CONFIDENTIAL 2 MIAQE MARCH 2019

• The following tax rates are to be used in answering the questions.

Income tax rates

(a) Companies 24%

(b) Small companies

Chargeable income: On first RM500,000 18%
Subsequent Balance 24%

(c) Resident individuals

Chargeable Income Rate Cumulative Tax

RM RM
First 2,500 0 0
Next 2,500 0 0
On 5,000 0
Next 5,000 1 50
On 10,000 50
Next 10,000 1 100
On 20,000 150
Next 15,000 3 450
On 35,000 600
Next 15,000 8 1,200
On 50,000 1,800
Next 20,000 14 2,800
On 70,000 4,600
Next 30,000 21 6,300
On 100,000 10,900
Next 50,000 24 12,000
On 150,000 22,900
Next 100,000 24 24,000
On 250,000 46,900
Next 150,000 24.5 36,750
On 400,000 83,650
Next 200,000 25 50,000
On 600,000 133,650
Next 400,000 26 104,000
On 1,000,000 237,650
Exceeding 1,000,000 28

(d) Non-resident individuals 28%

CONFIDENTIAL 3 MIAQE MARCH 2019

• Benefits-in-kind (BIK) scale rates as per Inland Revenue Board (IRB) guidelines

Cost of car when new Annual prescribed Annual

benefit of motorcar prescribed
benefit of petrol
RM RM RM
Up to 50,000 1,200 600
50,001 - 75,000 2,400 900
75,001 - 100,000 3,600 1,200
100,001 - 150,000 5,000 1,500
150,001 - 200,000 7,000 1,800
200,001 - 250,000 9,000 2,100
250,001 - 350,000 15,000 2,400
350,001 - 500,000 21,250 2,700
500,001 and above 25,000 3,000

The value of the car benefit equivalent to half of the above rates is taken if the car
provided is more than five years old.

• Prescribed value of household furnishings, apparatus and appliances

Category Type of Benefit Annual

Prescribed
value of BIK
provided
RM
1 Semi-furnished with furniture in the lounge, dining
room or bedroom. 840

2 Semi-furnished with furniture as in Category 1 and

one or two of the following:
• air-conditioners 1,680
• curtains and alike
• carpets

3 Fully furnished with benefits as in Category 1 and 2 3,360

plus one or more of kitchen equipment, crockery,
utensils and appliances.

Other benefits RM per month

Household servant 400

Gardener 300
Driver 600
CONFIDENTIAL 4 MIAQE MARCH 2019

• Rates of Capital Allowances

Motor Plant & Others Industrial

Vehicles/ Machinery Building
Heavy
Machinery

Initial allowance 20% 20% 20% 10%

Annual allowance 20% 14% 10% 3%

• Real property gains tax

With effect from 1 January 2014 the tax rates that apply depending on the holding
period from the date of acquisition of the asset at follows:

Period of Disposal Company Individual Individual

(Citizens or (Non-Citizens)
Permanent Resident)
(%) (%) (%)
Within 3 years 30 30 30
In the 4th year 20 20 30
In year 5 15 15 30
In its 6th year onwards 5 0 5
CONFIDENTIAL 5 MIAQE MARCH 2019

QUESTION 1

a. Gingko Manufacturing Sdn Bhd (the company) carries on the business of

manufacturing electric components in the Nilai Industrial Complex. It was incorporated
with a paid up capital of RM5 million of which 80% are held by Malaysians. The
accounts are closed on 31 December, and for the period ended 31 December 2018,
the following financial information is available:

Gingko Manufacturing Sdn Bhd

Statement of profit or loss for the period ended 31 December 2018

Note RM’000 RM’000

Revenue 579,800
Cost of sales (369,400)
Gross profit 210,400
Other income
Interest 1 57
210,457
Expenses:
Remuneration 2 1,560
Entertainment 3 190
Depreciation 124
Repair and maintenance 4 534
Bad and doubtful debts 5 314
Motor vehicle expenses 6 107
Lease payments 7 140
Promotion and publicity 8 900
Professional fees 9 112
Insurance 10 55
Donation 11 35 (4,071)
Profit before taxation 206,386

The following information and notes are provided in respect of the financial statement:

1. Interest
Trade debtors settling their account late are charged interest at the rate of 8%
of the outstanding balance.

2. Remuneration
This expenditure includes a sum of RM570,000 paid to a director and
contributions to the Employee’s Provident Fund amounting to RM120,000.

3. Entertainment
The company had its annual dinner at a hotel and spent RM40,000. The
company reimbursed its marketing staff for RM150,000 spent on the
customers.
CONFIDENTIAL 6 MIAQE MARCH 2019

4. Repairs and maintenance

Included in the repair and maintenance account is a sum of RM200,000 to
replace the old wire perimeter fence of the factory building with a reinforced
concrete wall. The balance refers to repairs of plant and machinery.

5. Bad and doubtful debts

The company made a specific loan debt provision of RM246,000 during the
year. A sum of RM68,000 was written off in respect of a loan supplier. This was
a sum extended to the supplier against goods to be delivered over a period of
three years. But the supplier’s business failed in the second year, and balance
of the supply was never made.

6. Motor vehicle expenses

The company incurred RM25,000 for compounds and fines for traffic offences
on behalf of its company drivers while RM82,000 was spent on vehicle
maintenance charges.

7. Lease payments
The company paid RM60,000 during the year to a leasing company for the
lease of a car (which cost in 2016 when new was RM700,000). A machine was
leased for RM80,000 to cater for a temporary production demand.

8. Promotion and publicity

Expenses charged into this account include sponsoring of cultural and heritage
activity approved by the Ministry of Information, Communication and Culture
costing RM800,000, made up of RM300,000 foreign arts activity and
RM500,000 local arts activity. The balance refers to trade advertisements in
the local print media.

9. Professional fees
Included in professional fees are secretarial fees of RM12,000 and tax filing fee
of RM18,000 was paid to a professional management firm. RM72,000 was paid
to a chartered accountant to handle a tax audit appeal to the Special
Commissioners of Income Tax. The balance of the fees is deductible trade
related expenses falling within the meaning of Section 33.

10. Insurance
Insurance charges includes premium for the export of finished goods paid to a
local insurance firm amounted to RM46,000. The balance refers to the
insurance for the company’s inventories, plant, machinery and buildings.

11. Donation
The donation includes contribution of RM35,000 cash to a local school library.

Other matters:

For the year of assessment (YA) 2018, the company is claiming RM55,000 capital
allowance on its assets used in the business.

During the year, the company acquired the right to a Chinese proprietary patent for
RM600,000. The company incurred RM85,000 in registering the patent in Germany to
facilitate the export of its product there, which is its major market in Europe.
CONFIDENTIAL 7 MIAQE MARCH 2019

Required:

With reference to the Income Tax Act 1967 (as amended), compute the chargeable
income of Gingko Manufacturing Sdn Bhd for the year of assessment 2018.

Note 1: You should indicate by the use of the word ‘Nil’ any item of income or
expenditure referred to in the question for which you do not need to make
any tax adjustments in arriving at the chargeable income.
Note 2: All figures should be to the nearest RM1,000.
Note 3: Any apportionment of time period should be to the nearest whole month.

(16 marks)

b. With reference to Para 7 of Schedule 3 of the Income Tax Act 1967 (as amended),
indicate briefly the expenditures that would be treated as qualifying agriculture
expenditure on which allowances may be claimed for the purposes of that Schedule.
(4 marks)
(Total: 20 marks)

QUESTION 2

a. Mr. Chin bought a residential property in Kajang for RM289,300 on 27 August 2015,
and incurred stamp duty of RM4,786 and legal fee of RM2,475. Upon acquisition, he
had spent RM30,000 on renovating the property to add on an extended car porch.

In the year 2018, he was transferred to Sabah and wanted to sell the house. He
engaged a property agent who sold the property on 10 October 2018 for RM520,000.
In doing so, he charged Mr. Chin RM5,785 for valuation fees, advertisement charges
of RM1,157 and his own brokerage fees of RM6,943. In the course of the disposal, a
deposit of RM5,000 was forfeited.

Mr. Chin had taken a loan to acquire the property and at the date of disposal had
incurred interest charges of RM9,420.

Required:

With reference to the Real Property Gains Tax Act 1976 (as amended), compute the
chargeable gain to Mr. Chin on the disposal of the residential property
(6 marks)

b. Mr. Timothy Lim was a businessman with two children. He passed away on 12 May
2014. He left behind a factory building and a residential property. An executor had
been appointed under his will. The executor determined that the market value of the
factory building was RM628,000 while that of the residential property was RM393,000
at the time of Mr. Timothy Lim’s death.

Under the terms of the will, the residential property is to be transferred to the eldest
son, Francis Lim. The factory building is to be sold and the proceeds distributed to the
two children of Mr. Timothy Lim (deceased).
CONFIDENTIAL 8 MIAQE MARCH 2019

In September 2018, the executor transferred the residential property to Mr. Francis
Lim. At the time of the transfer, the residential property was valued at RM550,000. The
factory building was sold for RM754,600.

Required:

With reference to the Real Property Gains Tax 1976 (as amended), compute the
chargeable gain to the executor in respect of the following:

i. The transfer of the residential property to Mr. Francis Lim.

ii. The sale of the factory building.
(4 marks)

c. i. With reference to Section 60C of the Income Tax Act 1967 (as amended),
explain briefly the scope of taxation of a Malaysian resident bank carrying on
the business of banking.
(4 marks)

ii. Samudra Shipping Ltd (the company) is a Singapore resident shipping

company carrying on the business of transporting cargo by sea between
Malaysia and the South East Asian countries. The company closes its accounts
to 31 December each year.

For the year ended 31 December 2018, the company’s accounts showed an
inward shipment of RM2,240 that are receivable in Malaysia; and RM3,360
receivable outside Malaysia. The outward shipping of cargo from Malaysia
amounted to RM9,980. The company had made a cash donation of RM3 to an
approved local charitable body.

Required:

With reference to the Income Tax Act 1967 (as amended), compute the
Malaysian income tax payable by Samudra Shipping Ltd for the year of
assessment 2018 using the 5% method.

Note:

(i) All figures in the question are in thousands.

(ii) The Malaysian income tax rate for a non-resident company is 24%.

(3 marks)

iii. Ah Sang Transport Sdn Bhd is a resident Malaysian company carrying on the
business of transporting perishable goods. In early 2018, it decided to expand
its fleet of lorries. Owing to shortage of capital, it plans to lease nine additional
lorries from a local leasing company for two years.
CONFIDENTIAL 9 MIAQE MARCH 2019

Required:

With reference to the Income Tax Leasing Regulations 1986, explain to Ah

Sang Transport Sdn Bhd any three (3) conditions which, if present, would be
deemed to be a sale transaction, and not a leasing transaction, in relation to its
acquisition of lorries from the leasing company.
(3 marks)
(Total: 20 marks)

QUESTION 3

a. Orange Oil Sdn Bhd and Green Oil Sdn Bhd are among the companies trading in
gasoline and oil based lubrication products in a very competitive market in Malaysia.
In view of the fluctuating price of crude oil and other uncertain market conditions, the
two companies entered into a 30 year arrangement under which the companies
agreed, among other things, to segregate areas of supply, acquisition of properties
including setting up of supply pumps, and tendering of major contracts for supply of
fuel and lubricants. The parties will not enter into any arrangements with third parties,
whether domestic or foreign that will be detrimental to their mutual interest. However,
such arrangements may be entered into if their common interest is not affected and
both parties are agreeable to such arrangements in the furtherance of their common
business interest. This was the only arrangement by the two companies with respect
to their trading interest and was able to secure approximately 40% of the Malaysian
market.

After six years into the arrangement, a change in government occurred following a
general election, Orange Oil Sdn Bhd found that the arrangement entered into
previously with Green Oil Sdn Bhd is now a liability to their future plans. Orange Oil
Sdn Bhd wanted to terminate the arrangement and after some rounds of negotiations,
it was agreed that the arrangement would be terminated upon Orange Oil Sdn Bhd
paying RM30 million to Green Oil Sdn Bhd. The payment was made in one lump sum
to Green Oil Sdn Bhd on 1 September 2018.

Required:

With reference to the Income Tax Act 1967 (as amended), discuss whether the
compensation received by Green Oil Sdn Bhd would be liable to income tax.

Note:

Candidates are encouraged to quote the relevant provisions of the law under the
Income Tax Act 1967 (as amended) and case laws where applicable.
(5 marks)

b. ‘Malaysia Dulu’ is a popular newspaper that covers news on current politics,

commercial and business developments as well as showbiz events and gossips. The
paper has been in business for almost 12 years and was deriving reasonable profits.
It was the only paper that comes out in the evening in the Klang valley and is
immensely popular with the city folks.
CONFIDENTIAL 10 MIAQE MARCH 2019

In early 2018, another newspaper ‘Malaysia Sekarang’ appeared on the scene and the
paper began to gain popularity and, more worrisome, there were signs that ‘Malaysia
Dulu’ appeal is declining resulting in falling sales. In order to avoid any competition,
the management of ‘Malaysia Dulu’ negotiated with the owners of ‘Malaysia Sekarang’
to cease its publication. In return it was agreed that the publishers of ‘Malaysia Dulu’
would pay RM3 million to ‘Malaysia Sekarang’. The initial payment would be RM1
million followed by an annual payment of RM500,000 over the next four years.
‘Malaysia Sekarang’ ceased publication with effect from 1 September 2018.

Required:

Discuss whether the sum of RM3 million paid by ‘Malaysia Dulu’ would be a deductible
expenditure in arriving at the adjusted income from its business.

Note:

Candidates are encouraged to quote the relevant provisions of the law under the
Income Tax Act 1967 (as amended) and case laws where applicable.
(5 marks)
(Total: 10 marks)

QUESTION 4

Redzuan retired from Bukit Gemilang Sdn Bhd at the age of 48 on 30 November 2018 and
upon his retirement, he also received gratuity of RM310,000. His salary before EPF deduction
for the period from 1 January 2018 to 30 November 2018 amounted to RM85,000. His monthly
SOCSO contribution was RM450. He had been working with Bukit Gemilang Sdn Bhd for 15
years.

Redzuan runs a grocery shop since 1 January 2017. The adjusted income from the business
for the period ended 31 December 2018 was RM90,000. For YA 2018, the capital allowances
is RM10,500. Redzuan also received dividend from ASB amounted to RM22,000.

Rahelia (Redzuan’s wife) works as a Chemical Engineer at Sunville Sdn Bhd, a manufacturing
company producing consumable products such as bio-soaps and detergent. Details of the
incomes and benefits enjoyed as well as expenses incurred by Rahelia in 2018 are shown
below:

i. Salary of RM9,500 per month (before 11% EPF deduction).

ii. Bonus received in November 2018 amounted to RM18,000.

iii. Entertainment allowance of RM600 per month.

iv. In August 2018, Rahelia received a dividend from Telekom Malaysia (single tier)
amounted to RM15,000.

v. Traditional medical treatment at an approved hospital costing RM650 was paid by the
company.

vi. Hotel accommodation was provided by her employer for the month of January 2018 at
a cost of RM200 per day for 30 days.
CONFIDENTIAL 11 MIAQE MARCH 2019

vii. From February 2018 onwards, the company provides a fully furnished house with a
monthly rental of RM1,500 and fully paid by the company.

viii. A personal computer worth RM3,000 for her personal use was received as a gift from
her employer.

ix. A reimbursement amounted to RM9,000 was made to cover wages of a maid employed
by Rahelia.

x. The company provides a new car costing RM250,000 together with a driver in July
2018. The driver’s salary of RM1,800 per month was paid by the company.

Aditional Information:

1. Redzuan and Rahelia have 3 children. The details of their children are as follows:

i. The first child, Razif (20 years old) (disabled) is studying at Universiti Malaya.
ii. The second child, Razman (18 years old) is a matriculation student at University
Putra Malaysia.
iii. The third child, Rozlina (15 years old) is schooling at Sekolah Menengah Wangsa
Maju.

2. Rahelia incurred RM1,600 education insurance and RM1,400 medical insurance for
her daughter, Rozlina while Redzuan incurred RM6,500 medical expenses for his
parents.

3. Redzuan made a deposit into SSPN account during the year 2018 amounting to
RM13,500 for her daughter, Rozlina.

4. Redzuan and Rahelia spent RM2,600 and RM2,800 respectively on books and
maganizes.

5. Rahelia spent RM640 for her own medical examination while Redzuan spent RM7,500
for Razif’s basic supporting equipment.

6. In August 2018, Rahelia received RM14,000 as royalty on translation of an engineering

book at the request of Ministry of Education.

7. During the year, Redzuan and Rahelia made the following contributions:

Redzuan Rahelia
(RM) (RM)
Zakat 44,000 12,500
Diabetic Association (Approved Institution) 17,000
Majlis Perbandaran Ampang Jaya (MPAJ) 12,100

Required:

Calculate the income tax payable by Redzuan and Rahelia for the year of assessment 2018.

Note: The child relief will be claimed under Redzuan.

(Total: 20 marks)
CONFIDENTIAL 12 MIAQE MARCH 2019

QUESTION 5

a. Jagdit Singh, a tax resident, domiciled in Malaysia died on 1 September 2018.

According to his will, Harban Kaur, a tax resident was appointed as an executor of the
estate. Jagdit’s income and expenditure for the year ended 31 December 2018 were
as follows:

RM
Business income
Adjusted income 133,000
Balancing charge 7,000
Capital allowance 26,600

Dividend (single tier):

Received on 2 February 2018 26,040

Interest on fixed deposit in Public Bank

(received on 7 October 2018) 5,600
Net rental income per annum 16,800
Dividend income from New Zealand
(remitted to Malaysia on 5 September 2018) 21,000
Donations:
Cash contributions to an approved institution on 1 June 2018 5,600

Annuity payable to Jagdit’s daughter, Rashna 2,520

per month

Other information:

1. At the time of his death, Jagdit has two children, Amarjeet 17 years old and
Rashna 26 years old (married).
2. He left a wife Maureen who is not working.

Required:

i. For the year of assessment 2018, compute:

a. The chargeable income of the deceased person; and

b. The income tax payable by the executor.
(11 marks)

ii. Explain the tax implications on the income tax liability of the executor if Jagdit
was not domiciled in Malaysia at the time of his death.
(4 marks)

b. Markish Sdn Bhd (Markish), a company resident in Malaysia, is a wholly owned

subsidiary of Porch Ltd, a German company. During Markish’s year ended 31 March
2018, Porch Ltd extended a loan of RM600,000 to Markish, to finance its new research
and development centre in Malaysia. Interest is payable on this loan at an annual rate
of 10% and the total interest payable to Porch Ltd for the year ended 31 March 2018
was RM35,000.
CONFIDENTIAL 13 MIAQE MARCH 2019

Required:

i. State, with reasons, why the interest income receivable by Porch Ltd is derived
from Malaysia.
(2 marks)

ii. Compute the withholding tax payable on the interest income of RM35,000,
receivable by Porch Ltd for the year ended 31 March 2018.
(2 marks)

iii. State the income tax implication for Markish Sdn Bhd if it bears the withholding
tax amount (as calculated in (ii) above).
(1 mark)
(Total: 20 marks)

QUESTION 6

a. Lahadzan Sdn Bhd, a resident tourism company, developed a new tourism project at
Jasin, Melaka. The project started in November 2015 and eligible for the investment
tax allowance (ITA) incentive effective from 1 October 2016. The followings are the
information provided for the year ended 30 September 2018:

Capital expenditure: RM

Planting of trees and plants 400,000

Plant and machinery 560,000
Living accommodation for workers 380,000
Hostel for clerical and administration staffs 100,000
Bungalow house for the manager 620,000

Statutory income 1,700,000

Unabsorbed ITA from YA 2017 240,000

Required:

Determine the investment tax allowance (if any) that can be utilised by Lahadzan Sdn
Bhd for the year of assessment 2018.
(3 marks)

b. Mountain Bhd is incorporated in Malaysia and is a tax resident for tax purposes. The
company is related to several companies: Zig Sdn Bhd, Bix Sdn Bhd and Cee Sdn Bhd
since 2014. Mountain Bhd wishes to claim the adjusted losses from these companies.
CONFIDENTIAL 14 MIAQE MARCH 2019

Below are the information pertaining to the above companies for the year of
assessment 2018:

i. Mountain Bhd:
RM’000
Aggregate income : 62,500
Donation (Approved institution) : 8,750
Current year business loss : (2,500)

ii. Zig Sdn Bhd, Bix Sdn Bhd and Cee Sdn Bhd:

Gross Business Revenue Expenses

Income (RM’000) (RM’000)
Zig Sdn Bhd 28,750 37,500
Bix Sdn Bhd Nil 15,000
Cee Sdn Bhd 22,500 25,000

iii. All the four companies close their accounts on 31 December, annually. The
paid up ordinary share capital for each company exceeded RM2.5 million.

iv. Zig Sdn Bhd, Bix Sdn Bhd and Cee Sdn Bhd are resident in Malaysia for tax
purposes.

Required:

i. Calculate the amount of current year adjusted business losses surrendered by

Zig Sdn Bhd, Bix Sdn Bhd and Cee Sdn Bhd to Mountain Bhd for the year of
assessment 2018.
(3 marks)

ii. Calculate the total income of Mountain Bhd for the year of assessment 2018.
(After considering the group relief provided under Section 44A of the Income
Tax Act 1967)
(4 marks)
(Total: 10 marks)

END OF QUESTION PAPER