Taxation
BKAT3023 ADVANCED TAXATION FINAL ASSESSMENT SECOND SEMESTER 2019/2020 SESSION COURSE CODE & NAME: BKAT3023 ADVANCED TAXATION DATE : 9 - 12 JULY 2020 TIME: 9 JULY (8.30 AM) – 12 JULY (8.30 AM) LECTURERS’ NAMES : MUZAINAH MANSOR & ARYATI JULIANA SULAIMAN LECTURERS’ GROUPS : B,D & A,C,E INSTRUCTIONS: 1. This paper contains FIVE (5) questions in EIGHT (8) printed pages excluding the cover page. 1. Answer ALL the questions. 1. The answers should be in the form of Microsoft Word. 1. The answers should be submitted through UUM Online Learning. MATRIC NO : ____________________________________ ( in words ) ( in numbers ) IDENTIFICATION CARD NO. : GROUP : Do the right thing even when no one is looking - it’s called Integrity BKAT3023 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL QUESTION 1 (20 MARKS) A. Luxury Leather Sdn Bhd (LLSB), located in Subang Jaya is a distributor of leather car seats. It obtained its leather from various suppliers in Europe. In the year 2019, the company purchased a key-man endowment policy on the life of the managing director, Mr Alberto, with the company as the beneficiary. The annual premium payable is RM60,000 and the sum assured is RM600,000. Under the direction of the managing director, the company’s profit has increased by 20% each year for the last five years. REQUIRED: Discuss whether the annual premium RM60,000 is tax deductible. (2 Marks) B. Optimizer Sdn Bhd has been established for over 10 years. The company is resident in Malaysia since its incorporation. Its principle activity is manufacturing audio equipment in Malaysia. The accounts are made up to 31 December every year. For the year ended 31 December 2019, the company’s statement of comprehensive income is as follows: Optimizer Sdn Bhd Statement of Comprehensive Income for the year ended 31 December 2019 Note RM’000 RM’000 Sales 601,712 Less: Cost of sales 1 (12,066) Gross profit 589,646 Add: Other incomes Gain on disposal of shophouse 2 8,000 Rental of storage space 3 4,000 Interest from overdue trade debtors 300 12,300 Less: Expenses Marketing and distribution 4 9,712 Administration and finance 5 569,458 Miscellaneous 6 1,000 (580,170) Net profit before taxation 21,776 Notes: 1. Cost of sales RM’000 i. Amortization of property, plant and equipment used in the manufacturing activities. 1,366 ii. Acquisition of a proprietary rights owned by a Singaporean company in respect of a patented goods delivery system. This system enables the company to take and deliver orders in an efficient manner to customers. 600 iii. Royalty paid to Australian company on 12 October 2019. However, no penalty paid to IRB for late remittance of withholding tax on 7 December 2019. 100 2. Gain on disposal of shophouse The company acquired this property in 2014 for RM26,420,000. It was originally used as a showroom for the company’s manufactured products. 3. Rental of storage space The company owns an old warehouse where both raw materials and finished goods are stored. Excess space in the warehouse is rented out to third parties. No support services are provided in respect of the space rented out. Annual fire insurance premium for the storage space paid is RM100,000. 4. Marketing and distribution include: RM’000 i. Sponsorship of foreign arts and cultural activities 800 ii. Sponsorship of local arts and heritage activities. 1,200 iii. Contribution to a non-governmental organization, which was established exclusively for the conservation and protection of the environment, for its tree planting project in a public park adjoining a coastline. The approved project is headed by the wife of the Executive Chairman of the company. 120 iv. Registration of a patent overseas to facilitate the export of its audio equipment to China and Japan which are two of its major markets in Asia. 160 v. Entertainment for potential customers during launching new model of speaker 600 vi. Wedding gift to a regular customer on his marriage to a Korean actress during the year. 20 vii. Free gifts and lucky draw prizes for customers during Hari Raya sales promotion. 800 viii. Realized loss on foreign exchange arising from foreign trade debtor settlement. 100 ix. Realized loss on account of an import of a machine used for quality testing of its audio equipment. 40 x. Negotiation of an agreement to export company’s audio equipment by three marketing managers. This include hotel accommodation and sustenance for four nights. The visit in June 2019 was a follow up to a trade and investment mission to China and Japan organized in January 2019 by a local industrial association of which the company is a member. 5. Administration and finance include: RM’000 i. Statutory audit fees 100 ii. Legal fees for GST refund appeal against the Customs was taken up by its lawyers. 120 iii. Income tax filing fees 24 iv. Secretarial fees 14 v. Interest on loan taken to expand its production facility for goods exported to China and Japan. 1,400 vi. Guarantee fees paid to AceBeeSee Bank on the outstanding loan liability 800 vii. Commitment fee on the loan taken by one of the directors’ wife 1,000 viii. Directors’ fees, employee salary and wages 300,000 ix. Employee provident fund contribution 66,000 x. Approved pension scheme contribution for senior staff 6 6. Miscellaneous Donation of speakers and audio equipment to selected colleges (approved institutions) in Penang worth RM400,000 in conjunction with its anniversary celebrations. The balance of the expenditure is sundry expenses fully qualifying for deduction. Additional information: Capital allowance claimed for the current year of assessment is 10,000,000. REQUIRED: Compute the chargeable income for Optimizer Sdn Bhd for the year of assessment 2019 by showing all relevant tax adjustments. (Note: Your answer must list every item stated in the income statement and notes. Indicate ‘NIL’ where no adjustment is necessary). (18 Marks) QUESTION 2 (20 MARKS) SuburUtara Sdn Bhd is an investment holding company not listed on the Bursa Malaysia. Information related to investments, gross incomes and expenses for the year of assessment 2019 for the business is presented below: Item RM Incomes Gross dividend from RaisingShine Bhd 150,000 Gross dividend from CocoMata Ltd. (Australian company) 130,000 Gross dividend from Andaman Bhd 80,000 Distribution of income from Cahaya Real Estate Investment Trust (REIT) 60,000 Distribution of income from Majujaya Unit Trust 45,000 Interest income from investment in bond 30,000 Rental income 140,000 Gains from realisation of investments 250,000 Management services fees 52,000 Expenses Directors’ fees 30,000 Salaries, wages and allowances 25,000 Office rent and maintenance fee 28,000 Audit fee 6,000 Secretarial and accounting fees 5,000 Taxation fee 4,000 Telephone bill 10,000 Printing, stationery and postage costs 6,300 Quit rent and assessment (property for rental) 1,500 Interests expense on dividend 250,000 REQUIRED: (a) Compute the total income for SuburUtara Sdn Bhd for the year of assessment 2019. (18 Marks) (b)If SuburUtara Sdn Bhd is listed on Bursa Malaysia, briefly explain the tax treatment for: (i)income derived from the holding of investments, and (ii)direct and common expenses related to the income source. (2 Marks) QUESTION 3 (20 MARKS) A trust, resident in Malaysia for tax purposes set up by Encik Muhamad has five beneficiaries. They are Aminah, Ibrahim, Aishah, Osman dan Ismail. All beneficiaries are resident in Malaysia for the year of assessment 2019. The income of the trust body for the year ended 31 December 2019 is as follows: Business Rent Rent Dividend Interest (Malaysia) (Malaysia) (Australia) (Malaysia) (China) RM RM RM RM RM Gross income 600,000 72,000 40,000 20,000 10,000 Revenue expenditure 140,000 16,000 12,000 - - Depreciation of plant and machinery 20,000 - - - - Renovation of building - 3,000 - - - Capital expenditure 80,000 8,000 - - - Additional information: (i) Half of the trust income is to be distributed to Aminah and Ibrahim at the discretion of the trustees. The balance of the trust income is to be distributed to Aishah and Osman in the ratio of 1:3 respectively. (ii) RM4,000 per month is to be accumulated for the benefit of Ismail until the year 2030. (iii) The trustees are to be paid a total fee of RM72,000 per annum. (iv) Annuity paid to the widow amounted to RM84,000 per annum. (v) Sum received by Aminah and Ibrahim are RM140,000 and RM70,000 respectively. (vi) Rental from Australia and interest from China were remitted to Malaysia. REQUIRED: (a) Calculate the chargeable income of the trust body for the year of assessment 2019. (14 Marks) (b) Calculate the statutory income of each beneficiaries for the year of assessment 2019. (6 Marks) QUESTION 4 (20 MARKS) A.Koperasi KitarJaya Bhd was established 20 years ago. For the year ended 31 December 2019, the co-operative reports the following income and expenditure: RM RM Income Sales Membership fees Dividend income Rental income Interest income 1,500,000 460,000 13,000 48,000 30,000 2,051,000 Expenditure Audit fees Board meeting allowances Salaries and bonus Employment Provident Fund (EPF) Insurance Entertainment Traveling Telephone, postage and stationery Repairs and maintenance Depreciation Utilities Donation 10,000 28,000 48,000 5,000 11,000 4,000 43,000 29,000 13,000 38,000 13,000 3,000 (245,000) Net profit 1,806,000 Additional information: i. The amount of donation