Mock Examination

: CAT Paper FTX

Foundations In Taxation
Session Set by : December 2012 : Ms Lisa Foo

Your Lecturer Ms Lee Yuet Lai Ms Lisa Foo Your Mailing Address : ______________________________________ ______________________________________ Your Contact Number : ______________________________________

I wish to have my script marked by my lecturer and collect the marked script at the SAA-GE Reception Counter have the marked script returned to me by mail

(Please submit your script latest by 12th November 2012 for marking)

SAA GLOBAL EDUCATION CENTRE PTE LTD

Company Registration No. 201001206N 20 Aljunied Road, #01-04, CPA House, Singapore 389805 Tel: (65) 6744 9700 Fax: (65) 6744 9796 Website: www.saage.edu.sg Email: acca@saage.edu.sg

FOUNDATIONS IN TAXATION

FTX (SGP)

MOCK EXAMINATION FOR DECEMBER 2012

Time Allowed : 2 hours Tax rates and table provided Please refer to the Provision for Furnishing in Revision Kit

Section A : All ten questions are compulsory and must be attempted

1.

On 1 May 2011, Sicily Limited made a cash donation to an approved IPC for amount $5,000 in return for advertising space in their monthly magazine which would normally cost $1,500. How much is the tax deduction ? A B C D $3,500 $8,750 $12,500 $3,750

2.

If a non-Singaporean citizen employee decides to leave Singapore for more than ___________ months, IR21 has to be submitted 1 month or shorter. A B C D 1 6 2 3

3.

A company's year end is 31 October 2012, when is the due date for filing ECI? A B C D 31 January 2013 30 April 2013 30 November 2013 31 December 2012

4.

Lang was retrenched during the year 2011. The company gave Lang a retrenchment package as follows : $ Gratuity for past services Payment in lieu of notice Compensation for loss of office 50,000 40,000 150,000

What is the taxable amount ?

A B C D

$90,000 $240,000 $150,000 $190,000

5.

Under the PIC scheme, if businesses opt for the Cash Payout option, how much is the maximum cash payout for YA2011 and YA 2012 combined? A B C D $200,000 $30,000 $60,000 $800,000

6.

Grandparent Care-giver Relief of $3,000 is granted under the following conditions : A Child is Singapore citizen and 12 years and below, care-giver is not carrying on a trade, business, profession, vocation or employment

Child is Singapore citizen and 16 years and below, care-giver is not carrying on a trade, business, profession, vocation or employment, care-giver is living in Singapore Child is Singapore citizen and 16 years and below, care-giver is not carrying on a trade, business, profession, vocation or employment, relief can be given to husband or wife Child is Singapore citizen and 12 years and below, care-giver is not carrying on a trade, business, profession, vocation or employment, relief can be given to husband or wife

7.

Calculate the tax payable for a new company qualifying for full tax exemption with a trade income of $380,000 :

A B C D

$30,670 $30,600 $13,600 $47,600

8.

The relevant dates for carry forward of unabsorbed wear and tear allowances are :

last day of the Y/A which the capital allowance arose ; first day of the Y/A which the capital allowance is to be utilised first day of the Y/A which the capital allowance arose ; last day of the Y/A which the capital allowance is to be utilised last day of the year which the capital allowance arose ; first day of the Y/A which the capital allowance is to be utilised last day of the Y/A which the capital allowance arose ; first day of the year which the capital allowance is to be utilised

9.

Mebro Store sells a sofa set for $525 (GST inclusive) in exchange for an old cabinet for $100 (supply is for partly non-monetary consideration) How much is the value of supply ? A B C D $34.35 $525 $107 $490.65

10.

QBA6543Y, a car was bought in Jan 1998 for $70,000 and sold in July 2006 for $60,000. The company's year end is 31 January each year. Compute the balancing charge for the relevant YA A B C D $30,000 $10,000 $70,000 $23,000

Section B : All nine questions are compulsory and must be attempted Q1

Mr Paul Tan, a Singapore citizen, is the sole-proprietor of Paul Tan Consultancy. The following was computed for YA 2012 : Adjusted profits Capital allowances $98,500 $9,200 (as agreed with the Comptroller of Income Tax)

He also sits on the board of directors of Expat Services Pte. Ltd. The amount of director fees declared was $30,000. It was voted and approved for payment at the annual general meeting held on 31 March 2012.

His wife, Ada Tan, a Singapore citizen, received salary of $108,000 and bonus of $12,000 during the year 2011.

Ada Tan is also a sleeping partner of Rayne Trading. Profit distributed to her for year of assessment 2012 was $5,000.

They are both staying with Ada Tan's mother, who is fully maintained by them.

They have two children, Ashley born in year 1997 and Ashton, born in year 2005.

Paul Tan is a non-key command and staff appointment holder

The following additional information below relates to Mr Paul Tan and his wife Ada Tan for the year ended 31 December 2011 :

Paul Tan 1973 Interest from OCBC Bank Singapore one-tier dividend Net Rent/(Net Deficit Rent) Donations (IPC) NKF Singapore Cancer Society Moral Society Foreign Maid Levy Course Fees Statutory CPF Contributions Medisave Contributions 4,020 700 700 3,180 500 9,870

Ada Tan 1974 1,080 (2,030)

300 900 4,500 15,200

Election to offset deficit rent is available to Mr Paul Tan and Ada Tan

Required Compute the minimum tax liabilities of Mr Paul Tan and Ada Tan for the year of assessment 2012.

Q2

Ergo Pte Ltd is a company incorporated in year 2001. The company is a wholesaler of office furniture.

The Trading, Profit and Loss Account of the company for the financial year ended 30 June 2011 is provided below :

Notes Sales Less : Cost of Goods Sold Purchases Freight and handling charges

$ 2,850,880

1,076,520 229,920 1,306,440 1,544,440

Gross Profit Add : Income Other 1

8,200 1,552,640

Less : Expenses General and Admin Staff Selling and Distribution Finance and others

2 3 4 5

566,700 420,600 327,550 45,800 1,360,650 191,990

Net Profit before Tax

Notes to the accounts : (1) Other income consists of : Gain on sale of fixed assets Interests from banks

4,900 3,300

(2) General and Admin : Depreciation - equipment Insurance - equipment Legal fee : renew tenancy agreement Subscriptions - Furniture Association ACRA penalty Doubtful debts - general provision Rental - office and factory 282,000 65,600 3,500 5,500 1,500 34,600 174,000

(3) Staff : Salary & Wages CPF contributions Directors' salaries & bonus Directors' fees 220,500 71,700 120,000 8,400

(4) Selling and Distribution : Marketing & PR Advertising & Promotions 201,400 126,150

(5) Finance and Others : Bank interest Late payment interest 40,100 5,700

Required Compute the company's income tax liability for Y/A 2012

Q3

Elle Ltd incurred the following expenses for the construction of an industrial building during the year : $ 1. 2. 3. 4. 5. 6. 7. 8. Cost of land Legal fees for land purchase Cost of construction of canteen An office in the factory Cost of installing fittings Interest for loan on construction Architect fees for construction Cost of building roads in factory 2,250,000 8,200 80,000 26,000 32,000 39,400 29,300 13,600

Required Determine the qualifying cost for computing IBA

Q4

Crossroad Bakey is incorporated on 1 January 2010. The financial year end is 31 December. The details of their assets are :

Date of Purchase 15/05/10 30/05/10 12/09/11 10/10/11

Asset Type Machine (semi automatic) Office Furniture Computers Baking Machine (fully automatic)

Cost S$ 15,000 9,000* 19,000 8,000

* Bought on hire purchase : Deposit paid is 30%, paid over 36 instalments. The first instalment was due on 01/06/10. Total hire purchase interest was $1,800.

Required Calculate the maximum amount of wear and tear allowance claimable for year of assessment 2012.

Q5

Section 21 Election provides that a taxpayer may elect for any balancing charge for an old asset to be offset against the cost of the new asset. However, taxpayer must also take note of a few effects of electing Section 21.

List two effects of electing Section 21 :

(i)

(ii)

Section 24 provides that a taxpayer may avoid balancing adjustments if he makes a joint election with the buyer.

List two effects of electing Section 24 :

(i)

(ii)

Q6 Sam Brown is the General Manager of CVC Pte. Ltd. He has been working in Singapore since 2009. His remuneration for the year was $185,000. He received the following benefits from the company during the year 2011 : (a) He was provided with a car and a chauffeur. The car costs $180,000, excluding COE of $60,000. The Open Market Value if $50,000. The petrol and maintenance costs were paid by Sam. The chauffeur was paid a salary of $18,000 for the whole year. Statutory CPF contributions were $3,000. The total mileage of the car was 85,000 km for the year, of which, one quarter was for personal use.

(b)

A furnished apartment which the company paid $48,000 for annual rent and Sam contributed $800 a month. A gardener was engaged for the whole year. He was paid $50 a month by the company. The following furnishings were also provided at the apartment : Two pieces of soft furnishing One piece of hard furnishing Washing machine (one unit) Air conditioner : sitting room (one unit), bedrooms (three units)

(c )

The company also paid for the trips for Sam and his family to London during the year . $2,000 was paid for one trip. 1 return trip for Sam and his wife 1 return trip for Mrs Sam Brown to attend her sister's wedding ceremony 3 return trips for Sam Brown's daughter

Required Calculate the amount of benefits in kind assessable on Sam Brown for Y/A 2012

Q7 For each of the below : (a) Franco is working in GreenLand Development Ltd for the year 2011. He received a 25% discount on a $1.5 million condominium at Ocean Lane from the company when he bought the property. His cousin is only given a 5% discount as his cousin is not working at GreenLand Development Ltd. Franco is still holding on to the condominium at present.

Required Calculate any taxable income for Franco for Y/A 2012?

(b)

Heather was working at Jurgen Ltd in year 2011. Her monthly salary was $15,000 a month for the whole year. The company contributes CPF based on the salary drawn by staff. Recently, Heather attended the Basic Taxation Course and realised that the excess CPF contributions above the statutory in year 2011 will be taxable income on the employee. She was shocked as she will have to pay additional taxes.

Required Calculate the excess CPF contributions subject to tax for Y/A 2012.

(c )

Tamarind Ltd bought an NCD for $100,000 on 1 January 2010. The NCD will Mature on 31 December 2013. The interest rate is 10% per annum and interest is payable every half year on 30 June and 31 December. On 30 July 2011, Tamarind Ltd sold the NCD to Spices Ltd for $101,500.

Required (i) Calculate Tamarind Ltd's assessable income for Y/A 2011

(ii) Calculate Tamarind Ltd's assessable income f or Y/A 2012

Q8 Renata is the new accountant at Axily Pte Ltd. She was looking at the company's past few years' financial statements and realized that for the past few years, Axily Pte Ltd has been making losses and has capital allowances to be carried forward. The losses and capital allowances can be utilised to offset the profit this year.

$ Y/E 31.10.09 Adjusted Trade Losses Wear & Tear Allowances Y/E 31.10.10 Adjusted Trade Losses Wear & Tear Allowances Y/E 31.10.11 Adjusted Trade Profit Wear & Tear Allowances 110,000 15,000 75,000 18,000 220,000 45,000

Assume that the tests for utilisation of carried forward Wear and Tear Allowances is fulfilled.

The shareholders and shareholdings on :

Carrie Cala Cain Cathy Cassidy

31.10.09 30% 30% 40% -

31.12.09 45% 50% 5% -

31.10.10 55% 10% 5% 30% -

31.12.10 10% 90% -

31.10.11 10% 80% 10%

31.12.11 10% 80% 10%

Required Compute the chargeable income before exemption for the year of assessment 2012

Q9 Organic Pte Ltd (OPL) is a company trading in organic food products. OPL's current turnover is $910,000 for the quarter ended 31 March 2012. OPL is likely to apply to be a GST registered trader in the next quarter as OPL is sure the turnover will be above $1,000,000 at the end of the next quarter. OPL has a lot of queries regarding the responsibilities of being a GST registered trader. For each of the query listed below, state whether each is true or false. You are not required to give a reason for your answer.

(i)

OPL does not have to account for deemed output tax for fringe benefits to the employees

(ii)

Third country sales is an exempt supply

(iii)

The provision of financial services is an exempt supply

(iv)

The original time of supply rules will be the earlier of payment received and invoice issues

(v)

Export of goods is a zero rated supply

(vi)

For failure to register as a GST registered trader, the fine will be $10,000 and more, penalty equal to 10% of the tax due each year or part thereof since the taxpayer is required to make the notification

************************End of Paper***************************

SUPPLEMENTARY INSTRUCTIONS 1. Calculations and workings need only be made to the nearest $. 2. All apportionments should be made to the nearest month. 3. All workings should be shown. TAX RATES AND ALLOWANCES The following tax rates and allowances should be used when answering the questions. Selected reliefs/rebates for year of assessment 2012 Earned income relief Age Below 55 55 to 59 60 and above Spouse relief Handicapped dependant spouse relief Parents/Handicapped parents relief Parent NOT staying with taxpayer Parent staying with taxpayer Grandparent caregiver relief (GCR) Dependant handicapped sibling relief Normal $4,500 $7,000 Handicapped $8,000 $11,000 $3,000 $3,500 Normal $1,000 $3,000 $4,000 Handicapped $2,000 $5,000 $6,000 $2,000 $3,500

Foreign maid levy The relief is two times the amount of foreign maid levy paid in 2011 up to a maximum of $6,360. Nsman relief Key command staff appointment holder $5,000 $3,500 $750 $750 Non-key command staff appointment holder $3,000 $1,500 $750 $750

Active Nsman Non-active Nsman For wife of operationally ready Nsman For each parent of operationally ready Nsman

Provident fund Compulsory contributions to the Central Provident Fund (CPF)/approved pension or provident fund by Singaporeans and Singapore permanent resident employees, subject to not more than the statutory contributions under the Central Provident Fund Act. CPF top-up scheme Actual top-ups by individuals themselves and his/her employer capped at $7,000; and actual top-ups by individuals for family members capped at $7,000. Voluntary CPF contributions made by self-employed persons 36% of s.10(1)(a) assessable trade income capped at $30,600.

Life insurance Premiums paid on own life and wifes life insurance policies Restricted to (1) 7% of capital sum insured (2) $5,000 if CPF contributions claimed is less than $5,000 (3) No claim if CPF contributions claimed exceeds $5,000. Child relief Qualifying child relief (QCR) Per child Relief given for all qualifying children. Handicapped child relief (HCR) Per handicapped child Working mothers child relief (WMCR) 1st child 2nd child 3rd and each subsequent child Maximum cumulative WMCR per child (total of WMCR + QCR/HCR) Maximum total WMCR is capped at 100% of mothers earned income. Course fees Relief for course fees up to $5,500 can be claimed for eligible fees incurred on courses studied or seminars and conferences attended. Parenthood tax rebate (PTR) 1st child 2nd child 3rd and each subsequent child $5,000 $10,000 $20,000 $4,000

$5,500 15% of mothers earned income 20% of mothers earned income 25% of mothers earned income $50,000

Rebate given to all Singaporean children that are born or legally adopted on or after 1 January 2008.

[P.T.O.

Personal income tax rates Part A Chargeable income $ 20,000 10,000 30,000 10,000 40,000 40,000 80,000 40,000 120,000 40,000 160,000 40,000 200,000 120,000 320,000 320,000 Corporate tax rates Year of assessment 2012 Partial tax exemption Up to the first $10,000 of chargeable income: On the next $290,000 of chargeable income: Full tax exemption for new start-up companies Up to the first $100,000 of chargeable income: On the next $200,000 of chargeable income: 100% exemption 50% exemption 75% exemption 50% exemption Rate 17% Tax rate % 0 20 35 70 115 150 170 180 200 Tax $ 0 200 200 350 550 2,800 3,350 4,600 7,950 6,000 13,950 6,800 20,750 21,600 42,350

On the first On the next On the first On the next On the first On the next On the first On the next On the first On the next On the first On the next On the first On the next On the first Above

Productivity and Innovation Credit (PIC) years of assessment 2011 and 2012 Training (enhanced deduction) Prescribed automation equipment (enhanced capital allowance)

An enhanced deduction/allowance can be claimed at 300% on up to $400,000 of qualifying expenditure, instead of the usual deduction/allowance. The annual expenditure cap of $400,000 can be pooled to give a combined cap of $800,000 for the years of assessment 2011 and 2012.

Goods and services tax Standard rate Registration threshold 7% $1 million