RM14,000 due from the financial director who passed away. The financial director was found to have passed through the companys books several private transactions of his own. (ii) Included in the specific provision brought forward was a sum of RM35,000 in respect of a non-trade debt. (ii) Included in the bad debts recovered was a sum of RM7,000 in respect of a personal loan recovered from an ex-employee. (7) The rate of EPF contributions is 20% of salaries and allowances. (8) The provision for warranty includes a sum of RM110,000 incurred on repairs of faulty airconditioners under the warranty periods. (9) Motor vehicle expenses include depreciation of RM775,000 and a loss of RM3,000 incurred on the sale of a van. (10) Entertainment comprises: RM A family day staff trip to Sabah for which the company incurred RM9,000 on the cost of travel; RM8,000 on food and drinks and RM14,000 on accommodation 31,000 Food and drinks for the launching of a new model of air-conditioner 25,000 Cost of a dinner for the companys suppliers 10,000 66,000 (11) The industrial building allowances for the year of assessment 2006 amount to RM199,000. (12) The other capital allowances for the year of assessment 2006 amount to RM759,000. (13) As at 30 April 2005 the balance of the companys s.108 account was RM355,000. The instalment payments made by the company are RM130,000 per month for the year of assessment 2005 and RM160,000 per month for the year of assessment 2006. All instalments were paid on time. In November 2005 the company paid the final tax of RM549,000 (inclusive of the penalty of RM9,000 for the under estimation of tax) for the year of assessment 2005.
(14) The company paid a dividend of RM25 million (gross) on 15 January 2006. Required: (a) Compute the chargeable income of Kooair Sdn Bhd for the year of assessment 2006. Your computation should start with the profit before taxation figure and follow the descriptions used in the notes to the profit and loss account indicating nil in the appropriate column for every item that does not require adjustment. (16 marks) (b) Explain your treatment of the items referred to in notes 1 to 5 inclusive. (7 marks)
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Answer: Kooair Sdn Bhd Year of assessment 2006 (basis period 1 May 2005 to 30 April 2006) Note + RM000s Profit before taxation 8,300 Rental income 1 Air-conditioner taken from stock-in-trade 2 2 Consultancy fees 3 800 Professional fees 3 International standardisation activities 4 Nil Sponsorship of cultural activity (RM289,000 RM200,000 maximum) 4 89 Training of non-employees 5 Nil Bad debts written off 6 14 General provision b/f 6 General provision c/f 6 270 Specific provision b/f 6 Specific provision c/f 6 Nil Bad debts recovered 6 Employees Provident Fund contributions [(20% 19% x RM9,600,000)] 7 96 Provision for warranty (RM449,000 RM110,000) 8 339 Depreciation 9 775 Loss on sale of van 9 3 Family day trip 10 nil Launching of new product 10 Nil Dinner for suppliers (50% x RM10,000) 10 5 10,693 (822) Adjusted income 9,871 Less: Industrial building/capital allowances (RM199 + RM759) (958) 1 Statutory/aggregate/chargeable income 8,913 (b) Notes 1 Rental is not a business source and so it is to be taxed separately as non business source. But since it is derived from sources outside Malaysia and received in Malaysia, it is tax exempt. 1 [Paragraph 28(1), Schedule 6, Income Tax Act (ITA)] The market value of stock in trade withdrawn for the companys own use is treated as gross income from its business. [s.24(2), ITA] (i) The consultancy fees are specifically disallowed because part of the increased tax(penalty) (RM8,000) remains unpaid. [s.39(1) proviso and s.109B(2), ITA] RM000s 170 1/2 1 1 1 1/2 1 1 1/2 1/2 1/2 1/2 1/2 1/2 1 1 1/2 1/2 1 1 1 822
199
411 35 7
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(ii) The professional fees incurred for advertising Malaysian brand name goods of export quality and the company is >70% Malaysian owned, so it qualifes for double 1 deduction as all the conditions stipulated under the Rules have been fulfilled. [Income Tax (Deduction for Advertising Expenditure on Malaysian Brand Name Goods) Rules 2002. Among the stipulated conditions are: a company incorporated in Malaysia with at least 70% of its issued share capital Malaysian owned and Kooair being the registered proprietor of the brand name and the goods are of export quality.] 4 (i) Expenses incurred for participation in international standardisation activities approved by the Department of Standards, Malaysia are a specifically allowed deduction. [s.34(6)(o), ITA] (ii) Expenses incurred in sponsoring cultural activity approved by the Ministry of Culture, Arts and 1Tourism are a specifically allowed deduction subject to a maximum of RM200,000 in respect of foreign cultural activity. [proviso to s.34(6)(k), ITA] 5 Expenses incurred on practical training in relation to the business of the company of resident individuals who are non-employees of the company are a specifically allowed deduction. [s.34(6)(n), ITA]
(c) (i) s.108 account of Kooair year of assessment 2006 RM Balance as at 1 May 2005 355,000 1/2 Add: Final monthly instalment payment for YA 2005 (paid in May 05) 130,000 1 Final tax paid for YA 2005 (RM549,000 RM9,000 paid in November 05) 540,000 1 Monthly instalment payments for YA 2006 (RM160,000 x 11 months) 1,760,000 1 Compared aggregate 2,785,000 Compared total RM2,500,000 x 28% (income tax deducted from dividends distributed on 15 January 06) (700,000) 1 Balance as at 30 April 06 c/f to YA 2007 2,085,000 The item stated below is not included in the s.108 account computation: The payment of a penalty amounting to RM9,000 imposed under s.107C(10) for underestimation of tax does not appear in the above computation because it does not fall within the meaning of tax paid as defined under s.108(14).
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Question 2 Kalsom Sdn Bhd carries on the business of food production. Its profit and loss account for the financial year ended 30 June 2005 is as follows: Note Turnover Less: Cost of sales 1 RM000s RM000s 27,042 11,990 15,052 97 330 400 15,879
Add: Rental income Gain from sale of property Insurance proceeds Less: Directors remuneration Staff welfare Motor vehicle expenses Provision for bad debts Foreign exchange gain Repairs & maintenance Staff remuneration
2 3 4
5 6 7 8 9
3,332 245 1,576 1,055 (91) 1,730 1,488 9,335 6,544
Profit before taxation Notes: (1) Cost of sales includes:
(i) Marine insurance for the import of raw materials paid to an insurance company incorporated in Malaysia amounting to RM130,000. (ii) Compensation paid to a customer for late delivery of goods amounting to RM27,000. (iii)Depreciation of plant and machinery amounting to RM186,000. (2) The rental income was in respect of a shop lot leased to a trader. (3) The gain from sale of property was in respect of a house which has been used as living accommodation for staff. (4) The insurance proceeds received from an insurance company were in respect of a whole life policy on the life of the marketing director who died in an accident. (5) Directors remuneration comprises: (i) Entertainment allowances amounting to RM600,000 which are not directly related to sales. (ii) Employees Provident Fund contributions at the rate of 22% amounting to RM594,000 in respect of the directors salaries (RM2,100,000) and entertainment allowances. (iii) Contributions to the Kalsom Provident Fund established by the company amounting to RM38,000. The fund was not approved by the Inland Revenue Board.
(6) Staff welfare comprises: Medical expenses Cost of leave passage Cost of food and accommodation
RM 44,000 99,000 102,000 245,000
(7) Motor vehicle expenses include a gain from the sale of a motorcar amounting to RM3,000.
(8)
Provision for bad debts comprises: (i) (ii) (iii) (iv) Decrease in specific provision for trade debts Increase in general provision for trade debts Bad debts written off* Bad debts recovered*
RM (25,000) 381,000 920,000 (221,000) 1,055,000
These both relate to debts taken over by Kalsom Sdn Bhd two years ago when the company bought over a retailers business.
(9) A foreign exchange gain amounting to RM91,000 was realised as a result of the purchase of machinery from Japan. (10)Capital allowances including industrial building allowances for the year of assessment 2005 amount to RM308,000. The balancing charge in respect of the sale of a motorcar amounts to RM4,000. Required: (a) Compute the chargeable income of Kalsom Sdn Bhd for the year of assessment 2005. Your computation should start with the profit before taxation figure and follow the descriptions used in the notes to the profit and loss account indicating nil in the appropriate column for every item that does not require adjustment. (19 marks) (b) (i)Explain your treatment of the items mentioned in notes 3 to 6 inclusive. (8 marks)
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Answer: Kalsom Sdn Bhd Year of assessment 2005 (Basis period 1 July 2004 to 30 June 2005) Note RM000s + Profit before taxation 6,544 Marine insurance 1 Compensation to customer 1 Nil Depreciation 1 186 Rental income 2 Gain from sale of property 3 Insurance proceeds 4 Entertainment allowance (50%x600,000) 5 300 Employees Provident Fund contributions 5 75 (entertainment allowances) (3% x RM300,000 = RM9,000 + 22% x RM300,000 = RM66,000) Employees Provident Fund contributions 5 63 (salary 3% x RM2,100,000) Kalsom Provident Fund (unapproved) 5 38 Medical expenses 6 Nil Cost of leave passage 6 99 Food and accommodation 6 Nil Gain from sale of motorcar 7 Decrease in specific provision 8 Increase in general provision 8 381 Bad debts written off (capital loss) 8 920 Bad debts recovered (capital gain) 8 Foreign exchange gain (machinery) 9 8,606 (1,272) Adjusted profit 7,334 Add: Balancing charge 4 Less: Capital allowances and industrial building allowances (308) 1/2 Statutory income 7,030 Rental income 97 Aggregate/total/chargeable income 7,127 RM000s 130 1 1/2 1/2 1 1 1/2 1 2
97 330 400
1 1 1/2 1 1/2 1 1 1 1 1 1
3 nil
221 91 1,272
1/2
1/2
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(b) (i) Notes (3) The gain from sale of the property being a capital gain is not subject to income tax, therefore excluded from the tax computation. (4) The insurance proceeds are not taxable as the premiums would not have been allowed in respect of a whole life policy. (See Inland Revenue Board Public Ruling No.2/2003 on Key-Man Insurance) (5) Directors Remuneration: Employees Provident Fund contributions in respect of directors salary and allowances are deductible up to the maximum limit of 19%. The 3% in excess of this limit is added back. [s.34(4)(a)), Income Tax Act (ITA)] Deduction of 50% of the entertainment allowances paid to employees is specifically prohibited under s.39(1)(l), ITA. 1 Following from this the 19% maximum amount of Employees Provident Fund (EPF) contributions attributable to this amount are added back, being specifically prohibited under s.34(4)(b) ITA. The EPF on the portion of the unallowed entertainment allowance is fully not deductible. Contributions to Kalsom Provident Fund are non-deductible as the Fund is not an approved fund. 1 (6) Staff Welfare: Medical expenses are staff amenities, therefore no adjustment. 1/2 Cost of leave passage means cost of fares which is disallowed under s.39(1)(m) ITA (and see 1 Inland Revenue Board Public Ruling No.1/2003). Food and accommodation is entertainment of staff, therefore it is deductible. Paper 2.3MYS
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Question 3 Zim Sdn Bhd is engaged in the manufacture and distribution of wheat flour. The companys profit and loss account for the year ended 31 December 2004 is as follows: Note Sales Cost of sales 1 RM000s RM000s 59,800 41,500 18,300 504 3,970 1,208 150 591 92 72 6 1,011 300 19 15 10,362 538 10,900
Less: Repairs to premises Wages and salaries Freight and insurance Consultancy fees Miscellaneous expenses Donations Lease rentals Legal expenses Motor vehicle expenses Depreciation Lease amortisation Tax penalty
2 3 4 5 6 7 8 9 10
Add: Dividends received Profit before taxation Notes: (1) Cost of sales includes: (i) (ii) (2)
11
Entertainment expenses amounting to RM162,000 of which RM112,000 was related wholly to sales. Provision for loss of damaged stock amounting to RM82,000
Repairs to premises includes: (i) A sum of RM37,000 recovered from an insurance company for the cost of repair to the factory which was damaged by fire; and (ii) RM44,000 incurred on the said repairs.
(3)
Wages and salaries include: (i) (ii) Contributions to Employees Provident Fund at 15% in respect of the remuneration of RM990,000 paid to its senior management staff. A sum of RM250,000 paid to the head of the distribution business as compensation for loss of employment resulting from the disposal of the companys distribution business.
(4)
Freight and insurance includes a premium of RM115,000 in respect of export credit insurance with a company approved by the Minister.
33
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(5) (6)
Consultancy fees were paid to a consultant in respect of the purchase of machinery. Miscellaneous expenses comprise: (i) (ii) A sum of RM480,000 embezelled by the purchasing director; entrance fees in respect of the corporate membership to a golf club, RM99,000; and
(iii) subscriptions to the golf club, RM12,000. (7) The company donated wheat flour costing RM92,000 to various charitable institutions approved by the Inland Revenue Board. The selling price of the flour was RM98,000. The lease rentals commenced on 9 February 2003 at RM6,000 per month in respect of a car leased by the company from that date. The car cost the lessor RM148,000 and it had not been used previously. Legal expenses were incurred in connection with the disposal of the companys distribution business.
(8)
(9)
(10) Motor vehicle expenses include a loss of RM2,000 on the sale of a van. The residual tax expenditure of the van as at 31 December 2003 was RM9,000. The van was sold for RM5,000(5000-9000=4000BA). (11) Dividend income comprises gross dividends of RM250,000 and tax exempt dividends of RM288,000. (12) Other information For the year of assessment 2004, the industrial building allowance amounts to M82,000. Capital allowances on plant and machinery (excluding the purchase of new machinery and the sale of the van) amount to RM366,000. New machinery (heavy machinery) was purchased for RM13 million in August 2004 and commenced to be used in October 2004. Required: (a) Compute the tax payable by Zim Sdn Bhd (which is not a small company) for the year of assessment 2004. Your computation should start with the profit before taxation figure and follow the descriptions used in the notes to the profit and loss account indicating nil in the appropriate column for every item that does not require adjustment. (20 marks) (b) Explain your treatment of the items mentioned in notes 1 to 8 inclusive. (10 marks) (30 marks)
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Zim Sdn Bhd Year of assessment 2004 (basis period 1 January 2004 to 31 December 2004) Note RM000s RM000s + Profit before taxation 10,900 entertainment expenses 1 (RM162,000 RM112,000) x 100% 50 Provision for damaged stock 82 Insurance moneys 2 Nil Cost of repairs 2 Nil Employees Provident Fund contributions 3 Nil Compensation for loss of employment 3 250 Insurance premiums 4 115 Consultancy fees 5 150 Embezzlement by director 6 480 Entrance fees to golf club 6 99 Subscriptions to golf club 6 Nil Stock withdrawn for donations 7 98 Lease rentals 8 38 Legal expenses 9 6 Loss on sale of van 10 2 Depreciation 300 Lease amortisation 19 Tax penalty 15 Dividend 538 12,489 653 Less: (653) Adjusted income 11,836 Less: Capital allowance Less: (RM82 + 366 + 4 + 520) 972 Statutory income 10,864 Add: Dividend (RM538 288) 250 Aggregate/total/chargeable income 11,114 RM Tax at 25% 2,2,778,500 Less: s.110 (25% x RM250,000) 11,6676767 62,500 Tax payable 2,2,716,000
Marks 1/2
1 1 1/2 1/2 1/2 1 1 1 1 1 1/2 1 1 1 1 1/2 1 1 1/2
11/2
1/2
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(b) Notes 1 Entertainment expenses which are related wholly to sales are fully deductible, therefore no adjustment. [Proviso (vii) to s.39(1)(1), Income Tax Act (ITA)] 1 The rest of the entertainment expenses that are not related wholly to sales is specifically prohibited. [s.39(1)(1), ITA] 1/2 Provision for damaged stock is an unrealised loss, therefore not deductible. 2 The full amount of the insurance moneys is regarded as taxable income as it is for repair which is a deductible expense in ascertaining adjusted income. [s.22(2)(a)(i), ITA] 1/2 The cost of repairs is deductible as a business expense. 3 Employees Provident Fund contributions are deductible as they are below the maximum allowable rate of 19%. [s.34(4)(a), ITA] Compensation for loss of employment constitutes capital expenditure as the reason for the payment was in connection with disposal of the companys distribution business, therefore added back. 1 4 The insurance premium qualifies for double deduction as it is for export credit insurance and the insurance company is approved by the Minister. [Income tax (Deductions of Premiums for Export Credit Insurance) Rules 1985] The consultancy fees are of a capital nature as they are incurred in connection with the acquisition of a fixed asset. Embezzlement committed by a director constitutes a capital loss as a director is in the position of directing the affairs of the company. 1 Entrance fees to a golf club is an expenditure that brings an enduring benefit to the company, therefore of a capital nature and added back. Subscriptions to a golf club are revenue expenses, therefore no adjustment necessary. 7 Stock withdrawn without any consideration is deemed to have been disposed of at market value, therefore added back at market value. 1 In any case, donations in kind do not qualify for deduction. Only gifts of money to approved institutions are eligible. [s.44(6), ITA]
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Lease rentals are deductible up to a maximum of RM100,000 where the cost of purchase does not exceed RM150,000, therefore the excess is added back as follows: 1 RM 9.2.2003 to 9.12.2003 RM6,000 x 11 = 166,000 9.1.2004 to 9.12.2004 RM6,000 x 12 = 172,000 138,000 Less: maximum allowable s.39(1)(k) 100,000 Add back 38,000 Workings: (item 10 van) Capital allowance Residual expenditure as at 31.12.2003 Less: sale price Balancing allowance (Workings: (item 12 heavy machinery) Qualifying plant expenditure Initial allowance 20% Annual allowance 20% RM 9,000 5,000 4,000 RM 1,300,000 260,000 260,000 520,000 780,000
Residual expenditure as at 31.12.2004
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Question 4 Marks Sdn Bhd, a dealer in car accessories, submits its profit and loss account for the year ended 30 November 2003 as follows: Note RM000s RM000s Sales 23,507 Cost of sales 1 9,600 Gross profit 13,907 Less: Salaries and wages 2 2,770 Freight and insurance 3 2,067 Bad and doubtful debts 4 381 Consultancy fees 5 144 Motor vehicles expenses 6 185 Training expenses 7 24 Donations 8 568 Staff welfare 9 50 Hire purchase interest 10 5 Legal charges 11 1 Lease rentals 12 63 6,258 7,649 Add: Other income: Interest 13 14 Profit before taxation 7,663 Notes: (1) Cost of sales includes obsolete stock write-offs amounting to RM59,000. (2) Salaries and wages include a sum of RM18,000 paid to an individual to persuade him to join the company as a marketing executive. Freight and insurance includes: (i) Export credit insurance premiums of RM554,000 paid to Malaysia Export Credit Insurance Berhad (MECIB). (ii) Insurance premiums of RM21,000 on the lives of the key personnel. The intention is to provide the company with funds which it may, at its discretion, use to make payments to their dependants in the event of the premature death of the key personnel. RM000s 183 33 193 409 (28) 381
(3)
(4)
Bad and doubtful debts Bad debts written off during the year Net increase in specific provision Net increase in general provision Bad debts recovered during the year Profit and loss account
All the debts are trade debts except for a sum of RM23,000 written off which is in respect of a loan made to an ex-employee.
(5)
Consultancy fees are in respect of a sum of RM144,000 paid to a local consultant engaged to implement and oversee the usage of information technology for improving the management and production processes of the company. Motor vehicles expenses include depreciation of RM31,000. Training expenses are in respect of the practical training for Malaysian resident employees of suppliers in relation to the business of Marks Sdn Bhd. Donations comprise: Cash donated to approved institutions Cash contributions to public libraries RM000s 449 119 568
(6) (7)
(8)
The above donations were made on 20 December 2001. (9) Staff welfare is in respect of the construction cost of a childcare centre amounting to RM50,000.
(10) The hire purchase interest is in respect of a new motorcar costing RM132,000. The car was purchased on 2 January 2003 whereupon a deposit of RM60,000 was paid. The monthly instalment of RM3,500(cap 3500-500=3000) which includes interest of RM500 commenced on 2 February 2003. (11) The legal charges were incurred in connection with the recovery of a loan from an exemployee. (12) The lease rentals related to a motorcar, they commenced on 5 December 2002 at RM5,250 per month for a period of 24 months. The selling price of the vehicle was RM156,000. 5/12/02-30/11/03 5250x12=63000-50000=+13000 (13) Interest on fixed deposits: RM10,000 matured on 15 December 2002 RM 4,000 matured on 10 June 2003 Required: (a) Starting with the net profit before taxation compute the chargeable income of Marks Sdn Bhd for the year of assessment 2003 if the paid up ordinary share capital of the company is RM30 million as at the beginning of the basis period. N.B. Your computation must follow the descriptions used in the notes to the profit and loss account indicating nil for every item that does not require adjustment. (20 marks) (b) Explain your treatment of each of the items mentioned in notes 2 to 8 inclusive. (10 marks) (30 marks)
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Answer: (a) Marks Sdn Bhd Year of assessment 2003 (Basis period 1 December 2002 to 30 November 2003) Note Net profit before taxation Obsolete stock write-offs Payment to individual Export credit insurance premiums Life insurance premiums Bad debts written off Net increase in specific provision Net increase in general provision Bad debts recovered Consultancy fees for IT Depreciation Training expenses Cash donated to approved institutions Cash contributions to public libraries (119-100) Construction of child care centre Hire purchase interest Legal charges (loan recovery) Lease rentals (restricted to RM50,000) Interest on fixed deposit(10+4) RM000s + 7,663 Nil 18 21 23 Nil 193 Nil Nil 31 Nil 449 19 50 Nil 1 13 8,481 (568) 7,913 (41) 7,872 14 7,886 14 568 RM000s 1/2 1 1 1 1 1 1/2 1 1/2 1 1/2 1 1 1 1 1/2 1 1 Marks
1 2 2 3 3 3 3 4 5 6 7 7
554
Adjusted income Less: Capital allowances (RM36,000 + 5,000) Statutory income from business Add: Other income: Interest income (RM10,000 + 4,000) Aggregate income Less: Cash donations to approved institutions (restricted to 10% of aggregate income)) Total/chargeable income (b) Notes:
2 1/2
449 7,437
1 Payment to the individual constitutes an inducement payment which encourages him to commence employment with the company, therefore capital in nature and added back.
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2 Export credit insurance premiums qualify for double deduction as they are paid to Malaysia Export Credit Insurance Berhad (MECIB) Income Tax (Deductions of Premiums for Export Credit Insurance) Rule 1985: Life insurance premiums are not deductible because they constitute capital expenditure in that the company has acquired an asset with those premiums(the co created a fund(asset) as compensation for the family). 3 Bad and doubtful debts Only trade debts written off/recovered are deductible/taxable, hence the loan written off is added back. For a provision to qualify for deduction it must be specific and in respect of trade debts, therefore the general provision is added back. 4 Operating expenses incurred for the usage of information technology to improve management and production processes are specifically allowed. The deduction includes consultancy fees, therefore no adjustment is necessary. (Income Tax (Deductions for Information Technology Related Expenses) Rules, 2000). 5 Depreciation is specifically disallowable under s.39(1). 6 Expenses incurred on the practical training in relation to the business of Marks Sdn Bhd of non-employees are specifically allowed under s.34(6)(n) of the Income Tax Act as long as the non-employees are Malaysian tax residents. 7 Donations are not allowable in computing adjusted income but they are allowable in computing total income but in the case of a company, the deduction is limited to 10% of its aggregate income. In the case of the cash contributions to public libraries, the company can choose to claim deduction under one of the two sections of the Income Tax Act: Under s.34(6)(g) deduction is against the gross income of the business source and restricted to RM100,000. Deduction under s.44(8), on the other hand, is against the aggregate income of all sources of income and the maximum allowed is only RM20,000. Therefore, Marks Sdn Bhd should make a claim under s.34(6)(g) because the company gets additional deduction of RM95,000 i.e. RM495,000 instead of RM400,000. Workings: Capital allowances Construction of child care centre No IA AA 10% of RM50,000 = 5,000. Motor car purchased on 2.1.2002 for RM132,000 with hire purchase Qualifying plant expenditure (RM60,000 + 3,000 x 10 months) YA 2002
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Marks 1
1 1
1/2
1 1
90,000 18,000
41
IA 20%
AA 20% RE
18,000 36,000 54,000
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Question 5 Winner Berhad, a company incorporated and resident in Malaysia, is 70% Malaysian owned and is a manufacturer of refrigerators, freezers and air-conditioners under the brand name Wincon which is registered as a trade mark in Malaysia. The company is the owner of the brand. The profit and loss account for the year ended 31 May 2003 is as follows: Note Turnover Add: Interest income Less: Less: Cost of sales Salaries, wages, and bonuses Employees Provident Fund Donation Advertising Rental of premises Travelling Foreign exchange loss Maintenance of plant and machinery Bad and doubtful debts Freight and insurance Depreciation Motor vehicles expenses 1 2 3 4 5 6 7 8 9 10 11 3,520 768 10 3,688 929 750 140 116 1,019 1,522 940 291 13,693 9,551 RM000 RM000 80,798 154 80,952 57,708 23,244
Net profit before taxation Notes:
(1) Interest income is from a fixed deposit placed with a bank in Europe. The interest was remitted to Malaysia on 12 April 2003. (2) Cost of sales is arrived at after crediting RM40,000 in respect of the cost of goods manufactured by the company, which were withdrawn from stock for use as fixed assets by the company. The normal selling price was RM60,000. (3) Salaries, wages, and bonuses (i) Staff were paid two months bonus based on their wages of RM960,000 whereas executives and directors were paid four months bonus(1800000x4/12=600,000) based on their salaries of RM1,800,000.
(ii) Salaries, wages, and bonuses includes wages of RM36,000 and bonus of RM6,000 paid to disabled staff. (4) The Employees Provident Fund contribution is at the rate of 15% for staff and 25% for executives and directors. (5) Donation is in respect of contributions made to a fund-raising campaign organised by a distributor of the Wincon brand of goods.
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(6) Advertising Included is a sum of RM27,000 incurred on advertising the Wincon brand of goods on the Internet via a host website located in Kuala Lumpur. The goods are of export quality standard. (7) Rental of premises Included in the rental is a sum of RM25,000 paid in respect of the early termination of the lease of a building which the company vacated in February 2003. The lease was to have run for another 10 years. The building was no longer suitable as a showroom for the company's goods due to the construction of a toll plaza. (8) Travelling includes: (i) Vacation airfare and hotel accommodation costing RM18,000 for important overseas customers.
(ii) Reimbursement to the directors of the company of salaries of RM100,000 and Employees Provident Fund contributions of RM 12,000 in respect of drivers employed by them. (9) The foreign exchange loss is in respect of the purchase of component parts for manufacture. The realised loss amounts to RM7,000 only. (10) Maintenance of plant and machinery includes the installation cost of a machine amounting to RM17,000. Bad and doubtful debts comprise: Bad debts recovered Specific provision brought forward General provision brought forward Bad debts written off Specific provision carried forward General provision carried forward RM (119,000) (951,000) (1,205,000) 120,000 1,375,000 1,799,000 1,019,000
(11) The specific provision carried forward includes a sum of RM 13,000, being the balance of a personal loan granted to a director who has now resigned from the Board. (12) Capital allowances have been computed at RM822,000 for the year of assessment 2001, but without taking into account the following acquisitions: Machine On 14 January 2003 the company purchased a machine at a cost of RM183,000. The sum of RM17,000(8.5%) mentioned in note 10 was incurred on preparing the site for installation of this machine. The machine commenced to be used for the business two weeks after acquisition. Motor car A new car costing RM220,000 was purchased on 9 December 2002 for the general manager.
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Required: (a) Starting with the net profit before taxation, compute the chargeable income of Winner Berhad for the year of assessment 2003 if the paid up ordinary share capital of the company is RM3 million at the beginning of the basis period . N.B. Every item mentioned in the notes to the accounts (except for notes 11 and 12) must appear in your computation, whether or not it is deductible, taxable or no adjustment is necessary. Where no adjustment is required indicate "nil" under the appropriate column. (18 marks) (b) Explain your treatment of each of the items mentioned in notes 1 to 9 inclusive. (12 marks)
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Answer: (a) Winner Berhad Year of assessment 2003 (Basis period 1 June 2002 to 31 May 2003) Note Net profit before taxation Interest income Unrealised profit on goods withdrawn from stock Bonus Remuneration of disabled staff (RM36,000 + RM6,000) Employees Provident Fund contributions Donation Advertising on the Internet Lease termination Entertainment of overseas customers Reimbursement of drivers' salaries etc Foreign exchange loss (unrealised)140-7 Installation of machine Bad debt recovered Specific prov b/f Specific provision carried forward General provision carried forward General provision brought forward Depreciation RM000 + 9,551 60 Nil 42 144 10 27 25 18 Nil 133 17 nil nil 13 1,799 1,205 940 12,710 (1,428) 11,282 910 10,372 1,428 RM000 154 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
1 2 3 3 4 5 6 7 8 8 9
Adjusted income Less: capital allowance (822 + 68 + 20) Statutory/aggregate/chargeable income (b) Notes: 1
10
Foreign income remitted to Malaysia by a resident company is tax exempt under the Paragraph 28 Schedule 6.. Where stock is withdrawn for the company's own use the market value of the stock at the time of withdrawal is treated as gross income. Therefore the unrealised profit of RM60,000 is added back. Remuneration paid to disabled staff qualifies for double deduction under the Income Tax (Deductions for the Employment of Disabled Persons) Rules, 1982. Bonus is staff cost and therefore deductible.
1 1
Deduction for the Employees Provident Fund contributions is restricted to 19% of the employees' remuneration. EPF contributions in respect of restricted bonus is also disallowed. The adjustment is arrived at as follows: RM
2
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(25%-19% )x (RMI,800,000 + 600,000) 5
144,000
Donation is deductible at the aggregate income stage, therefore add back RM 10,000 in arriving at adjusted income. However, in this case it is not an approved donation therefore it does not qualify for deduction. Advertising on the Internet host web site located in Malaysia qualifies for double deduction under the Income Tax (Deduction for Advertising Expenditure on Malaysian Brand Name Goods) Rules, 1999 as the company satisfies the conditions specified in the Rules including being 70% Malaysian controlled.
The payment of RM25,000 is capital expenditure as it was paid to get rid of a lease which had become an onerous liability. It resulted in an enduring benefit to the company. The cost of airfare and accommodation is regarded as hospitality and constitutes entertainment specifically disallowed under s.39(1)(l) of the Income Tax Act. No adjustment is necessary for reimbursement of drivers' salaries and Employees Provident Fund contributions as the expenditure is on staff amenities
Foreign exchange loss of a revenue nature is deductible to the extent that the loss is realised, therefore the unrealised loss of RM133,000 is added back. Capital allowance computation: Machine Qualifying expenditure (RM183,000 + 17,000) Initial allowance 20% Annual allowance 14% Residual expenditure Motor car Qualifying expenditure restricted to Initial allowance 20% Annual allowance 20% Residual expenditure RM 200,000 40,000 28,000 68,000 132,000
10
50,000 10,000 10,000 20,000 30,000
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Question 7 Fashenshu Sdn. Bhd. (Fashenshu), a resident and wholly Malaysian-owned company is engaged in the business of manufacturing footwear for export. Its profit and loss account for the year ended 30 April 2004 is as follows: Note RM 000s RM 000s Sales Cost of sales Less: Wages and salaries Insurance premiums Rental of premises Marketing expenses Annual general meeting expenses Trade mark costs Motor vehicles expenses Repairs and maintenance Provisions for bad debts Miscellaneous expenses 1 2 68,230 44,860 23,370 4,612 181 96 799 5 460 350 293 56 11 6,863 16,507 203 16,710 4,610 12,100
3 4 5 6 7 8 9 10 11 12
Add : Dividends Profit before taxation Tax Profit after taxation
Notes: (1) Sales include a sum of RM200,000 received by the company as the first installment under an agreement signed with a shoe company in China. This was for a license to use Fashenshus patents, designs and know-how in consideration for a sum of RM 1 million payable in annual installments over a period of five years. Fashenshu also agreed not to grant any such license to other parties in China or Hong Kong. Fashenshu had never made such an agreement before. (2) Cost of sales includes the cost of equipment amounting to RM18,500 purchased to enable the companys disabled employees to label its footwear. (3) Wages and salaries include a sum of RM82,000 incurred on leave passage provided to senior management staff during their periods of leave for purposes of spending vacation time with their spouses and children. The sum comprises: RM Overseas air fares 48,000 Local air fares 34,000 82,000 (4) Insurance premiums include a sum of RM48,000 paid to Kargo Insurance Berhad, a company incorporated in Malaysia, to undertake risks on the importation of raw materials.
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(5) Rental of premises includes rental paid in advance for six months period 1 December 2003 to 31 May 2004 amounting to RM48,000. (6) Marketing expenses include: (i) A sum of RM61,000 embezzled by the marketing director. (ii) A sum of RM75,000 in respect of products licensing in Japan for purposes of promoting the companys footwear. (7) Expenses incurred in respect or the annual general meeting of shareholders comprise the cost of food and refreshments provided at the meeting. (8) On 1 December 2003 the company purchased a trade mark for RM217,000 incurring legal cost of RM8,000. The trade mark casts comprise: RM Amortization of cost of purchase of trade mark 225,000 Royalty paid for the use of trade mark before the date of purchase 235,000 460,000 (9) Motor vehicles expenses includes lease rentals in respect of a motor car of RM6,500 per month under an agreement for a period of 24 months commencing on 1 January 2003. The purchase price of the car in January 2003 was RM145,000. (10)Repairs and maintenance includes a sum of RM16,000 in respect of tools which have a life span of two years. This comprises RM4,000 for tools replaced and RM12,000 for additional tools. (11)Provision for bad debts comprise: Bad debts written off (trade) Increase in general provision from RM100,000 to RM199,000 Recovery of debts which were taken over from the vendor of the business which Fashenshu acquired several years ago RM 79,000 99,000 (122,000) 56,000
(12)Miscellaneous expenses comprise: Approved donations Unapproved donations Foreign exchange gain realized from debts arising from sales of footwea RM 20,000 9,000 (18,000) 11,000
(13)Dividends comprise: Date received 10 August 2003 14 February 2004 RM 100,000 (exempt) 103,000(gross before deduction of tax)
(14)A new factory which had not previously been used as an industrial building was purchased on 19 July 2003 for RM350,000 which includes RM50,000 for the cost of the land. The factory commenced to be used by Fashenshus trade in August 2003.
Required: (a) Compute the tax payable by Fashenshu Sdn. Bhd. for the year of assessment 2004. N.B. Your computation should start with net profit before taxation figure and follow the descriptions used in the notes to the profit and loss account indicating nil in the appropriate column for every item that does not require adjustment. (20 marks) (b) Explain your treatment of the items mentioned in notes 1 to 8 inclusive, using the same descriptions as in (a). (10 marks) (30 marks)
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(a)
Fashenshu Sdn Bhd Year of assessment 2004 (Basis Period 1 May 2003 to 30 April 2004) Note Net profit before taxation Installment payment Equipment for disabled employees Air fares Insurance premiums Rental paid in advance(RM48,000/6) Embezzlement by director Product licensing Annual general meeting expenses Trade mark (4/5 x RM225,000) Royalty Lease rental Additional tools Increase in general provision Recovery of debts Donations (RM20,000 + 9,000) Foreign exchange gain Dividends RM000s + 16,710 Nil 82 48 8 61 Nil 5 180 Nil 4 12 99 1 1 75 1 1 1 1 1 1 122 29 Nil 203 648 1 1 1 RM000s 200 1
1 2 3 4 5 6 6 7 8 8 9
Adjusted income Less: industrial building allowance (RM30,000 + 9,000) Statutory income Less donation Aggregate statutory income Add dividend Total/chargeable income
17,190 (648) 16,542 10 1 (39) 16,503 (20) 1 16,606 103 1 16,586 RM 4,146,500 (25,750) 1 4,120,750
Tax at 25% Less: s.110 set-off (RM103,000 x 25%) Tax payable (b) Notes 1 to 8: 1
Marks
The sum of RM1 million constitutes a capital receipt. This is because with regard to the China and Hong Kong market Fashenshu has parted with a capital asset (patent, designs and know-how) for a purchase price (Evan Medical Supplies Ltd v Moriarty). The fact that the consideration is payable in installment does not alter the character of the receipt, therefore it is not taxable.
The cost of purchase of equipment to assist the companys disabled employees to perform their work is specifically allowed under s.34(6)(e) of the Income Tax Act, therefore no adjustment.
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Marks 3 Leave passage in respect of the air fares (oversea and local) is specifically disallowed under paragraph 39(1)(m) of the Income Tax Act, therefore added back RM82,000. Insurance premiums in respect of imported raw materials qualify for double deduction as the risks are insured with an insurance company incorporated in Malaysia Income Tax (Deduction of Insurance Premiums for Importers) Rules 1982. The one month rental paid in advance was not incurred during the basis period for the year of assessment 2004, therefore added back RM8,000. This amount would be deductible for the year of assessment 2005. Embezzlement by director of a company is regarded as a capital loss resulting from misappropriation of the capital of the company, therefore added back. Expenses incurred on products licensing overseas for the purposes of promoting exports by a resident company is eligible for double deduction under Income Tax (Deduction for Promotion of Exports) 2002 & 2007. 7 Expenses incurred on the annual general meeting of shareholders are not incurred in the income-producing process. Rather they are incurred after the income has been produced, therefore added back. The cost of purchasing the trade mark including the legal fees is specifically allowable, but restricted to 1/5 of the expenditure for each of the five years of assessment Income Tax (Deductions of Cost of Acquisition of Proprietary Rights) Rules, 2002. Royalty paid for the use of a trade mark is a revenue expense, therefore no adjustment.
Workings: Deduction of lease rentals (item 9) is computed as follows: RM 26,000 78,000 104,000 Restricted to 100,000 Add back 4,000 Deduction of lease rentals in respect of private motor vehicles is restricted to RM100,000 where the cost of the car does not exceed RM150,000. Industrial building allowance (item 10) is computed as follows: RM Qualifying building expenditure (RM350,000 300,000 50,000) Less: initial allowance 10% 30,000 annual allowance 3% 9,000 39,000 261,000 January to April 2003 (RM6,500 x 4) May 2003 to April 2004 (RM6,500 x 12)

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Sunway University College Course Notes Paper F6 Taxation

PUBLIC RULING NO. 6/2006 DATE OF ISSUE: 6 JULY 2006

TAX TREATMENT OF LEGAL AND PROFESSIONAL EXPENSES

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Sunway University College Course Notes Paper F6 Taxation

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Sunway University College Course Notes Paper F6 Taxation

State whether the following is deductible:

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Sunway University College Course Notes Paper F6 Taxation

Public Ruling- tax treatment of leave passage For employer

If for staff or his immediate family

Premium paid is not deductibel

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Sunway University College Course Notes Paper F6 Taxation

Premium paid is deductible

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Sunway University College Course Notes Paper F6 Taxation

Approved pension scheme Scientific research

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Sunway University College Course Notes Paper F6 Taxation

4. entertainment\ (see next page)

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Sunway University College Course Notes Paper F6 Taxation

Tax treatment for entertainment

Normally 50% deductible ie Entertainment allowance Entertained suppliers

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Sunway University College Course Notes Paper F6 Taxation

Tax adjustments-Company taxation

Damaged stock-in-trade written off constitutes a trading loss therefore deductible.

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Sunway University College Course Notes Paper F6 Taxation

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Sunway University College Course Notes Paper F6 Taxation

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Sunway University College Course Notes Paper F6 Taxation

Remuneration of disbled employees amounting to RM77,000.

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Sunway University College Course Notes Paper F6 Taxation

Extension to the childcare centre

Maintenance of the centre

The certificate was issued to the company on 10 April 2003

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Sunway University College Course Notes Paper F6 Taxation

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Sunway University College Course Notes Paper F6 Taxation

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Sunway University College Course Notes Paper F6 Taxation

Entrance fee to a trade association

Cash donation to a public library amounting to RM18,000

225,000 235,000 460,000

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Sunway University College Course Notes Paper F6 Taxation

Sunway University College Course Notes Paper F6 Taxation

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Sunway University College Course Notes Paper F6 Taxation

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Sunway University College Course Notes Paper F6 Taxation

(119) (951) (1,205) 120 1,375 1,799 1,019

600 (13) 1,420 (174) 1,833

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Sunway University College Course Notes Paper F6 Taxation

Sunway University College Course Notes Paper F6 Taxation