CONFIDENTIAL 1 AC/FEB 2023/TAX667/490

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION
ANSWER SCHEME

COURSE : ADVANCED TAXATION / ADVANCED MALAYSIAN

TAXATION
COURSE CODE : TAX667/490
EXAMINATION : FEBRUARY 2023

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 2 AC/FEB 2023/TAX667/490

SOLUTION 1

(a)(i) Chargeable Income for trust body

TI (RM) DI (RM)
s4(a) Business in Johor Bahru
Adjusted income 245,800 245,800
Add: non-allowable expenses 65,200√ -
311,000 245,800
Less: CA (CY + PY) (8,200 + 15,200) (23,400) √ -
Statutory business income 287,600 245,800

Business income in Seremban

Adjusted Income Nil Nil
Add: Balancing charges 7,000√ -
Statutory business income 7,000 Nil

Aggregate statutory business income 294,600 245,800

s4(d) Royalty income

Royalty received 45,600 45,600
Less: Para 32B (No exemption) - -
Adjusted royalty income 45,600√ 45,600√

Rental income
Gross rental income 65,000 65,000
Less: Quit rent & assessment (3,500) (3,500)
Kitchen enhancement Nil (NA) (10,000)
Adjusted rental income 61,500√ 51,500√

Aggregate income 401,700 342,900

Less: Current year business loss (22,000)√ Nil
Trustee remuneration Nil√ (15,000)√
Annuity payable (54,000)√ (27,000)
Total income/ Distributable income 325,700 300,900
Less: Section 61(2) applied (Note 1)
First child (133,809)
Third child (86,020)
Accumulated trust (36,000)
Chargeable income/ Net DI 105,871 264,900

Note 1:
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
 CONFIDENTIAL 3 AC/FEB 2023/TAX667/490
TI (Adjusted for Accumulation) = TI x Net DI/DI
= 325,700 x 264,900/ 300,900 √
= 286,733

Discretionary Non-Discretionary
(30% x 286,733 = 86,020) √ (70% x 286,733 = 200,713)

Third child (R) First child (R) Second child (NR)

= 4/6 x 200,713 = 2/6 x 200,713
= 133,809 = 66,904.33
Single Beneficiary
Ord source Ord source
= 133,809*√OF = 66,904OF
i) Share of TI = 86,020
ii) Amt Rec in Msia = 104,000

Ord source = 86,020 (Lower)*√OF

(a)(ii) Net income tax payable by second child (NR)

RM
s 4(e) Ordinary source/SI from trust 66,904√OF
Aggregate Income 66,904
Less: Donation (no restriction) (10,000) √
Total Income 56,904
Less: Relief (not eligible) Nil
Chargeable Income 56,904

Income Tax Payable (30%) 17,071

Less: s 110(8) tax suffered by trust
(66,904 (Beneficiary’s OS) x 24%) √OF (16,057)
Net income tax payable 1,014

(20 x ½ = 10 marks)

(b)
i. the trust was created outside Malaysia by an individual which at that time was not a citizen
of Malaysia
ii. its income for the relevant basis year is derived wholly from sources outside Malaysia
iii. it is administered for the whole of the basis year outside Malaysia
iv. at least half of the trustee are not resident in Malaysia for the relevant basis year

(Any two circumstances x 1 mark = 2 marks)

(Total: 12 marks)

SOLUTION 2

a. Computation of Chargeable Income of NUHA Sdn Bhd (Unlisted IHC)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
 CONFIDENTIAL 4 AC/FEB 2023/TAX667/490

RM
Secretarial fee and tax filing fee 15,000√
Director’s fees 12,000√
Employees’ salaries 18,000√
Telephone charges, printing and stationeries 3,500√
(A) 48,500

Gross income from investment chargeable to tax:

Distribution received from LPT REIT 120,000√
Interest 50,000√
Rental income – plantation land 30,000√
– shop lots in Penang City 80,000√
– factory building 100,000√
(B) 380,000

Aggregate of gross income from investment (whether exempt or

not), rental & gains from realization of investment.
Dividend from LPT REIT 120,000
Dividend from CSY Bhd 100,000√
Interest 50,000
Rental income – plantation land 30,000
– shop lots in Penang City 80,000
– factory building 100,000
(C) 480,000

The amount of permitted expenses determined in accordance with the formula:

= A x B/4C
= RM48,500 x RM380,000/(4 √ x RM480,000)
= RM9,599

Compared with 5% of gross investment income chargeable to tax:

= 5% x RM380,000√ (OF)
= RM19,000; whichever is lower √

Thus, the permitted expenses allowable as deduction is RM9,599.

RM RM
Section 4 (c)
Distribution received from LPT REIT 120,000√
Less: Interest expenses
(RM800,000/RM2,000,000 x RM90,000) (36,000) √
Adjusted/ Statutory dividend income 84,000

Dividend from CSY Bhd (single tier) - exempted Nil√

Less: Interest expenses

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 5 AC/FEB 2023/TAX667/490

(RM700,000/RM2,000,000 x RM90,000) (31,500)

(disregarded) √
Adjusted/ Statutory dividend income Nil

Interest Income 50,000√

Less: Interest expenses
(RM500,000/RM2,000,000 x RM90,000) (22,500) √
Adjusted/ Statutory interest income 27,500

Section 4 (d)
Rental income – Plantation land 30,000√
– shop lots in Penang City 80,000√
– factory building 100,000√
Gross income 210,000√
Less: loan interest (45,000) √
quit rent & assessment (shop lots) (8,700) √
Adjusted income 156,300
Less: Industrial building allowance
(3% x RM1) (45,000) √√
Statutory rental income 111,300

Section 4 (f)
Consultancy fee 20,000√
Aggregate income 131,300
Less: Permitted expenses (9,599) √(OF)
Total income√ 121,701
(30√ x ½ mark = 15 marks)

b. In ascertaining the adjusted income of each business source:

- The deduction of expenses is not allowed if the source does not produce any
income√;
- The amount of allowable deduction for direct expenses is restricted to the
amount of gross income from that source√ for the YA. Any excess of that
expenses is to be disregarded (cannot be absorbed by any other source
of income or carried forward to subsequent years of assessment); and
- The amount of allowable deduction for common expenses is restricted to the
amount of gross income from that source for that YA. Any excess of that
expenses is also to be disregarded√.

In ascertaining the statutory income of each business source:

- The allowances under Schedule 3 of the ITA 1967 can be deducted but
restricted to the amount of adjusted income √ from that source. If there is no
adjusted income or the adjusted income is not sufficient to absorb those
allowances, any excess of allowances cannot be carried forward√ to
subsequent years of assessment.
(10 √ x ½ mark = 5 marks)
(Total: 20 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 6 AC/FEB 2023/TAX667/490

SOLUTION 3

A. Tax investigation procedure:

 A tax investigation is conducted when a taxpayer is suspected of evading tax and
a surprise inspection visit is conducted with the purpose of gathering evidence
to ascertain the actual tax liability of the taxpayer. The inspection visit may be
made to the taxpayer’s business premises, residence, tax agent’s premises, third
parties and other premises as may be necessary. √
 Unlike a normal tax audit, the taxpayer would not receive any advance notice
of the visit. √
 Therefore, it is not possible for Akasia Sdn Bhd to request for the investigation
procedure to be delayed. √
(3 x 1 = 3 marks)

B.
2020 2021 2022
RM RM RM
ASSETS
Proprietor’s fund @ 31 Dec 520,000 596,000 NIL √
Shares in Pacific Bhd (N1) 100,000 100,000 √ 500,000 √
Car – Honda (N2) 689,500 689,500 √ NIL √
Car – Audi (N2) - - 465,000 √
Shares in PalmGrove Bhd (N6) 120,000 √ 120,000 √ NIL √
Bungalow House (N3) 800,000 √ 800,000 800,000
Loan to a friend (N4) 80,000 √ 40,000 √ NIL
Bank account balances (N7) 160,000 √ 192,000 √ 340,000 √
Jewellery (N7) 44,000 √ 70,000 √ 196,000 √
* Alternative Answer:
Jewellery included under personal
expense
TOTAL ASSETS 2,513,500 2,607,500 2,301,000

LIABILITIES
Loan – Car (Honda) (N2) (180,000) √ (102,000) √ NIL √
Loan – Car (Audi) (N2: W1) - - (206,700) √√

Loan (Bungalow House) (N3) (360,000) √ (320,400) √ (260,600) √

Net assets 1,973,500 2,185,100 1,833,700
Net assets c/f (1,973,500) (2,185,100)
Increase/ Decrease in net assets 211,600 (351,400)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 7 AC/FEB 2023/TAX667/490

2021 2022
RM RM
ADD: PERSONAL EXPENSES AND CAPITAL LOSS
Interest on bungalow house (N3) 13,800 √ 11,240 √
Loss on disposal of Honda –
(RM689,500 – RM210,600) (N2) 478,900 √
Interest on Honda (RM700√ x 9 mths√) (N2) 6,300
Gift to father (N5) 20,000 √
Medical expenses (N8) 24,000 36,000 √
Living expenses (N8) 152,000 √ 170,000 √
421,400 351,040

LESS: CAPITAL RECEIPTS

Gain from disposal of business (RM660k – 596k) (N9) (64,000) √
Gain on disposal of shares in PalmGrove Bhd (70,000) √
(RM190k – 120k) (N6)
Apparent Income  421,400 217,040
Reported income  187,500 192,000
Unreported income  233,900 25,040

W1:

RM
Installment (RM6,000 x 48 months) 288,000
Cost of Audi 465,000
Trade-in value (Honda) (210,600) 254,400
Total interest on HP loan 33,600

Monthly interest on HP Loan = RM33,600/48 months = RM700/ month

Monthly principal on HP Loan = Instalment RM6,000 – Interest RM700

= Principal RM5,300

Outstanding loan @ 31/12/2022 = 39 months x RM5,300 = RM206,700

(40 √ x ½ mark = 20 marks)

(Total: 23 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 8 AC/FEB 2023/TAX667/490

SOLUTION 4

i. Alternative 1:

RM’000 RM’000 RM’000

Add Less
Profit before tax 112,385
Interest income 20,200
Dividend income 21,150
Entertainment for BTPT employees Nil
Dinner for potential tenants 10,000
Wedding gift 4,000
Loss on disposal of shares (unrealized) 21,500
Interest of loan (shares investment) 21,250
Manager’s fees Nil
Cash donation to political party 20,000
Cash donation to MPPJ 18,000
Provision for doubtful debt (general) 22,000
Trustee fees 21,000
Professional fees Nil
Stationery Nil
Depreciation 31,300
169,050 41,350
ADJUSTED BUZ INCOME 240,085
Less: Capital allowances (25,000)
STATUTUTORY BUZ INCOME 215,085
Add: Other income
Sec 4(c):
Interest Inc: Local banks (exempted) Nil
Interest Inc: Govt bond (exempted) Nil
S4(c):
Dividend Inc (exempted – ST) Nil
Less: IOL (shares) - disregarded Nil Nil
AGGREGATE INCOME 215,085
Less: Donation to political party (NA) Nil
Less: Donation to MPPJ (18,000)
TOTAL INCOME 197,085
(24 x ½ = 12 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 9 AC/FEB 2023/TAX667/490

ii. Alternative 2:

RM’000 RM’000 RM’000

Add Less
Profit before tax 112,385
Interest income 20,200
Dividend income 21,150
Entertainment for BTPT employees Nil
Dinner for potential tenants 10
Wedding gift 4
Loss on disposal of shares (unrealized) 21,500
Interest of loan (shares investment) 21.25
Manager’s fees Nil
Cash donation to political party 20
Cash donation to MPPJ 18
Provision for doubtful debt (general) 22,000
Trustee fees 21,000
Professional fees Nil
Stationery Nil
Depreciation 31,300
95,873.25 41,350
ADJUSTED BUZ INCOME 166,908.25
Less: Capital allowances (25)
STATUTUTORY BUZ INCOME 166,883.25
Add: Other income
Sec 4(c):
Interest Inc: Local banks (exempted) Nil
Interest Inc: Govt bond (exempted) Nil
S4(c):
Dividend Inc (exempted – ST) Nil
Less: IOL (shares) - disregarded Nil Nil
AGGREGATE INCOME 166,883.25
Less: Donation to political party (NA) Nil
Less: Donation to MPPJ (18)
TOTAL INCOME 166,865.25

ii. REIT income is treated differently compared to actual business income under two
circumstances:
1. Eventhough REIT source of income is from rental income (section 4(d), it will be
treated as gross income from a business source (Section 4(a).
2. Rental operating expenses are allowed to be deducted but restricted to the
amount of gross rental income - any excess of expenses over gross rental
income is disregarded and not allowed to be carried forward.
3. REIT also grants Capital Allowances (CA) on its qualifying asset and allowed to
be set off against its adjusted income. However, any excess of CA over
adjusted rental income is disregarded and not allowed to be carried forward.

(Compared to the normal treatment for business income, unabsorbed adjusted

business losses and capital allowances can be carried forward to the next year of
assessment).
(5 CONFIDENTIAL
x 1 = 5 marks)
© Hak Cipta Universiti Teknologi MARA
 CONFIDENTIAL 1 AC/FEB 2023/TAX667/490

iii. Alternative 1:

Currently BTPT managed to distribute more than 90% of its total income to its unit
holder (180,000/197,085 x 100 = 91.33%). Therefore, the whole Chargeable Income
of BTPT will not be taxed since REIT is fully exempted from tax if it distributes 90% or
more of its total income to its unit holders in the basis period of that YA [S.61A(1)].

However, if BTPT only managed to distribute RM150,000 of the total income, the whole
chargeable income will be subjected to tax in YA 2022 at the prevailing corporate tax
rate  since the percentage of distribution is less than 90% (RM150,000/197,085 x 100
= 76.11%). However, BTPT is given a grace period of two months from the closing of
its accounts to distribute the balance so as to qualify for tax exemption at REIT level. 

Alternative 2:

Currently BTPT managed to distribute more than 90% of its total income to its unit
holder (180,000/166,865.25 x 100 = exceed 90% ). Therefore, the whole Chargeable
Income of BTPT will not be taxed since REIT is fully exempted from tax if it distributes
90% or more of its total income to its unit holders in the basis period of that YA
[S.61A(1)].

However, if BTPT only managed to distribute RM150,000 of the total income, the whole
chargeable income will be subjected to tax in YA 2022 at the prevailing corporate tax
rate since the percentage of distribution is less than 90% (RM150,000/166,865.25 x
100 = 89.89%). However, BTPT is given a grace period of two months from the
closing of its accounts to distribute the balance so as to qualify for tax exemption at the
REIT level. 

(6 x ½ = 3 marks)
(Total: 20 marks)

SOLUTION 5

A. a. Deductibility of the items:

1. The renovation cost of RM20,000 is deductible expenses √ to enhance the

comfort and convenience √ of disabled employees. Hence, no adjustment is
required.  Bsteel is not entitled to claim deduction on capital allowance (IBA).
2. Remuneration is deductible expenses. √ Since the monthly salary exceeded √
RM4,000, no adjustment √ is required.
3. The cost of training program is for disabled persons therefore qualify for double
deduction √ as the training program is approved by MOF √ and obtained a letter from
DTC certifying that the disabled person has participated in the training program√.
4. The amount of contribution to approved scheme is deductible up to 19% √ of the
employees’ remuneration. The excess of 19% is not deductible √ and added back √ to
the account.
(12 x ½ = 6 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
 CONFIDENTIAL 1 AC/FEB 2023/TAX667/490

b. Tax treatment of the interest on loan:

Interest on loan 5% x 500,000 = 25,000 √

Shares 15% x 500,000 = 75,000 √
Shop lot 30% x 500,000 = 150,000 √
Business operation 55% x 500,000 = 275,000 √

Interest restriction = (75,000+150,000) √ /500,000 √ x 25,000 √ = 11,250

 Interest on loan of RM13,750√ (25,000 – 11,250) is allowable expense √ as the loan

was employed in the production of gross income√.
 The remaining RM11,250 interest expense is subject to interest restriction because the
loan was used for non-business purposes√. However, it is allowed as a deduction
against the investment income √ (dividend and rental income).

(12 x ½ = 6 marks)

c. The claim of leases rental √√ would be the most advantageous because:

 Timing:
The full amount of lease rental is given revenue deduction √ in the year of incurred
while the claim of CA needs to be spread to various years√ in accordance
with the specific rate√.

 Set off:
If the business has a current year business loss, the leasing charges would increase the
adjusted losses√. The current year business loss would be allowed to shelter other
income in that current year at the aggregate income level. √

 Utilization:
If the current year business loss cannot be utilized√ in that particular year at aggregate
income level, the unabsorbed business losses can be carried forward√ to set off
against any business income in the future years at the statutory income level. √
(10 x ½ = 5 marks)

B.
a. Disposal price of the machine for Yihua Sdn Bhd:

YA 2020√ QE (80,000) √
- IA (20% x 80,000) (16,000) √
- AA (14%x 80,000) (11,200) √
RE √ 52,800
YA 2021 - AA (14%x 80,000) (11,200) √
RE√ 41,600
YA 2022√ DP = RE (41,600) √
BC/ BA NIL√
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
(10 x ½ = 5 marks)
 CONFIDENTIAL 1 AC/FEB 2023/TAX667/490

b. Capital allowance (if any) of Maylee Sdn Bhd:

YA 2022√ RE (41,600) √
- IA NIL √
- AA (14%x 80,000) (11,200) √√
RE √ 30,400

(6 x 1/2 = 3 marks)
(Total: 25 marks)

END OF SUGGESTED SOLUTION

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 13 AC/FEB 2023/TAX667

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL