Preparing Taxation Computations

(Malaysia)
ACCA CERTIFIED ACCOUNTING TECHNICIAN EXAMINATION ADVANCED LEVEL TUESDAY 12 DECEMBER 2006

QUESTION PAPER Time allowed 3 hours ALL FOUR questions are compulsory and MUST be answered Tax rates and allowances are on pages 23

Do not open this paper until instructed by the supervisor This question paper must not be removed from the examination hall

The Association of Chartered Certified Accountants

Paper T9(MYS)

The following tax rates, allowances and values are to be used in answering the questions. Rates of income tax Resident company Paid up capital RM2,500,000 or less More than RM2,500,000 Chargeable income First RM500,000 In excess of RM500,000 20% 28% 28% 28% 28%

Non-resident person (company and individual) Resident individuals Chargeable income RM RM 2,500 (02,500) 2,500 (2,5015,000) 15,000 (5,00120,000) 15,000 (20,00135,000) 15,000 (35,00150,000) 20,000 (50,00170,000) 30,000 (70,001100,000) 150,000 (100,001250,000) 250,000 Rate % 0 1 3 7 13 19 24 27 28

First Next Next Next Next Next Next Next Exceeding

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

Personal reliefs and allowances Self Disabled self Medical expenses expended for parents Medical expenses expended on self, spouse or child with serious disease, including up to RM500 for medical examination Basic supporting equipment for disabled self, spouse, child or parent Fees expended for skills or qualifications Expenses on books for personal use Spouse relief Disabled spouse Child Disabled child Life insurance premiums and contributions to approved provident funds Medical or education insurance premiums for self, spouse or child Rebates Resident individual chargeable income up to RM35,000 Resident individual who has been given a deduction in respect of wife (or former wife) or husband chargeable income up to RM35,000 additional Purchase of personal computer RM 350 350 500 RM 8,000 6,000 5,000 5,000 5,000 5,000 700 3,000 3,500 1,000 5,000 6,000 3,000

maximum maximum maximum maximum maximum

each each maximum maximum

Rates of real property gains tax Disposal within the following period after acquisition Individual Citizen or Non-citizen and permanent non-permanent resident resident % % 30 30 20 30 15 30 5 30 nil 5 Value of benefits in kind Car benefit scale Cost of car (when new) RM up to 50,000 150,001175,000 175,001100,000 100,001150,000 150,001200,000 200,001250,000 250,001350,000 350,001500,000 500,001 and above Prescribed annual value of private usage of car 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 Company

Within two years In the third year In the fourth year In the fifth year In the sixth year and thereafter

% 30 20 15 5 5

The value of the car benefit equal to half the prescribed annual value (above) is taken if the car provided is more than five years old, but the value of fuel provided remains unchanged. Where a driver is provided by the employer, the value of the benefit is fixed at RM600 per month. Other benefits Household furnishings, apparatus & appliances Semi-furnished with furniture in the lounge dining room, or bedrooms Semi-furnished with furniture as above and one or more of the following: air-conditioners, curtains, carpets Fully furnished premises Domestic servant Gardener Capital allowances Initial allowance (%) rate 20 20 20 10 20 Annual allowance (%) rate 20 14 10 3 40

RM70 per month

RM140 RM280 RM400 RM300

per per per per

month month month month

Motor vehicles and heavy machinery Plant and machinery Office equipment, furniture and fittings Industrial building Computer, information technology equipment & computer software

[P.T.O.

ALL FOUR questions are compulsory and MUST be attempted 1 Alex and Zizah are husband and wife, and both are directors of AToZ Bhd, a public-listed company. Upon attaining 55 years of age, Alex retired from the company on 30 June 2005. At his retirement, Alex had served 25 years of continuous service with AToZ Bhd. During the period 1 January to 30 June 2005, Alex was provided with a company car (which had cost RM185,000 when new), free fuel and a driver. The car, fuel and the driver benefits ended when he retired. Zizah was provided with free accommodation by AToZ Bhd throughout the year 2005 in a fully-furnished condominium. The monthly rental was RM5,000 for the premises and RM1,000 for the furnishings. Other information relating to Alex and Zizahs income and expenditure for the year ended 31 December 2005 is as follows: Alex RM Income Directors fees Retirement gratuity Travelling allowance Malaysian dividend A (net of tax) Malaysian dividend B (exempt) UK dividend Interest on fixed deposits in Maybank Interest on a personal loan to a friend Expenditure EPF contributions Medical insurance Books and magazines First personal computer for home use Heart by-pass surgery Full medical check-up The travelling allowance was fully expended by Zizah on company business. Alex has a share in a restaurant business. For the year of assessment 2005, Alexs partnership share of the partnership loss amounted to RM73,135. Alex and Zizah have a twenty-year-old daughter attending university in Kuala Lumpur and a two-year-old legallyadopted son. Required: Assuming that there is no election for combined assessment and that Zizah claims for child relief, compute the income tax payable/repayable for the year of assessment 2005 by: (a) Alex; and (b) Zizah (19 marks) (14 marks) 100,000 850,790 8,640 10,000 5,250 2,700 11,000 5,900 650 3,900 42,390 950 Zizah RM 120,000 36,000 1,800 13,200 1,200 670

Give brief reasons for your treatment of Alexs retirement gratuity; the UK dividend; and the interest on the fixed deposits in Maybank. Indicate by the use of nil any item referred to in the question for which no adjusting entry needs to be made in the tax computation. Show all workings. Marks will be awarded for the use of accurate technical terms to describe the figures calculated at various stages of the computation. (33 marks)

On 2 January 2005, Pedro and Liam commenced a car repair business under the partnership name of Pedroliam Mekanik. They each hold a half share in the partnership business. The statement of profit and loss for the year ended 31 December 2005 in respect of Pedroliam Mekanik is as follows: RM Sales & service charges Less: Expenditure Salary for Pedro Salary for Liam Workshop rental Van fuel, upkeep and maintenance Interest on capital to Pedro Spares, lubricants etc Workshop utilities Depreciation 48,000 48,000 10,800 16,782 3,475 21,052 9,741 6,950 (164,800) (15,300) RM 149,500

Net loss

The van, which is the only fixed asset of the partnership, was acquired on 8 January 2005 for RM69,500. Required: (a) Compute the capital allowance in respect of the van for the year of assessment 2005 and state the residual expenditure for the van at the end of the year of assessment 2005. (4 marks) (b) Compute the provisional adjusted income/(loss) and divisible income/(loss) of the partnership. (5 marks)

(c) Compute the statutory income from Pedroliam Mekanik for Pedro and Liam for the year of assessment 2005. (7 marks) Marks will be awarded for the use of accurate technical terms to describe the figures calculated at various stages of the computations in parts (a) to (c). (d) (i) State, giving reasons, whether Pedroliam Mekanik is subject to the service tax provisions in the year 2005; (4 marks) (2 marks) (22 marks)

(ii) State the prevailing rate of service tax and the duration of a taxable period.

[P.T.O.

Mr A, a Malaysian citizen, incurred the following costs when he acquired a piece of land on 1 December 2001: Cost of land Legal fees Stamp duty RM 356,000 2,478 6,122

Thereafter he incurred RM518,000 on building a house on the land. Mr A placed an advertisement to sell the land and house in January 2005. A prospective buyer paid Mr A a deposit of RM14,600 but could not raise the funds to complete the purchase. Mr A then forfeited the deposit in April 2005. On 28 November 2005, Mr A agreed with Mr B to sell the land and house for RM1,800,000. The sale and purchase agreement was signed on 5 December 2005. In selling the land and house, Mr A incurred the following expenses: Advertisement Valuation fees Real estate agents fee Required: (a) Compute the real property gains tax liability of Mr A, clearly identifying the date of disposal. Marks will be awarded for the use of accurate technical terms to describe the figures calculated at various stages of the computations. (13 marks) (b) State the date by which Mr A must submit the disposers return to the Director General of Inland Revenue. (2 marks) (c) Explain, for the purposes of real property gains tax, the responsibilities of Mr B (as acquirer of the real property) with regard to: (i) the filing of a return; and (2 marks) (2 marks) (19 marks) RM 4,500 1,750 36,000

(ii) the retention of money.

Dee Sdn Bhd commenced manufacturing natural fibres in February 2005. By the end of its first financial year, on 31 December 2005, it had: employed managerial and production employees; paid a royalty to the American patent holder; paid interest to a Malaysian bank in respect of a loan; and paid technical fees to experts who came from America to transfer their expertise to Dees Malaysian employees.

Required: (a) Explain the requirements under the Income Tax Act 1967 that Dee Sdn Bhd, as an employer, must comply with in respect of its employees (i) when they are newly recruited; (2 marks) (2 marks) (3 marks)

(ii) when paying their monthly salaries; and (iii) at the end of the calendar year 2005. (b) In respect of each of the payments of royalty, interest and technical fees: (i) explain briefly whether the withholding tax provisions are applicable;

(9 marks) (2 marks) (4 marks)

(ii) assuming the withholding tax provisions are applicable, state the rate of withholding; and (iii) state the consequences of non-compliance with the withholding tax provisions. (c) State the due date by which Dee Sdn Bhd should: (i)

submit its tax return and settle the balance of tax payable for the year of assessment 2005; and (2 marks) (2 marks) (26 marks)

(ii) provide the estimate of tax for the year of assessment 2006.

End of Question Paper

Answers

ACCA Technician Examination Paper T9(MYS) Preparing Taxation Computations (Malaysia) 1 (a) Alex Tax computation for the year of assessment 2005 RM Employment income Directors fees Gratuity (Exempted: retirement at 55 years and served more than 10 years) Car benefit (7,000 1/2) Driver benefit (600 6) Fuel (1,800 1/2) Statutory income from employment Dividends Malaysian dividend A (8,640/72 100) Malaysian dividend B (exempt) UK dividend (foreign remittance exempt) Statutory income from dividends Interest from bank fixed deposit (exempt or tax already deducted) Aggregate income Less Current year business loss from the partnership Total income Less reliefs: Personal relief EPF contribution (restricted to maximum) Medical insurance (restricted to maximum) Medical expenses for serious disease Heart surgery Full medical check-up Total Restricted to maximum Books and magazines 8,000 6,000 3,000 42,390 950 43,340 5,000 650 12,000 nil nil RM

December 2006 Answers and Marking Scheme Marks

RM 100,000 nil 3,500 3,600 900 108,000

1/ 2 1/ 2

1 1 1 1

1
1/ 2 1/ 2

+ 1/2

12,000 nil 120,000 (73,135) 46,865

1/ 2

+ 1/2

1/ * 2

1
1/ * 2 1/ 2

1 1

1
1/ 2

Chargeable income Tax on first 20,000 Tax on next 4,215 at 7% Tax charged Less rebates: Individual chargeable income less than RM35,000 Purchase of personal computer Restricted to amount of tax charged Less s.110 set-off (8,640/72 28%) Tax refund 350 500 850

22,650 24,215 47500 29505 77005

1/ * 2

1/ 2 1/ 2 1/ 2

77005 nil (3,36000) (3,36000)

1 1 19
1/ * 2

Note: Marks indicated with a * are awarded for the allocation of the appropriate description to the figure calculated, not for the figure itself.

11

Marks (b) Zizah Tax computation for the year of assessment 2005 RM Employment income Directors fee Travelling allowance Section 13(1)(a) income Benefit in kind: house furnishings (280 x 12) Living accommodation [(s.13(1)(c)]: Defined value: 5,000 x 12 = 60,000 30% of section 13(1)(a) income = 30% x 156,000 = 46,800 The lower Gross income from employment Less allowable deductions: Travelling (fully expended) Adjusted/statutory income from employment Interest income Aggregate/total income Personal reliefs Self 20-year-old child Adopted child EPF contribution (restricted to maximum) Books and magazines (restricted to maximum) Full medical check-up (restricted to maximum) 8,000 4,000 1,000 6,000 700 500 (20,200) 151,760 14,47500 13,97520 28,45020 RM 120,000 36,000 156,000 3,360
1/ 2 1/ 2

1 1 1 1

46,800 206,160 (36,000) 170,160 1,800 171,960

1
1/ * 2 1/ 2

1 1 1 1 1

Chargeable income Tax on first RM100,000 On next RM51,760 at 27% Tax charged

1/ * 2

1/ 2 14 33

Note: Marks indicated with a * are awarded for the allocation of the appropriate description to the figure calculated, not for the figure itself.

12

Marks 2 (a) Capital allowance for the van RM Qualifying plant expenditure Initial allowance 20% Annual allowance 20% 13,900 13,900 27,800 41,700 RM 69,500 1 1 1

Residual expenditure

1 4
1/ 2 1/ 2 1/ 2 1/ 2 1/ 2

(b)

Partnership business Net loss Add Salary to Pedro Salary to Liam Interest to Pedro Depreciation

(15,300) 48,000 48,000 3,475 6,950 106,425 91,125 48,000 48,000 3,475 (99,475) (8,350)

Provisional adjusted income Less partners benefits Salary to Pedro Salary to Liam Interest to Pedro

1/ * 2 1/ 2 1/ 2 1/ 2

Divisible income/(loss)

1/ * 2 5

(c)

Partners statutory income Pedro 1/ share of divisible loss from Pedroliam Mekanik 1/ x 8,350 2 2 Add Partners salary 48,000 Interest on capital 3,475 Adjusted income Less 1/2 of capital allowance on the van Statutory income from Pedroliam Mekanik Liam share of divisible loss from Pedroliam Mekanik 1/2 x 8,350 Add Partners salary
1/ 2

(4,175)

1
1/ 2

1 51,475 47,300 (13,900) 33,400 (4,175) (48,000) 43,825 (13,900) 29,925

1
1/ * 2

1
1/ 2

Adjusted income Less 1/2 of capital allowance on the van Statutory income from Pedroliam Mekanik

1 7
1/ * 2

(d)

Service tax (i) Whether service tax provisions are applicable An operator of motor vehicle service and/or repair centres is a taxable person providing a taxable service for the purposes of service tax. However, the annual sales turnover must exceed RM150,000 for the service tax provisions to apply. As Pedroliam Mekaniks annual turnover for 2005 was less than RM150,000, the service tax provisions are not applicable to Pedroliam Mekanik for the year 2005.

1+1 1 1 4

13

Marks (ii) The rate of service tax and the duration of a taxable period The prevailing rate of service tax is 5%. The taxable period is normally two calendar months. 1 1 2 22

(a)

Computation of real property gains tax for Mr A RM Disposal date: 5 December 2005 date of written agreement Sale consideration Less Enhancement cost construction of house Less incidental costs Advertisement Valuation fee Real estate agents fee RM 1 1,800,000 518,000 1,282,000 4,500 1,750 36,000 42,250 1,239,750 356,000 2,478 6,122 364,600 14,600 350,000 889,750 88,975 800,775 40,03875
1/ 2

1 1 1

Disposal price Acquisition date: 1 December 2001 Purchase consideration of land Legal fees Stamp duty Less deposit forfeited Acquisition price Chargeable gain Schedule 4 exemption Greater of 10% of 889,750 or 5,000

1/ * 2 1/ 2

1 1 1
1/ * 2 1/ * 2

Disposal in the 5th year RPGT at 5%

1/ 2

1 13

(b)

State the date by which Mr A must submit the disposers return The return by the disposer must be submitted within 1 month of the date of the disposal. Therefore Mr A must submit the return by 4 January 2006.

1 1 2
1/ 2 11/2 2

(c)

Responsibilities of the acquirer Mr B (i) Mr B must file a return notifying the acquisition of the real property within 1 month of the date of acquisition i.e. by 4 January 2006.

(ii)

Mr B must retain 5% of the sale consideration i.e. RM90,000 (1,800,000 5%) and await instructions from the Director General i.e. to pay over to the DGIR or to release the money to the disposer upon receipt of the certificate of clearance from the DGIR.

1
1/ 2 1/ 2 2 19

Note: Marks indicated with a * are awarded for the allocation of the appropriate description to the figure calculated, not for the figure itself.

14

Marks 4 (a) Compliance requirements re the employees (i) At recruitment Within one month of the recruitment of the new employees, Dee is required to notify the DGIR by providing their full names and addresses.

1 1 2 1 1 2 1 1 1 3

(ii)

Payment of monthly salaries Dee must make schedular tax deductions according to the prevailing tax deductions table prescribed by the DGIR, and pay over the tax deducted to the DGIR by the 10th day of the following month.

(iii) At the end of the calendar year Dee must prepare the annual statement of income in the prescribed form (Form EA) for each employee who has been employed by the company during the basis year. It also must furnish the employers return in the prescribed form (Form E) ot the DGIR.

(b)

Withholding tax (i) Whether withholding tax provisions applicable Royalty Paid to a non-resident, and Royalty Royalty is derived from Malaysia because it was paid by a resident Royalty Therefore withholding tax provisions are applicable Interest Paid to a resident, Interest Therefore withholding tax provisions are not applicable Technical Interest Interest Interest fees Paid to a non-resident, and Technical fees are derived from Malaysia because it was paid by a resident; and The services were performed in Malaysia. Therefore withholding tax provisions are applicable

1 1 1 1 1 1 1 1 1 9 1 1 2 1 1 1 1 4

(ii)

Rate of withholding tax Royalty 10% of gross Technical fees 10% of gross

(iii) Consequences of non-compliance with the withholding tax provisions The payer would have to bear the withholding tax There would be a penalty of 10% of the gross payment The payment (royalty or technical fees) would not be tax deductible until and unless the withholding tax and the 10% penalty have been paid by the payer

(c)

Due dates (i) Tax return and balance of tax for YA2005 As Dee closed its accounts on 31 December 2005, the due date for submitting its tax return and payment of the balance of tax is seven months after the close of accounts i.e. 31 July 2006

1/ 2

1 2
1/ 2 1/ 2 1/ 2

(ii)

Tax estimate for YA2006 The tax estimate must be provided to the DGIR not later than 30 days before the beginning of the basis period for the year of assessment 2006. As the basis period for the year of assessment 2006 began on 1 January 2006, 30 days before that date was 2 December 2005.

1 2 26

15