CONFIDENTIAL 1 AC/FEB 2021/TAX467

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : TAXATION 1
COURSE CODE : TAX467
EXAMINATION : FEBRUARY 2021
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of five (5) questions.

2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of :

i) the Question Paper

ii) a four-page Appendix 1

5. Answer ALL questions in English.

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

This examination paper consists of 9 printed pages
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QUESTION 1

A. Ali, is a sole trader running a self-laundry business. On 5 February 2020 the Inland
Revenue Board (IRB) issued a notice of instalment payment under section 107B in
respect of income tax for YA 2020 amounted to RM510,000. Ali estimated his tax
liability for YA 2020 to be RM420,000 and requested for a variation of the installment
scheme. The IRB agreed and issued an amended notice of instalment payment of six
bi-monthly payment of RM70,000 each. Ali submitted his tax return (Form B) on 29
June 2021 and the actual income tax payable for YA 2020 is RM580,000.

Required:

With regards to the above, identify:

i. The type of form and the due date for request for variation of instalments.
ii. The amount of penalty for revision of instalments.
(6 marks)

B. Ortega, a Canadian engineer was employed by Weston Construction Sdn Bhd since
25 September 2014. He arrived in Malaysia on 21 September 2014. His periods of stay
in Malaysia were as follows:

YA Period of stays Note

2014 21 September – 31 December
2015 15 February – 16 March 1
21 July – 20 December 2
2016 11 January – 25 January
2017 12 August – 12 November
2018 1 January – 22 May
27 May – 23 October
2020 24 January – 30 April 3

Notes:

1. Ortega was diagnosed suffering a lung disease known as pulmonary fibrosis.

He went back to Canada for medical treatment from 17 March 2015 until 20
July 2015.

2. Ortega went to Vietnam attending a conference related to his field of work from
21 December 2015 until 10 January 2016.

3. He decided to end his employment contract and returned to Canada. He left

Malaysia permanently on 30 April 2020.

Required:

i. Determine the resident status of Ortega for the years of assessment 2014 until
2020. Support your answer with reasons.
(12 marks)
(Total: 18 marks)

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QUESTION 2

Harlina was a Human Resource President in Radox Sdn Bhd since 1 July 2015. On 1
September 2020, she took a one month paid leave before her resignation on 30 September
2020. She received compensation for loss of employment of RM162,000 and gratuity of
RM120,000 for services rendered. Her remuneration package for the year ending 30
September 2020 was as follows:

1. A monthly net salary of RM17,800 after deducting EPF of 11%.

2. She received parking allowances amounted to RM300 per month.

3. Entertainment allowance was received until September 2020 amounted to RM3,000

per month but she only spent three quarter (3/4) of such allowances for entertaining
clients.

4. The company paid her membership fees at Bukit Kiara Country Club amounted to
RM500 per month up to September 2020.

5. Harlina’s son went to Permata International School. The company paid her son’s
school fees RM2,000 per month until September 2020.

6. In February 2020, she went for her first vacation in Hawaii. It was fully paid by the
company for an amount of RM11,000. In May 2020, the company paid for her second
vacation expenses in Pulau Redang at a cost of RM5,400.

7. In March 2020, she had undergone a surgical treatment for her thyroid cancer in
Singapore costing RM50,000 paid by the company.

8. Immediately after her surgery, she hired a nurse for RM6,000 to take care of her during
her one-month medical leave in April 2020. This amount was reimbursed by the
company.

9. The company rented a fully-furnished bungalow for RM6,000 per month (inclusive of
furniture rental of RM2,000 per month) for her accommodation up to 31 August 2020.
She stayed at Legacy Hotel for the whole month of September 2020. The room rate
was RM220 per day.

On 1 November 2020, Harlina joined a controlled company, Actel Sdn Bhd, as the Managing
Director. She received monthly director fees of RM25,000 and monthly travelling allowance
of RM3,500. She was also provided with a fully furnished service condominium with a rental
value of RM8,000 per month (inclusive of furniture rental of RM2,500 per month) since 1
December 2020. A new Mercedes Benz costing RM249,000 was provided with fuel together
with a driver when she joined the company.

Required:

Calculate the statutory employment income of Harlina for the year of assessment 2020.
(15 marks)
(Total: 15 marks)

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QUESTION 3

Dr. Dona has been operating a clinic; DONA Ear Nose and Throat (ENT) Specialist Centre in
Temerloh, Pahang since 2015. She engaged you to prepare her tax computation for the year
of assessment 2020. The following is the Statement for Profit or Loss accounts for the year
ended 31 December 2020.

DONA ENT Specialist Centre

Statement for Profit or Loss for the year ended 31 December 2020
RM RM
Sales 580,000
Cost of sales (310,000)
Gross profit 270,000

Add: Other income

Dividend (single tier) 10,000
Commission 1 380
280,380
Less: Expenses
Remuneration 2 63,400
Rental 3 30,000
Bad debts 4 3,900
Donation 5 600
Printing and stationery 6 2,426
Income tax 7 6,600
Entertainment 8 1,760
License and registration 9 1,710
Utilities bills 10 5,700
Repairs and maintenance 11 3,900
Medical expenses 12 4,800
Bank charges 13 5,400
Advertisement 2,400
Legal fees 14 3,930
Insurance 15 4,469
Depreciation 8,700 (149,695)
Profit before tax 130,685

Additional information:

1. The commission was received from Brawn medical supplies Sdn Bhd.

2. Remuneration consists of:

Employee Salary (RM) Bonus (RM) EPF (RM)

Dona 24,000 - -
Aida 12,800 2,100 2,700
Arul (physically disabled) 15,800 2,500 3,500
TOTAL 52,600 4,600 6,200

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3. Dona rented a three-storeys shop house. The clinic is operated on the ground floor.
Dona and her family occupy the first floor, while the second floor is used as a store for
medical supplies.

4. Bad debts amounted to RM700 was related to a loan given to her sister-in law.

5. Cash donation of RM600 was contributed to Masjid Temerloh Jaya.

6. Printing and stationery consist of:

RM
Printing of invoices and medical certificate 1,568
Printing of 2020 diary with business logo 508
Dona’s son stationery 350

7. Income taxes amounted to RM3,200 and RM3,400 was paid for Dona and the business
respectively.

8. Entertainment consists of:

RM
Lunches and refreshment for trade suppliers 760
Dona’s and staff’s holiday in Cameron Highland 1,000

9. RM1,610 was paid for the business’s license and RM100 for Dona’s registration fee at
Temerloh fitness centre.

10. 60% of the utility’s bills were incurred solely for business purpose.

11. Repairs and maintenance consist of:

RM
Repairs of medicine cabinet storage 200
Repairs of first-floor toilet 1,300
Renovation of clinic’s office. 2,400

12. Medical expenses of RM4,000 and RM800 were incurred for the employees and
Dona’s children respectively.

13. Bank charges include RM320 interest charged on Dona’s personal loan.

14. Legal expenses include RM1,280 on legal fees for recovery of trade debts and
RM2,700 for Dona’s income tax appeal.

15. Insurance consists of:

RM
Life insurance premium for Dona 1,189
insurance for employees 2,780
Dona’s professional indemnity insurance premium 500

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16. The unabsorbed capital allowance from previous year of assessment amounted to
RM3,670 and current year capital allowance is RM2,450.

Required:

a. Assuming Dona paid an insurance premium of RM500 per month to ZNN General
Insurance Bhd for her medical supplies inventory and the whole building of Dona ENT
Specialist Centre was damaged on fire. The insurance company paid RM50,000 for
the loss of inventory.

Discuss briefly on the tax treatment of the above.

(3 marks)

b. Commencing with profit before tax, calculate the statutory business income of Dona
ENT Specialist Centre for YA 2020.

Note: You should indicate ‘nil’ for any item referred to in the question which no
adjusting entry needs to be made in the computation.
(17 marks)
(Total: 20 marks)

QUESTION 4

Ramli and his wife Aliyah are both tax residents in Malaysia for the basis year 2020. Below
are the details of their incomes and expenditures for the year of assessment 2020.

Ramli
Sole proprietorship business:
RM
Adjusted income 35,000
Balancing charge 10,000
Capital allowance 10,000
Unabsorbed loss from 2019 (5,000)

Income from other sources:

i. Ramli works as an engineer and received a monthly net salary of RM5,260 after
deducting EPF and SOCSO contributions of RM660 and RM80.

ii. Dividend from Wasco Energy Bhd (single tier) amounted to RM14,400

iii. Interest on loan to an employee amounted to RM550.

iv. Monthly rental income of RM1,800 from his house in Petaling Jaya since March 2020.
The following expenses were incurred in connection to the house.

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RM
Monthly Fire Insurance premium 150
Installation of Air Conditioned 5,000
Annual Quit Rent and assessment 1,500

v. Royalty of RM 25,000 for translation of book at the request of work the Ministry of
Education.

Aliyah
Partnership business:
RM
Adjusted loss (5,000)
Balancing charge 10,000
Capital allowance 5,000

Income from other sources:

i. Aliyah works as an interior designer and earns a monthly net salary of RM3,960 after
deducting EPF and SOCSO contributions of RM495 and RM45 respectively.

ii. Dividend from Amanah Saham Malaysia amounted to RM4,000.

iii. Income from freelance modelling amounted to RM25,000 from Sugarscaff.

Additional Information:

i. Ramli paid RM6,500 and RM3,200 for his father’s and daughter’s (Salwa) medical bills
respectively. Salwa was diagnosed with colon cancer.

ii. Ramli bought a wheelchair costing RM4,000 for his disabled father.

iii. Life insurance and medical insurance premiums paid during the year 2020 were as
follows:
Ramli Aliyah
(RM) (RM)
Life insurance 2,300 1,000
Medical insurance 1,000 1,800

iv. Ramli and Aliyah incurred RM580 and RM700 respectively on purchased of reading
materials in the basis year 2020.

v. Donations to approved institutions:

Ramli Aliyah
(RM) (RM)
Cash contribution to Malaysian National Cycling Association 500 400
2 Laptops to Rumah Anak Yatim Shah Alam 5,500

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vi. Ramli and Aliyah paid zakat of RM2,000 and RM1,000 respectively in the basis
year 2020.

vi. Details of Ramli and Aliyah children:

Zainal - Age 25, married and studying in Universiti Malaya

Zaidi - Age 22, a student at the University of Wales
Zainol - Age 20, a student at the University of Victoria
Saniah - Age 17, studying at Sekolah Menengah Sains, Johor
Salwa - Age 12, disabled child and homeschooling

Note: Aliyah has elected for the child relief.

Required:

a. Describe any three (3) ways on how Ramli could minimize his tax liability in the
future.
(3 marks)

b. Calculate the income tax payable/tax refund of Ramli and Aliyah for the year
for assessment 2020. Aliyah did not elect for joint assessment.
(22 marks)
(Total: 25 marks)

QUESTION 5

A. Discuss the tax implications on disposal of asset/s in agriculture business that has
been used within 1 month before disposal.
(3 marks)

B. Razor Enterprise (accounting year end on 31 December each year) owned the
following asset for the use of its printing business.

.1 Major Xerox Machine

Acquisition date : 30 April 2019

Acquisition price : RM125,000
Deposit : RM25,000
Interest per month : RM500
No of installment : 10 times
(first installment due on 31 May 2019)
Note: However, the machine was sold on 1 August 2020 for RM75,000.

.2 Refrigerator

This refrigerator was previously used for private purpose.

Date of purchased : 2017
Date of transferred : May 2018
Market value at the date of transfer : RM5,000
Net Book Value at the date of transfer : RM3,000
This asset was sold on December 2020 for RM5,000
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.3 Mitsubishi Lancer (second hand)

The car was acquired on 1 January 2019 at a value of RM88,000.

Required:

Compute the Schedule 3 allowances and balancing charge/balancing allowances (if

any) for all the relevant years of assessment up to year of assessment 2020.

(10 marks)

C. Spa-Q Sdn Bhd has been in operation for 5 years. Due to high demand, Spa-Q Sdn
Bhd decided to construct a factory to manufacture its own cosmetic products. In
February 2019, Spa-Q Sdn Bhd bought a land where an existing industrial building has
been previously located. The total costs involved were RM3.5 million. The factory was
completed and put into operation on 1 January 2020. Spa-Q Sdn Bhd closes its
accounts on 31 December annually.

The breakdown of the total cost above is shown below:

RM
Cost of land 1,000,000
Demolition of an existing factory building 45,000
Legal fees for:
• Agreement for purchase of land 65,000
• Agreement with the contractor 25,000
Architect fees and building plan 30,000
Wiring and plumbing 70,000
Cost of internal roads 40,000
Construction costs 2,225,000
TOTAL 3,500,000

The floor space of the building was utilized in the following manner:

Production floor 75%

Warehouse 13%
Administrative office 12%
100%

In April 2020, Spa-Q constructed another building as a canteen and recreation room
for its employees at a cost RM450,000. In addition, Spa-Q also constructed a building
as a living accommodation for its employees at a cost of RM700,000.

Required:

Calculate the industrial building allowances of Spa-Q for the year of assessment 2020.
(9 marks)
(Total: 22 marks)

END OF QUESTION PAPER

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