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AC/APR 2009/TAX370

UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION

COURSE COURSE CODE EXAMINATION TIME

: :

TAXATION II TAX370 APRIL 2009

3 HOURS

INSTRUCTIONS TO CANDIDATES 1. 2. 3. This question paper consists of five (5) questions. Answer ALL questions in the Answer Booklet. Start each answer on a new page. Do not bring any material into the examination room unless permission is given by the invigilator. Please check to make sure that this examination pack consists of: i) ii) iii) the Question Paper an Answer Booklet - provided by the Faculty a two-page Appendix 1

4.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 9 printed pages
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CONFIDENTIAL QUESTION 1

AC/APR 2009/TAX370

Global Interior Sdn Bhd has been in business of manufacturing furniture since year 1999. For the year ended 31 December 2008, the company's audited profit and loss account was as follows: Global Interior Sdn Bhd Trading, Profit and Loss account for the year ended 31 December 2008 RM RM Note 5,500,000 1 Sales f2.500.000) 2 Less: Cost of goods sold 3,000,000 Gross Profit 200,000 3 Add: Other income Less: Operating Expenses: 2,050,000 4 Salary & staff costs 20,000 General expenses 5 30,000 6 Interest 120,000 7 Research & development 70,000 Professional Fees 8 5,000 Loss on disposal of fixed assets 7,000 Loss on foreign exchanges 9 20,000 Donation 10 Lease rental 72,000 11 Compensation 12 15,000 80,000 Travelling & entertainment 13 30,000 Royalties 14 Promotion & advertising 100,000 15 Provision for doubtful debts 70,000 16 11,000 Business zakat Depreciation 80.000 (2.780.000) 420.000 Profit before taxation Notes: 1. Sales include drawing of furniture worth RM35.000 (market value) by one of the directors without any payment. Cost of goods sold includes: RM40.000 : Insurance premium paid to a foreign insurance company for exporting of furniture to Sydney, Australia. RM100,000: Insurance premium paid to local insurance company to purchase raw material from Indonesia. Other income comprises: RM Interest charged on trade debtors for late payment Rental of a shop lot in Singapore (remitted) Dividends: Maju Sdn Bhd (pioneer status) BlueWave Sdn Bhd (single tier) Gain on disposal of fixed assets
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2.

20,000 60,000 10,000 50,000 60.000 200.000

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CONFIDENTIAL Salary and staff costs: (a) Executives Non executives (b) (c) (d) (e) (f) 5. Salary RM 300,000 500,000

AC/APR 2009/TAX370

Bonus RM 70,000 150,000

Overtime RM 80,000

EPF RM 75,000 109,500

Non executives salary and bonus included RM1,500 per month and RM3.000 respectively paid to a blind telephone operator. RM200,000 Staff medical expenses RM300.000 Leave passage (directors) RM150,000 Staff family day and annual dinner RM115,500 Approved training for staff

General expenses: Include in the general expenses is a replacement of old signboard costing RM15,000.

6.

Interest comprises: Interest on loan taken on investment in BlueWave Sdn Bhd RM12,000. Interest on loan with Bank Islam Bhd for purchasing goods for business purposes RM18,000.

7.

Research and development: Research expenses on approved project was RM100,000.

8.

Professional fees comprises: Legal fee on recovery trade debts Architect fee on factory renovation Stamp duty on increase in authorized share capital Accounting and auditing fees Taxation fees RM 7,000 10,000 5,000 28,000 70.000 20.000

9.

Loss on foreign exchange: Loss on foreign exchange was related to export of goods which was unrealised during the year.

10.

Donation comprises: Five set of computers to Rumah Semai Bakti (approved) RM3.000 Cash donation to political party RM2.000 Cash donation to approved library RM15,000 (company opted to claim under section 44)

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CONFIDENTIAL 11. Lease rental (new motor vehicles): Types of car Honda Volvo Wira 12. Compensation: Cash price (RM) 140,000 200,000 45,000

AC/APR 2009/TAX370

Commencement of lease 1 October 2006 1 November 2006 1 March 2006

Monthly rental(RM) 2,000 3,000 1,000

Compensation was paid to customer for goods damaged during delivery. 13. Travelling and entertainment comprises: Dinner with client and business associates Reimbursement expenses incurred for entertaining client Reimbursement expenses incurred for business travelling 14. 15. Royalties: Royalties paid to Nairn Sdn Bhd (a resident company) Promotion and advertising: Global Interior Sdn Bhd participated in International Furniture Fair held in Kuala Lumpur organized by Ministry of International Trade to promote export. 16. Provision for doubtful debt: 1 January 2008 RM Specific General 17. 30,000 10,000 31 December 2008 RM 70,000 40,000 RM 35,000 20,000 25,000 80.000

The capital allowance was RM20,000 for the current year while business loss brought forward from previous year was RM10,000.

Required: (i) Compute tax liability for Global Interior Sdn Bhd for the year of assessment 2008. State "NIL" where no adjustment is required. Answer should be rounded to the nearest ringgit. (26 marks) State the minimum amount of estimated tax payable for the year of assessment 2009 and when Global Interior Sdn Bhd should furnish the estimated tax payable for year of assessment 2009. (2 marks) (Total: 28 marks) CONFIDENTIAL

(ii)

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CONFIDENTIAL QUESTION 2

AC/APR 2009/TAX370

BestPaper Sdn Bhd (BPSB) is in the business of manufacturing papers. BPSB prepares its accounts to 31 July annually. The company has incurred the following expenditure for the purpose of its business. (i) The company constructed a building at a cost of RM2,090,000. The building was used as a factory in May 2006. The details of the expenditure incurred are as follows: Expenditure Cost of land Legal fee for land acquisition Architect's fees Construction cost Electrical wiring and plumbing Fencing Site preparation cost to install the plant Cost of plant Total (ii) RM 950,000 75,000 35,000 400,000 60,000 20,000 200,000 350.000 2.090.000

In the year of assessment 2006, the company also bought a building costing RM750.000. The total built-up area of this building was 450,000 sq. feet. The building has been used for the following purposes: Living accommodation for factory workers Administration office Meeting rooms 88% 6% 6%

(iii)

A new building was bought and put into use as a warehouse for the storage of raw materials on 30 April 2007. The cost of the building was RM620,000. It was located within the factory compound. Due to financial problem, the building was sold to JukeBook Sdn Bhd (accounting year end 30 September) for RM760.000 on 6 June 2008. JukeBook Sdn Bhd used the whole building as a factory.

Required: Compute the industrial building allowances and balancing charges, if any, for both companies for all the relevant years of assessment up to year of assessment 2008. (12 marks)

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CONFIDENTIAL B.

AC/APR 2009/TAX370

Farm Beef Sdn Bhd, a company resident in Malaysia has been in operation in animal farming activities since 1 January 2000. The company closes its accounts on 31 March each year. In August 2004, the company purchased a 30-hectare piece of land in Bintulu, Sarawak, as part of the business project and is entitled to claim agriculture allowance. The followings are the expenditure incurred: Cost of land Cost of plant and machinery Clearing and preparation of land Construction of roads Construction of cows shed Construction of labour quarters Store for cows feed RM 800,000 120,000 350,000 100,000 600,000 230,000 110,000

On 28 February 2007, the company received a grant of RM68.000 from the Sarawak Government for the construction of labour quarters. Farm Beef Sdn Bhd sold the whole farm to Farm Fresh Bhd for RM650.000 on 31 December 2007 due to some financial problems. Note: The accounting year end for Farm Fresh Bhd is on 30 April each year. Required: Calculate the agriculture allowances/charges for both companies for the relevant years of assessment up to year of assessment 2008, assuming no election is made under Paragraph 27 of Income Tax Act 1967. (13 marks) (Total: 25 marks)

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CONFIDENTIAL QUESTION 3 A.

AC/APR 2009/TAX370

Arang Sdn Bhd a company resident in Malaysia, commenced its operation on 1 February 2007 and closes its accounts on 31 December each year. The company has incurred the following capital expenditure in order to automate its manufacturing operation. Date of purchase 15 January 2008 2 February 2008 31 July 2008 RM 700,000 1,500,000 600,000

Machine A Robotic Line Machine B

The company's adjusted income and capital allowance were RM5 million and RM500.000 respectively. Required: Compute the reinvestment allowance and chargeable income for Arang Sdn Bhd for year of assessment 2008. (6 marks) B. Khairi transfered a 6 acre land to his wife Dilla for RM300,000 on 26 July 2002. Khairi incurred RM20.000 on land improvement. The market value of the house at the time of transfer was RM410,000. Khairi benight the land on 18 February 2001 for RM180,000. He incurred stamp duty of RM3.000 in connection with the purchase. Dilla disposed the land on 23 October 2006 for RM620.000. Prior to disposal of the land, she incurred capital expenditure amounting of RM50.000 in order to enhance the value of the land. She also incurred RM5.000 on legal fees to defend the title of the land. Required: (i) State the RPGT position of Khairi on the disposal of his land to his wife, Dilla. (3 marks) Compute the RPGT payable by Dilla on the disposal of the land in October 2006. (6 marks) (Total: 15 marks)

(ii)

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CONFIDENTIAL QUESTION 4 A.

AC/APR 2009/TAX370

Explain how the sale value of taxable good is determined for the purpose of imposing sales tax in the following circumstances: (i) (ii) On a sale by a taxable person to a related party. Where a manufacturer sells its product to another manufacturer (a holder of ST 5). (2 marks)

B.

Seri Jaya Sdn Bhd a manufacturer of household products, sold taxable goods in November 2008 as follows: Sales value (RM) To a hotel in Tioman 60,000 To a supermarket in Jakarta 250,000 To a departmental store in Sabah 380,000 Assume that the applicable rate of sales tax is 10%. Required: (i) Compute the amount of sales tax payable by Seri Jaya Sdn Bhd, if any, in respect of each of the above transactions. (2 marks) State when the sales tax is due for payment by Seri Jaya Sdn Bhd. (1 mark) (iii) Compute the late payment penalty, if any, assumming that the sales tax payable is paid on 31 March 2009. (3 marks)

(ii)

C.

Servants Agency Sdn Bhd, a taxable person under Service Tax Act 1975, engaged the services of a legal firm, Hassan & Co. on behalf of Ramasamy (a client of the agency) to assist in the legal preparation of certain legal documents relating to the employment of a maid. Hassan & Co issued an invoice for its services directly to Servant Agency Sdn Bhd as follows: RM Legal fees 1,500 Out of pocket expenses 250 Service tax 75 1.825 For the services rendered by Servants Agency Sdn Bhd, the agency would issue an invoice to Ramasamy for: Agency fees of RM3,000 Out of pocket expenses of RM350; and Invoice of RM1,825 for Hassan & Co.

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CONFIDENTIAL Required:

AC/APR 2009/TAX370

Show how the invoice from Servants Agency Sdn Bhd should be issued to Ramasamy. (4 marks) (Total: 12 marks) QUESTION 5 A. Kendiri Maju Sdn Bhd, a company resident in Malaysia manufactures mobile phone microchip for export. The company entered into an agreement with a British company for the transfer of technical know-how and installation of special equipment. Kendiri Maju Sdn Bhd incurred the following expenses: RM Technical know-how advice fees, (payment was made to the British company's branch in Malaysia) 88,000 Rental of equipment 450,000 Installation cost for the equipment 65,000 Required: (i) Explain whether each of the above payments is subject to withholding tax. Give reasons for your answer. (9 marks) State three conditions for the special classes of income received by nonresident to be deemed derived from Malaysia. (3 marks)

(ii)

B.

Sweet Dream Sdn Bhd commenced its business on 1 August 2004 and prepared its account to 28 February annually. In 2007, due to some technical problems, the board of directors decided to change its accounting year end to 31 December. The adjusted income/(loss) for the relevant accounting periods are as follows: Accounting Periods 1 August 2004 1 March 2005 1 March 2006 1 March 2007 1 January 2008 Required: Determine the basis period and adjusted income/(loss) for the relevant years of assessment. (8 marks) (Total: 20 marks) END OF QUESTION PAPER 28 28 28 31 31 February 2005 February 2006 February 2007 December 2007 December 2008 Adjusted lncome/(loss) RM (16,000) 27,000 35,000 21,000 48,000

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APPENDIX 1(1)

AC/APR 2009/TAX370

The following tax rates are to be used in answering the questions. Income tax rates 26% 20%

(a) (b) (c)

Companies Small companies Resident individuals

Chargeable Income RM 0 2,500 2,501 5,000 5,001 20,000 20,001 35,000 35,001 50,000 50,001 70,000 70,001 100,000 100,001 250,000 Above 250,000 (d) Non-resident individuals

Rate 0% 1% 3% 7% 13% 19% 24% 27% 28% 28%

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

Benefits-in-kind (BIK) scale rates per Inland Revenue Board (IRB) guide lines Cost of car when new RM Up to 50,000 50,001 75,000 75,001 100,000 100,001 150,000 150,001 200,000 200,001 250,000 250,001 350,000 350,001 500,000 500,001 And above Annual value of BIK RM 1,200 2,400 3,600 5,000 7,000 9,000 15,000 21,250 25,000 Fuel per annum RM 600 900 1,200 1,500 1,800 2,100 2,400 2,700 3,000

The value of the car benefit equivalent to half of the above rates is taken if the car provided is more than five years old but the value of fuel provided will remain unchanged. Where a driver is provided, the value of benefit is fixed at RM600 per month.

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APPENDIX 1 (2)

AC/APR 2009/TAX370

Household furnishing, apparatus and appliances. Types of BIK Semi-furnished with furniture in the lounge, dining room or bedrooms Plus one or more of the following: Air-conditioners, curtains, carpets Plus one or more of the following: Kitchen equipment, crockery, utensils, appliances i.e. fully furnished Annual value of BIK RM 840

1,680

3,360

Real property gains tax. Tax rate % B Others except C 30 20 15 5 0

Disposals within the following period after acquisition In the first two years In the third year In the fourth year In the fifth year In the sixth year of thereafter

A Companies

C Non-citizens

30 20 15 5 5

30 30 30 30 5

Rates of Capital Allowances Motor Vehicles/ Heavy Machinery 20% 20% Plant & Machinery Computers Others Industrial Building

Initial Allowance Annual Allowance

20% 14%

20% 40%

20% 10%

10% 3%

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