QUESTION PAPER

Time allowed 3 hours

This paper is divided into two sections

Section A ALL THREE questions are compulsoryand MUST be answered

Section B THREE questions ONLY to be answered

Tax rates and tables are on pages 2 to 3

MODULE D � CERTIFICATE STAGE

JUNE 2001

Tax Framework(Malaysia)

Pape

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Candidates are reminded to apply the current year basis even where questions are set in respect of past years.

The following tax rates and allowances are to be used when answering the questions.

Rate of Income Tax(a) Company 28%

(b) Resident IndividualChargeable Income Rate Cumulative Tax

RM RM 0 � 2,500 0% 0

2,501 � 5,000 1% 255,001 � 10,000 3% 175

10,001 � 20,000 5% 67520,001 � 35,000 9% 2,02535,001 � 50,000 15% 4,27550,001 � 70,000 20% 8,27570,001 � 100,000 25% 15,775

100,001 � 150,000 28% 29,775Remainder 29%

Personal AllowancesRM

Self 8,000Fees for education 2,000 maximumMedical costs for serious diseases (self, wife or child) 5,000 maximumMedical expenses for parents 5,000 maximumBasic support equipment 5,000 maximumWife 3,000Children 800 eachLife insurance premiums, contributions to EmployeesProvident Fund and other obligatory contributions toother approved schemes 5,000 maximumApproved EPF insurance policy 1,000 maximumEducation/medical insurance premiums 3,000 maximumTax rebate 110 + 60 for wife

Car BenefitsCost of car when new Annual value of BIK Fuel per annum

RM RM RMUp to 50,000 1,200 600

50,001 � 75,000 2,400 90075,001 � 100,000 3,600 1,200

100,001 � 150,000 5,000 1,500150,001 � 200,000 7,000 1,800200,001 � 250,000 9,000 2,100250,001 � 350,000 15,000 2,400350,001 � 500,000 21,250 2,700500,001 � and above 25,000 3,000

Fuel Provided Without MotorcarThe actual value of fuel provided is treated as a benefit received.

Driver ProvidedThe value of the benefit is fixed at RM300 per month.

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Real Property Gains TaxIndividual Rate of TaxDisposal within two years of acquisition date 30%Disposal in the third year after acquisition date 20%Disposal in the fourth year after acquisition date 15%Disposal in the fifth year after acquisition date 5%Disposal in the sixth year after acquisition dateand thereafter Nil

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Section A � ALL THREE questions are compulsory and MUST be attempted

1 Moveway Sdn Bhd is engaged in the business of providing removal services. Its profit and loss account for the yearended 31 March 2001 is as follows:

Note RM000 RM000Sales 10,031Fixed deposit interest 34

10,065Less:Salaries and wages 1 2,896Less:Bonus 2 720

Employees Provident Fund contributions 3 540Lease rentals 4 48Insurance 5 145Motor vehicles expenses 6 183Compensation 7 411Legal and professional fees 8 26Advertisement 9 64Bad and doubtful debts 10 97Training 11 72General expenses 12 32Depreciation 366Entertainment expenses 13 37

5,637

Profit before taxation 4,428Taxation 1,199

Profit after taxation 3,229

Notes:

(1) Salaries and wagesThis includes a payment of RM16,000 to induce a new employee to join the company and he did so on 1 April2000.

(2) BonusAll staff were paid three months� bonus.

(3) Employees Provident FundThe company contributed 15% of the employees� remuneration.

(4) Lease rentalsThe company leased a car for the managing director at RM4,000 per month for 14 months commencing on1 February 2000.

(5) InsuranceThis includes a premium of RM9,000 on the life of the managing director. The beneficiaries are the immediatefamily of the managing director.

(6) Motor vehicles expensesThis includes RM1,000 gain from the sale of a truck.

(7) Compensation comprises: RMCompensation to clients for goods damaged. 11,000Compensation to a mover company for agreeing to close downone of its two branches in Peninsular Malaysia 400,000

411,000

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(8) Legal and professional fees comprise: RMLegal expenses incurred in contending a suit of wrongfuldismissal filed by a truck driver 18,000Legal costs in connection with a mover company�sagreement to close down one of its branches 8,000

26,000

(9) Advertisement includes RM10,000 in respect of:As a co-sponsor of a home-ownership campaign the company undertook to provide free home-moving service forthe first three winners of the contest for the campaign. The cost of the home-moving in respect of the first twowinners amounted to RM7,000. The company made a provision of RM3,000 in respect of the third winner whowas expected to move in June 2001.

(10) Bad and doubtful debts comprise: RMGeneral provision brought forward (40,000)General provision carried forward 78,000Bad debts written off 36,000Bad debts recovered (12,000)Specific provision brought forward (25,000)Specific provision carried forward 60,000

97,000

Of the bad debts written off, RM4,000 is the amount embezzled by an accounts clerk. Of the amount recoveredRM2,000 is in respect of the balance of a personal loan granted to an ex-employee.

(11) Training includes the following:A sum of RM39,000 incurred in sending the company�s employees to attend courses conducted by the NationalProductivity Centre (NPC). A letter from the institution certifying such attendance was attached to the tax return.

(12) General expenses comprise: RMPreliminary expenses written off 5,000Cost of building a child care centre for employees 23,000Cash donation to a cancer foundation (approved by IRB) 4,000

32,000

(13) Entertainment expenses comprise: RMLeave passages for senior executives 28,000Reimbursement of expenses to executives forentertaining clients 9,000

37,000

(14) The unused capital allowance brought forward from the previous year of assessment amounts to RM380,000.The capital allowance for the year of assessment 2001 is RM315,000

(15) The company has an unabsorbed loss of RM299,000 brought forward from the previous year of assessment.

Required:

(a) Compute the chargeable income of Moveway Sdn Bhd for the year of assessment 2001. Every itemmentioned in the notes to the accounts must be shown in your computation, indicating it with �Nil� where noadjustment is necessary. (16 marks)

(b) Explain your treatment of each of the items mentioned in the notes. (12 marks)

(28 marks)

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2 Encik Suhaimi, an employee with an electrical company, commenced two years unpaid study leave on 1 April 2000 toacquire technical skills at Universiti Tenaga Nasional. His income for the year end 31 December 2000 is as follows:

RMRemuneration 1 January to 31 January 2,500Royalty from a postal company for the rightto use an original painting 22,000Dividend (net of tax) 360

Encik Suhaimi incurred expenses and claimed tax reliefs as follows:RM

Employees Provident Fund contributions 275Employees Provident Fund insurance policy 800Medical expenses for his father (receipt submitted) 2,900Tuition fees � Universiti Tenaga Nasional 3,000

He claimed child relief in respect of:

� First child, unmarried, born on 12.8.1980, a second year student at Universiti Malaya. Encik Suhaimi spentRM3,000 on her maintenance.

� Second child, unmarried, born on 1.11.1981, a first year student at the University of Singapore. Encik Suhaimispent RM7,000 on his maintenance and education.The child received a total income of RM800 from his uncle.

� Third child, born on 1.2.2000 was legally adopted by Encik Suhaimi�s sister on 8.10.2000.

Wife

Puan Atika, a general manager of Simi Group Berhad received the following income and benefits in the year 2000:RM

Salary 16,000 per monthBonus 32,000Entertainment allowance 2,500 per month

Bills paid by the companyWater, electricity and telephone 6,400Insurance premiums in respect of a life policy on PuanAtika. Her husband and children are the beneficiaries 2,500Reimbursement of the monthly salary of RM700 ofa domestic servant employed and paid for by Puan Atika

Car and fuel provided 1 April to 31 DecemberThe company incurred the following expenses in respect of a new car:

RMCost of the car 146,000Insurance premium and road tax 7,000Fuel 6,500

A driver at a salary of RM800 per month employed by the company from 1 July 2000.

Fuel provided 1 January to 31 MarchPrior to the purchase of the new car she used her own car and the company incurred RM2,200 on fuel.

AccommodationThe company provided her with a house rented at a monthly rental of RM8,000 (rental of furniture and householdappliances excluded). Puan Atika paid RM1,500 per month to the employer.

Household furnishingsThe monthly rental paid by the company for the household furnishings and appliances amounts to RM400. The annualvalue of BIK based on the Inland Revenue Board guidelines is RM3,360.

Share option schemeOn 9 August 2000 an option for the purchase of 8,000 units of the company�s shares was offered to Puan Atika atRM2·50 per share. The market value at the time was RM5·50 per share. Puan Atika purchased 6,000 units on

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5 January 2001 when the market price was RM5·60 per share. She purchased the remaining 2,000 units on 1 March2001 when the market price was RM5·80 per share.

The following claims were made in respect of Puan Atika RMEmployees Provident Fund contributions 27,940Employees Provident Fund insurance policy 1,000Rental paid to the employer 18,000Entertainment expenses incurred on company�s clients 34,800Donations to approved institutions 9,300Medical expenses for her mother (receipt submitted) 4,000

She elected for joint assessment.

Required:

Compute the tax payable by Encik Suhaimi and Puan Atika for the year of assessment 2000.

(26 marks)

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3 (a) Mr Somchit, a Thai national, arrived in Malaysia on 11 March 1995 and left Malaysia permanently on30 September 2000. Details of his stay in Malaysia are as follows:

Year Date Days1995 11 March to 6 September 1801996 1 July to 31 December 1841997 1 January to 5 January 51998 3 June to 21 August 80

1 September to 10 October 401999 1 April to 10 April 102000 21 March to 19 May 60

1 June to 29 September 121Left Malaysia permanently on 30 September at noon

Mr Somchit remitted to Malaysia foreign income of RM5,000 in 1995 and RM10,000 in 1998.

Required:

(i) State each of the years for which you consider Mr Somchit to be a resident in Malaysia, in each case give thereason or quote the relevant sub-section of the Income Tax Act, 1967 in support of your findings. (5 marks)

(ii) State with reasons whether or not the foreign income remitted to Malaysia is subject to Malaysian tax.(2 marks)

(iii) State the circumstances in which a temporary absence from Malaysia would be accepted as part of the periodof more than 181 days for purposes of determining the residence status of an individual. (3 marks)

(b) Song Yong Sdn Bhd commenced operations on 1 October 2000. The company will close its accounts on30 September 2001 and thereafter on 30 September.

Required:

(i) By what date must Song Yong furnish an estimate of its tax payable to the Inland Revenue Board?(1 mark)

(ii) When will Song Yong have to commence payment of tax and how many instalments will be allowed to thecompany? (2 marks)

(13 marks)

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Section B � THREE questions ONLY to be attempted

4 Mr Leong, his wife Jeni, and daughter Alice are Malaysian citizens. They disposed of properties as follows:

Disposal in 1998 � bungalow house

Mr Leong owned a bungalow house which had been rented out for several years. He sold it for RM750,000 on 9 September1998 and incurred agents fees of RM7,500 to find a buyer.

The bungalow was bought for RM490,000 on 3 July 1995 and expenses incurred were as follows:RM

Stamp duty and legal fees 8,800Cost of completely replacing the roof on21 July 1995 which IRB disallowed deductionagainst the rental income because it represented asubstantial improvement on the original roof 60,700

In 1997 he received a deposit of RM5,000 from an intended buyer which was forfeited because the sale was aborted.

Disposal in 1999 � double storey terrace house

This house was registered in the name of Jeni. She bought it for RM240,000 on 1 March 1996 and sold it forRM330,000 on 24 June 1999. Mr Leong and his family occupied the house prior to the disposal. Mr Leong had nevermade an election for exemption of a private residence. Jeni, on the other hand, had made an election for exemption inrespect of the disposal of another private residence disposed of prior to her marriage.

Disposal in 2000 � single storey terrace house

A single storey terrace house owned by Mr Leong was transferred to his daughter Alice on 2 April 1998 as a wedding gift.Mr Leong bought the house on 12 June 1994.

Expenses incurred by Mr Leong were:RM

Consideration paid for the purchase 108,000Stamp duty 1,080Cost of renovation in 1997 38,020

In May 1999 Alice received insurance money of RM20,000 for damages caused by fire in the house next door. Alice soldthe house on 17 January 2000 for RM170,000.

Required:

(a) In regard to the double storey terrace house, state with reasons whether or not the disposal qualifies for exemptionas a private residence. (3 marks)

(b) Compute the real property gains tax payable in respect of Mr Leong�s sale of the bungalow house and Alice�s saleof the single storey terrace house. (8 marks)

(11 marks)

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5 Mrs Gomez, the sole proprietor of a laundry service prepared the following sets of accounts:

Accounting Date Adjusted IncomeRM

Year ended 31 December 2000 13,5001 January to 31 March 2001 2,900Year ended 31 March 2002 15,000

Required:

(a) Determine the basis periods and the adjusted income for the years of assessment 2000, 2001 and 2002 inrespect of the above business. (7 marks)

(b) Define the overlapping period covered by two of the years of assessment and explain your treatment of theadjusted income that falls within such period. (2 marks)

(c) Explain, with examples, what is meant by �basis year� and �basis period� for a year of assessment. (2 marks)

(11 marks)

6 (a) Total Realty, a registered valuer and real estate agent, is licensed for the purposes of service tax. It rendered thefollowing services:

� Procured the sale of a condominium located in Kuala Lumpur for a Singaporean owner. The agent travelled toSingapore to meet the owner. Telephone and courier charges were included in the invoice;

� Maintained and managed a commercial complex in Singapore for a Hong Kong company;

� Conducted market research on pricing trends of properties in various locations in Singapore for the publisherof a magazine published in Labuan.

Required:

State, with reasons, whether or not the above services are subject to service tax. (7 marks)

(b) Globe Management Services Sdn Bhd which commenced business on 1 April 2000 closes its first accounts on31 March 2001 and thereafter to 31 March. The company provides management services. Its sales turnover is asfollows:

RM RM2000 April 5,000 2001 January 45,000

May 8,000 February 14,000June 12,000 March 16,000July 20,000 April 35,000August 22,000 May 55,000September 32,000 June 62,000October 40,000 July 110,000November 15,000 August 190,000December 10,000 September 85,000

Required:

(i) Explain what is meant by �annual sales turnover� in determining the threshold limit for the purposes ofservice tax. (1 mark)

(ii) What is the threshold limit for Globe Management Services under the Service Tax Regulations, 1975?(1 mark)

(iii) At what point in time is Globe Management Services regarded as a taxable person? (1 mark)

(iv) What must the company do in order to be in a position to charge service tax in its invoices? (1 mark)

(11 marks)

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7 (a) Mr Ho will be receiving a gratuity of RM78,000 upon his retirement on 30 June 2003, his 57th birthday. He hasbeen employed as a marketing executive with Marktrend Sdn Bhd since 1 May 2001. Prior to that he wasemployed by the holding company of Marktrend Sdn Bhd from 1 April 2000.

Required:

Explain to Mr Ho whether or not his retirement gratuity will be exempt from income tax. If not, how wouldthe lump sum be taxed? (5 marks)

(b) Mr Chow received a notice of assessment for the year of assessment 2000 (current year basis). It is a combinedassessment showing tax payable of RM2,175. The aggregate of Mr Chow and his wife�s total income amounts toRM48,000 of which his wife�s total income is RM28,000. His wife refused to pay her tax on the ground that shedid not receive the notice of assessment. She argued that her husband should pay the tax for both of their incomesas the assessment was made on him. Mr and Mrs Chow were contemplating a divorce. Late payment penalty of10% and 5% had been imposed.The couple come to the Inland Revenue Board to have the matter resolved.

Required:

Assuming you are a tax officer in the Collections Branch of the Inland Revenue Board explain to Mrs Chow theprovisions in the law with regard to her position and the amount of tax /penalty she is required to pay, if any.

(6 marks)

(11 marks)

8 (a) What do you understand by a �taxable period� for purposes of sales tax? Give an example. (1 mark)

(b) Builtup Sdn Bhd, a manufacturer of building materials licensed under the Sales Tax Act sold taxable goodsamounting to RM50,000 to a trading company in Kuala Lumpur. The sale was made on 6 November 2000 andsales tax was charged to the customers and paid to the Customs Department on 15 May 2001.

Required:

Compute the sales tax payable together with the penalty which will be imposed for failing to pay the tax ontime.

(5 marks)

(c) Plasware Sdn Bhd, a manufacturer of plastic products disposed of a machine to its wholly-owned subsidiarycompany, Trendware Sdn Bhd for RM35,000. The machine was purchased at a cost of RM100,000 on 20 April1997 and was in use for the business of the transferor company from that date up till the time of its disposal on17 May 2001. Trendware did not bring the machine into use. Both companies close their accounts on31 December.

Required:

State, with reasons, the capital allowances or balancing charges applicable to each company for the year ofassessment 2001. Use the rate of annual allowance of 14% throughout. (5 marks)

(11 marks)

End of Question Paper