AC/APR 2006/TAX320

CONFIDENTIAL

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE

TAXATION 1

COURSE CODE

TAX320

EXAMINATION

APRIL 2006

TIME

3 HOURS

INSTRUCTIONS TO CANDIDATES
1.

This question paper consists of five (5) questions.

2.

Answer ALL questions. 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:

iv)
v)

the Question Paper

an Answer Booklet - provided by the Faculty
a one-page Appendix 1
a two-page Appendix 2
a one-page Appendix 3

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

This examination paper consists of 9 printed pages
Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

r_
CONFIDENTIAL

AC/APR 2006/TAX320

QUESTION 1
(a)

Ms Supapom, a Thai national, arrived in Malaysia in 2001 and left Malaysia

permanently in 2005. The history of her stay in Malaysia is as follows:
Year
2001
2002

In Malaysia
4 May to 30 October *
4 November to 10 November
13 March to 8 September**

No of days
180 days
7 days
180 days

2003

2 January to 30 November***

334 days

2004

2 February to 12 February

2005

3 January to 30 April

11 days
118 days

She went to Singapore for a short holiday on 31 October 2001 to 3 November 2001.
** She went to India for medical treatment from 9 September 2002 to 1 January 2003.
*** She was away on holiday in England from 1 Disember 2003 to 1 February 2004.
Required:
Determine the residence status of Ms Supaporn for the years of assessment 2001 to
2005 inclusive, giving reasons for each answer.
(12 marks)
(b)

Encik Toh is planning to start a construction firm in Johore Bahru. He plans to employ
twenty employees and hire a few more as his business expands. He is not very sure
about the concepts of the self-assessment system and the requirements of the Inland
Revenue Board in respect of his responsibilities as an employer.
Required:
(i)

Explain the concepts underlying a self-assessment system.

(5 marks)

(ii)

Explain the responsibilities of a sole-proprietor with regard to the payment of

tax on income generated from the business.
(2 marks)

(iii)

Advise Encik Toh on his responsibilities as an employer in relation to the

provisions of the Income Tax Act, 1967?
(6 marks)
(Total: 25 marks)

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

AC/APR 2006/TAX320

CONFIDENTIAL
QUESTION 2

Encik Norman is engaged in the business of mini market business for several years in
Perak. His Trading and Profit and Loss Account for the year ended 31 December 2005 is as
follows: Trading and Profit and Loss Account for the year ended 31 December 2005
Notes
RM
RM
Sales
Less:
Add:

Less:

Cost of sales

Dividend
Fixed deposit interest

Staff remuneration
Freight and insurance
Finance charges
Miscellaneous expenses
Repairs and maintenance
Bad debts
Depreciation
Fees and donation
Rental of premises
Water and electricity
Net profit before taxation

3
4
5
6
7
8

308,800
126,800
182,000
20,000
3,500

71,500
8,600
3,800
5,900
2,600
9,700
13,000
5,000
7,000
6,500

9
10

23,500
205,500

133,600
71,900

Notes to the accounts:

1.

Cost of sales
Cost of sales includes donation of goods of RM13,300 to charitable institutions. The
selling price of these goods totaled RM15,000.

2.

Dividend income
Dividend income comprises of RM10,000 from Tronoh Berhad, a resident company
in Malaysia, RM6.000 from Suria Pte Ltd from Singapore (remitted) and also
RM4.000 from Amanah Saham MARA.
Staff remuneration consists of:

Encik Norman
Employees

Hak Cipta Universiti Teknologi MARA

Salaries
RM
25,000
26,000

Bonus
RM
4,000
6,500

EPF
RM
3,000
7,000

CONFIDENTIAL

CONFIDENTIAL

4.

AC/APR 2006/TAX320

Insurance comprises:
Life insurance for Encik Norman and his wife
Fire insurance for the premise
Educational insurance for his children

RM
3,600
3,000
2,000

5.

Finance charges include the interest expense of RM2.000 which is attributable to a

loan taken to finance the investments in Tronoh Berhad and Suria Pte Ltd.

6.

Miscellaneous expenses comprise:

Annual dinner for employees

Leave passage for employees to Pulau Tioman on 15 May 2005
Reimbursement of expenses to executives for entertaining clients
Loss on sale of fixed asset
7.

Repairs and maintenance comprise:

Maintenance of a van (business)

Installation cost for air-conditioning
Renovation of premise
8.

RM
2,500
1,000
400
2,000

RM
800
700
1,100

Bad debts comprise:

General provision brought forward

General provision carried forward
Bad debts written off
Bad debts recovered
Specific provision brought forward
Specific provision carried forward

RM
(4,000)
7,800
3,600
(1,200)
(2,500)
6,000

Of the bad debts written off, RM400 is the amount embezzled by the accounts clerk.
Of the amount recovered, RM500 is in respect of the balance of a personal loan
granted to an ex-employee.
9.

Fees and donations comprise:

Cash donation to Majlis Kanser Nasional (approved)

Zakat payment
Penalty for late payment of income tax
Trade debt collection fees

Hak Cipta Universiti Teknologi MARA

RM
2,000
1,500
500
1,000

CONFIDENTIAL

CONFIDENTIAL

10.

AC/APR 2006/TAX320

Rental of premises
Encik Norman rented a double storey shop house. The first floor was used for the
business and the second floor was for his family.

11.

The unused capital allowance brought forward from the previous year of assessment
amounted to RM3,800. The capital allowance for the year of assessment 2005 was
RM3.300 and the balancing allowance was RM850.

Required:
Starting with net profit before tax, compute the statutory business income of Encik Norman
for the year assessment 2005. (Indicate 'nil' or'-' in the appropriate column for every item
that does not require any adjustment).
(Total: 20 marks)

QUESTION 3
Encik Haidar, 47 years old, is tax resident in Malaysia. He provides the following details
regarding his income for the basis year 2005: -

1.

Business income
Business 1
RM
200,000

Adjusted income (Loss)

Business 2
RM

(100,000)

There was an unabsorbed loss of RM15,500 brought forward from the year of
assessment 2004.
2.

Income from other sources:

Dividend

Telekom Bhd (Malaysia - net)

KT Mobile Corp. (Korea)
(remitted on 20 December 2005)

Rental

House in Kangar
Gross income
Allowable expenses

RM15.500
RM10,500

House in Seri Iskandar

Gross Income
Allowable expenses

RM36.000
RM10.000

Interest

Hak Cipta Universiti Teknologi MARA

Received from Bank Islam (from a deposit

of RM40,000 in an investment account for
12 months period)

RM4.500
RM7.000

RM2.000

CONFIDENTIAL

CONFIDENTIAL

Royalty

2.

AC/APR 2006/TAX320

Received for the translation of books at

the request of the Attorney General's
Chamber

RM20.000

Additional information:
a.

Encik Haidar has two wives, both are resident in Malaysia for the basis year
2005. His first wife, Puan Natasha was unemployed since she was diagnosed
with leukemia two years ago. Encik Haidar spend RM15,000 on her medical
treatment and also bought a wheel chair costing RM7.500 for her use. He
has receipts as proof of expenditures incurred.

b.

His second wife, Puan Izleen, is a nurse. She earns a salary of RM3.009.50
per month, net of deductions of RM390.50 and RM150 for EPF and income
tax respectively.

c.

Encik Haidar and Puan Natasha are blessed with 3 children:

(i)

Hazrina - age 23, studying in University Putra Malaysia, married

with no child.

(ii)

Haidarina - age 20, under articleship with an accounting firm in United

Kingdom and earned RM4.000 for the year 2005. Encik Haidar spent
RM55.000 for her maintenance in The United Kingdom.

(iii)

Nazman - age 18, blind, studying at a school for the blind in Shah
Alam

d.

Puan Izleen has 2 children from her previous marriage. She obtained full
custody of her 6 years old child, Izanee, who is handicapped owing to an
accident three years ago and Izura, age 3, who is legally adopted.

e.

Particulars of donations and other payments made during the year are as
follows:
Encik Haidar
(i)
Donation to a public school for disabled children
(ii)
Political party
(iii)
Zakat

RM
250
500
2,000

Puan Izleen
(i)
Zakat
(ii)
Donation to Majlis Kanser Nasional - an approved institution
f.

200
200

Insurance policies taken are as follows:

Premium paid by Encik Haidar
(i)
Life insurance for himself
(ii)
Life insurance for Puan Natasha
(iii)
Medical insurance for Nazman

Hak Cipta Universiti Teknologi MARA

RM1.500
RM2.500
RM1.800
CONFIDENTIAL

CONFIDENTIAL

AC/APR 2006/TAX320

Premium paid by Puan Izleen

(i)
Life insurance for herself
(ii)
Life insurance for Izanee
(iii)
Educational insurance for Izura

RM1,500
RM1.000
RM900

g.

During the year, Encik Haidar and Puan Izleen spent RM500 and RM200
respectively on reading materials.

h.

Puan Izleen bought a computer at the cost of RM5.000 for her personal use.

Required:
Compute the income tax payable for Encik Haidar and Puan Izleen for the year assessment
of 2005, assuming that Puan Izleen did not elect for joint assessment.
(Total: 25 marks)

QUESTION 4
Indah Enterprise Sdn Bhd is involved in the manufacturing of sweets and confectionery. The
company commenced its operations on 1 October 2001, and closes its accounts on 30
September every year. Information regarding investments in fixed assets transactions are
given below:
a.

1 July 2001 - Purchased an equipment for RM200,000, and incurred additional

expenditure of RM20,000 in preparing the site for installing the equipment. On 1 June
2003, Indah Enterprise Sdn Bhd had to stop production temporarily for a year due to
the cancellation of a contract by a major importer. Due to financial difficulty, the
equipment was sold for RM 100,000 on 1 March 2004. (Annual allowance rate was
14%.)

b.

1 September 2002 - Purchased a computer for RM15,000. Due to rapid technology

changes, on 1 June 2004 Indah Enterprise Sdn Bhd decided to invest in a new
computer costing RM30,000. The old computer was traded in for the new computer,
and Indah Enterprise Sdn Bhd paid the balance of RM20,000 in cash. The disposal
was commercially justifiable. (Annual allowance rate was 40%.)

c.

31 December 2002 - Purchased a Toyota car for the General Manager. Indah
Enterprise Sdn Bhd obtained financing from Maybank Finance on the following
terms:
Margin of financing
80%
Cash purchase price
RM155,000
Duration of loan
2.5 years
Installment per month RM4,400 commencing on 30 January 2003
The Inland Revenue Board has agreed that one quarter (1/4) of the car was used for
private purpose. The car was sold in 20 July 2005 for RM95,000. (Annual allowance
rate was 20%.)

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL

AC/APR 2006/TAX320

Required:
Compute the capital allowance, balancing charge/allowance for all relevant years of
assessment up to year assessment 2005.
(Total: 12 marks)

QUESTION 5
Harith Iskandar was appointed Vice President of the Finance division of Starz Bhd since 1
April 1995. His service was terminated on 31 July 2005 as his health condition deteriorated.
He was paid gratuity and compensation for loss of employment of RM135,000 and
RM50,000 respectively. Details of his remuneration for 2005 are as follows:
a.

His salary was RM11,950 per month after deducting EPF at the rate of 11% and
Income tax of RM1,400 under the scheduler tax deduction.

b.

Harith was given servant and entertainment allowances of RM600 and RM2,000
respectively per month.

c.

He also received bonus equivalent to RM45,000 for the year 2005.

d.

On 1 February 2005, he was offered an option to purchase 10,000 units of the

company's shares at RM1.50 per share. The shares were then traded at RM6.00
each on the KLSE. He exercised the option in July 2005 when the market price was
RM5.50.

e.

An unfurnished apartment was provided to Harith until 30 June 2005. The rental paid
by the employer was RM900 per month. Harith was required to pay an additional
RM200 per month as rental for the accommodation. He was provided with hotel
accommodation for the entire month of July 2005. The room rate was RM150 per
day.

f.

A Nissan Cefiro costing RM 155,000 (new on the road in 1999) and a driver was
provided to him until 31 July 2005. The driver was paid a salary of RM900 per month
by the company.

g.

He went for a vacation in Australia for 5 days with his wife and all expenses were
paid by the company. These amounted to RM8,500 for air tickets, RM5,500 for hotel
accommodation and RM2,000 for food.

h.

In April 2005, he went for a week-long "Effective Leadership course" in New York.
The company spent RM30,000 on this program which included RM6.000 for air
tickect, RM 10,000 for food and lodging and the balance as the fee for the course.

i.

An Indonesian maid has been hired by Harith since year 2000 and she was paid
RM500 per month. This sum was fully subsidized by the company.

j.

In January 2005, he received medical treatment at Subang Jaya Medical Center. The
company paid RM30,000 for the treatment.

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL
k.

AC/APR 2006/TAX320

Harith incurred entertainment and travelling expenses of RM16,000 and RM3.000

respectively. These sums were fully expensed in carrying out his official duties.

Required:
Calculate the adjusted and statutory income from employment for Harith Iskandar for the
year of assessment 2005.
(Total: 18 marks)

END OF QUESTION PAPER

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL

APPENDIX 1

AC/APR 2006/TAX320

THE TAX RATES APPLICABLE WITH EFFECT FROM YA 2002

Chargeable Income

(RM)

Rate (%)

Tax Payable
(RM)

On the first
On the next

2,500
2,500

0
1

0
25

On the first
On the next

5,000
5,000

25
150

On the first
On the next

10,000
10,000

175
300

On the first
On the next

20,000
15,000

475
1,050

On the first
On the next

35,000
15,000

13

1,525
1,950

On the first
On the next

50,000
20,000

19

3,475
3,800

On the first
On the next

70,000
30,000

24

7,275
7,200

On the first
On the next

100,000
50,000

27

14,475
13,500

On the first
On the next

150,000
100,000

27

27,975
27,000

On the first

250,000

Above

250,000

54,975
28

Selected Personal Deductions

Self
Wife/husband
Child - basic
Life insurance and approved schemes

Hak Cipta Universiti Teknologi MARA

RM
8,000
3,000

1,000
6,000 maximum

CONFIDENTIAL

AC/APR 2006/TAX320

APPENDIX 2(1)

CONFIDENTIAL

TAXABLE VALUE OF MOTOR VEHICLES PROVIDED BY EMPLOYER

Annual Value
RM

New Vehicles Costing

RM
50,000

Fuel (per annum)

RM

and below

1,200

600

50,001

75,000

2,400

900

75,001

100,000

3,600

1,200

100,001

150,000

5,000

1,500

150,001

200,000

7,000

1,800

200,001

250,000

9,000

2,100

250,001

350,000

15,000

2,400

350,001

500,000

21,250

2,700

and above

25,000

3,000

500,001

Others

Types of BIK
Mobile telephone (rental and charges)
Driver
Gardener
Domestic servant

Hak Cipta Universiti Teknologi MARA

Annual value of BIK

RM
600
7,200
3,600
4,800

CONFIDENTIAL

AC/APR 2006/TAX320

APPENDIX 2 (2)

CONFIDENTIAL

PRESCRIBED AVERAGE LIFE SPAN

Prescribed
Average life span

Asset
(1)

Motorcar

8 years

(2)

Furniture and fittings:

Curtains, carpets
Furniture, sewing machine
Air-conditioner
Refrigerator

5 years
15 years
8 years
10 years

Kitchen equipment (i.e. crockery, rice cooker, electric

kettle, toaster, coffee-maker, gas cooker, dryer,
food processor, etc)

6 years

Entertainment and Recreation

Piano
Organ
Colour television, video player, stereo set
Swimming pool (detachable), sauna

20 years
10 years
7 years
15 years

Miscellaneous
Mobile telephone

10 years

(3)

(4)

(5)

VALUE OF BENEFITS
(i)

Semi-furnished with furniture in the lounge,

dinning room, or bedrooms

)
)

RM70 per month

(RM840 per annum)

(ii)

Semi-furnished with furniture as in (i) above and

one or more of the following:
Air-conditioners
Curtains
Carpets

)
)
)

RM140 per month

(RM1,680 per annum)

)
)

RM280 per month

(RM3.360 per annum)

(iii)

Fully-furnished with benefits as in (i) and

(ii) above plus one or more of kitchen
equipment, crockery, utensils and appliances

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL

APPENDIX 3

AC/APR 2006/TAX320

Capital Allowances - Plant and machinery

Assets
Computers, information technology equipment
and computer software
Motor vehicles, heavy machinery
Plant and machinery - general
Office equipment, furniture and fittings

Hak Cipta Universiti Teknologi MARA

Annual allowance rates

40%
20%
14%
10%

CONFIDENTIAL