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Solution Tax667 - Dec 2016
Solution Tax667 - Dec 2016
Solution Tax667 - Dec 2016
SUGGESTED SOLUTION
TAX 667
SOLUTION 1
A.
TI (RM) DI (RM)
Business income: M’sia
Gross income 247,000 247,000
Revenue expenses – trustee fee for managing business (17,500) √ (17,500) √
Capital expenses -√ (25,500) √
Adjusted income 229,500 204,000
Add: BC 10,000√
Less: CA (20,000) √ -
Statutory income 219,500 204,000
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SUGGESTED ANSWERSTAX667 – DEC 2016
Beneficiaries
The income from trust for the resident beneficiaries (Richie and Nancy) will be taxed
under section 4(e) √. The income of the non-resident beneficiaries will be taxed under
Trust body √. The non-resident beneficiary (Patrick) may apply for tax credit under
section 110 (8) in the calculation of net tax payable √.
Benefit to the resident beneficiaries: will improve the cash inflow of the beneficiaries. √
SOLUTION 2
(a)
RM
Section 4c: Dividend Exempt
Section 4c: Interest 60,000
Rent (shop) 50,000
(-) interest 40,000 x 500,000/ 3,500,000 (5,714)
(-) quit rent (2,000)
Adjusted income from rent 42,286
Aggregate income 102,286
(-) fraction of Permitted Expenses [Note 1] (5,500)
Chargeable income 96,786
Note 1:
Permitted Expenses RM
Directors’ remuneration 50,000
Employees’ salaries 30,000
Accounting and secretarial fees 10,000
Audit fee 20,000
Printing and stationery 2,000
Management expenses 28,000
Rent for office 50,000 – sublet 20,000 30,000
A 170,000
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SUGGESTED ANSWERSTAX667 – DEC 2016
Interest 60,000
Rent 50,000
Dividend (exempt) 225,000
Gain from realization of investments 86,000
C 421,000
= 11,105
or
SOLUTION 3 (A)
(a) If the mill is treated as an extension of oil palm plantation, it is treated as a single
business source. The adjusted loss will be treated as part of gross income from oil
palm plantation. Likewise, the capital allowance of the mill, and plant and machinery
will be set off against the adjusted income of oil palm plantation.
If the mill operation is treated as a separate business source; then the unabsorbed
capital allowance from the mill operation would be carried forward to be set off in the
next year of assessment against the mill operation.
The revenue loss recorded for the mills, however is a current year loss and is to be
deducted from aggregate income of the company (oil palm business + investment
income).
(6 x 1 = 6 marks)
(b) The plantation and mill activity is an integral part of the business, a same business
producing palm oil. Thus it is a single business source.
(2 x 1 = 2 marks)
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SUGGESTED ANSWERSTAX667 – DEC 2016
SOLUTION 3 (B)
(a) Income tax implications to WAJA Sdn Bhd on the disposal of the heavy plant and
machineries on 2 Jul 2016.
The plant and machineries were disposed off within 2 years of acquisitionü.
Therefore, the IRBM would clawback all the capital allowancesü given by way of
balancing chargeüin the year of disposal. As such, the statutory income from business
would increase because the balancing charge is added to the adjusted income of the
business. ü
(4 üx 1 mark = 4 marks)
(b)
The disposal of the industrial building from WAJA to DBSB is subject to the controlled
sale provisions of the Income Tax Act 1967. The controlled sale provisions would apply
because the acquirer( DBSB) is a person over whom the disposer (WAJA Sdn Bhd)
has controlü [para 38(1), Sch 3]. Under this provision, the disposal value is ignoredü
in the computation of the balancing adjustments. The assets would be deemed to be
disposed at the residual expenditureü of the disposer and therefore no balancing
charge or balancing allowance arise on the disposalü. In this case, the disposal will
benefit the disposer, WAJA Sdn Bhd.
(4 üx 1 mark =4 marks)
SOLUTION 3 (C)
a) The interest restriction is computed using the formula in paragraph 6.2 of this Ruling as
follows:
RM30,000 has to be added back in the company's tax computation (which means only
RM10,000 is deductible as a business expense).
b) The company can claim interest expense against its investment income since the
investments are deemed to have been financed by the overdraft. The computation of
interest expense for each investment source is computed as follows:
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SUGGESTED ANSWERSTAX667 – DEC 2016
SOLUTION 3( D)
b. TONE Distribution Sdn Bhd could adopt the `Resale Price’ method when determining
the purchase price of the cartridges bought from SUMMIT Multinational. This method is
appropriate because the final transaction made by TONE Distribution Sdn Bhd is with an
independent distributor. The focus is on the gross profit margin and both independent
retailers carry out similar functions as distributor of the product.
(2 x 1 mark = 2 marks)
(Total: 30 marks)
SOLUTION 4
Pavilion REIT
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SUGGESTED ANSWERSTAX667 – DEC 2016
(c) Tax treatment of the distribution in the hands of resident unit holders
Resident individuals
Pavilion REIT would have to withhold tax at 10% from the distribution made to all
individuals. This tax is the final tax payable to the Inland Revenue Board. The resident
individual will not be required to report this income in his annual tax return.
Resident companies
No tax has to be withheld from distributions made to resident companies. The amount
distributed to a resident company must therefore be reported in the company’s annual
tax return and it will be taxed at the appropriate rate applicable to the recipient
company.
(6x 1mark = 6 marks)
(Total: 20 marks)
Solution 5
Encik Zainal
Capital Statement as at 31 December
(A)
2012 2013 2014
Assets RM RM
Capital 500,000 500,000 500,000
Balance in Profit & Loss A/c 200,000 270,000 360,000
Bungalow 900,000 900,000
building 500,000 500,000 500,000
car 250,000 250,000 250,000
share 200,000 200,000 nil
Second car 150,000 150,000
Wife saving 10,000 40,000 110,000
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SUGGESTED ANSWERSTAX667 – DEC 2016
(B) i. The purpose of the tax investigation framework is to inform taxpayer about
IRBM’s tax investigation procedures.
(2 marks)
ii. 3 method that are usually used by IRBM
1. Risk analysis
2. Information from informer
3. Review of income tax return
4. Intelligence information; and
5. Information from other law enforcement agencies
(Any 3 answer = 3 marks)
(Total: 20 marks)
END OF SOLUTION