Reference no: EM132564650

BKAT2013 Principles of Taxation - Universiti Utara Malaysia

QUESTION 1
Read the following case and compute the tax payable for Mohsin's family for the year of assessment 2019 by way of both separate and joint assessment. Your answer must include every item appeared in the question, indicate ‘NIL" where no adjustment is necessary. Support each item with explanation and relevant section from Income Tax Act 1967.

Mohsin is a freelance halal consultant since 1 March 2019. Previously, he worked as halal executive in a well-known food processing company in Selayang, Selangor for about 64 months. During his employment, he was paid a monthly gross salary of RM8,500 besides travelling allowance of RM2,500 for exercising his official duties. After quitting his job, he earned 80% more than monthly remuneration paid by his employer.

On 19 April 1994, Mohsin married Tina who was a bank teller in Port Dickson, Negeri Sembilan. They have three (3) children named Adibah, Saiful and Shukri. Saiful and Shukri are twins. On 1 April 2019, Mohsin attended his primary school reunion dinner and met an old friend, Suri. They fell in love and got married two (2) months after the gathering. After married, Suri remained to stay with her mother (aged 70 years old) in her own house.

Suri was a single mother with two (2) children named Shafiu and Rasol (disabled). She owned a bakery shop since July 2015. In the middle of year 2019, Suri ventured into a dropship business.

Tina suffered from cervix cancer and was endorsed by the Medical Board to retire since the middle of year 2018. On 15 November 2019, she passed away before her forth chemo treatment cycle. Mohsin received compensation of RM100,000 from a local insurance company for

Takaful policy taken for Tina.
The following information has been provided for 2019 tax filing purposes together with original receipts:
1. Suri's bakery reported adjusted income of RM86,000. The amount of balancing charge and capital allowance were RM14,000 and RM35,000 respectively. In addition, her dropship business showed adjusted income of RM78,000.

2. Tina's parents stay near to Mohsin's house. Mohsin's father had passed away a few years ago. Thus, his mother (aged 75 years old) moved in to stay with Mohsin and Tina. Mohsin's mother is a housewife. Suri's father had passed away when she was in secondary school. Mohsin spent RM2,000 each for medical treatment of his mother and mothers in-law.

3. Suri spent RM2,800 to purchase a wheel chair for her son, Rasol, who is disabled.

4. Mohsin paid RM9,000 for Tina's medical expenses including complete medical examination.

5. Suri purchased a smartphone worth RM1,100 for Shafiu. She also paid RM400 for his annual gym membership fees. Besides, she also paid monthly internet usage of RM80 and RM120 for herself and children which was subscribed under their own names.

6. Mohsin spent RM1,320 for internet usage subscription under his name and RM1,180 for books purchased by his children (including RM300 of books purchased by his step children).

7. Information related to children is as follows:

Adibah Aged 25 years old, works as a teacher and married to Arman in 2018. Her monthly salary is M4,800.

Saiful Aged 20 years old, taking Bachelor's degree (part time) at Open University Malaysia. He works as an account assistant in a merchandising company and earned RM2,000 per month.

Shukri Aged 20 years old, taking Bachelor's degree (full time) atUniversiti Utara Malaysia.

Shafiu Aged 20 years old, taking Bachelor's degree (full time) at a well-known private college in Subang Jaya, Selangor.

Rasol Aged 19 years old, a full time diploma student at one of the polytechnics in Malaysia.

8. Suri and Mohsin deposited RM9,000 and RM8,500 in their children's SSPN accounts. Mohsin withdrew RM3,000 to fund the children's education needs.

9. Insurance policies:

Mohsin paid RM500 for life insurance premium at the end of every month. The policy was subscribed under Tina's name. He also paid RM450 for monthly medical insurance premium for himself. As for the children, Tina subscribed medical and education insurance policy for each of them, she paid in total RM600 as monthly premium. Since she retired, the premium was waived.

Suri spent RM650 for her life insurance premium and RM150 each for her children's medical insurance policies.

10. Mohsin and Suri paid zakah for RM10,000 and RM8,000 respectively. The monthly tax deduction (MTD) for Mohsin was RM450.

QUESTION 2

A. The following is the information regarding Maya Enterprise. Compute the amount of capital allowance, balancing allowance or balancing charge of the company for the relevant years of assessment until 2020. Support your answers with relevant computation.
Maya owns Maya Enterprise (ME) with her own capital contribution of RM2 million. ME incurred the following expenditures in relation to her garment business:

a. ME bought a new car worth RM156,000 for her manager and the details are as follows:
i. deposit of RM15,000 paid on 1 February 2018.
ii. instalment for each month of RM2,500 for six (6) years beginning 1 March 2018.
iii. the car was sold in September 2019 for a price of RM90,000.

b. ME bought a heavy duty machinery in March 2019 for RM550,000 which includes cost of RM60,000 incurred for preparing the site to install the machine in the business premise.

c. ME purchased a general machinery amounting to RM65,000 in April 2018 but sold it to another company for RM80,000 in February 2019 with a motive of making gain.

d. In June 2019, ME paid RM1,950 each for the purchase of 11 units of air conditioners for business use.

B. The following is information related to Seri Specialist Hospital Bhd. Compute the industrial building allowances due to Seri Specialist Hospital Bhd for all the relevant years of assessment up to 2019. Support your answers with relevant computations.

Seri Specialist Hospital Bhd is a private hospital established in 2008. Due to growing demands of its medical services, the hospital acquired a piece of land and started the construction of a new building for Intensive Care Unit (ICU) in August 2018. The following expenditures were incurred for the construction:

Expenditures	RM
Cost of land	30,000
Stamp duties on land acquisition	2,500
Cost leveling the land	2,000
Architect fee	18,500
Interest on loan for construction purpose	72,000
Legal charges related to loan application	12,500
Construction cost	515,000
Water system and electrical works	54,000
Construction of roads and parking area	45,000

The construction work was completed in February 2019 and 12% of the building was used for administrative purposes. In 2015, the company also purchased a building at the cost of RM1.2 million including the cost of land amounting to RM500,000. The building was turned into a maternity ward.

QUESTION 3

The following is the information about GERM Enterprise. With reference to the Income Tax Act 1967 and the relevant Public Rulings issued by the Inland Revenue Board of Malaysia, advice each partner on the amount of total income for the year of assessment 2019. Support your answer with relevant computations.

GERM Enterprise is a partnership established since six (6) years ago between Ghani and Erman. The accounting period of the partnership ends on 31 December annually. The partnership agreement showed that profit/loss is to be distributed equally among the partners. On 1 July 2019, Ramona joined GERM Enterprise, and the profit/loss continued to be distributed equally among each partner. The partnership agreement also provides the following information:

	Ghani	Erman	Ramona
Capital contribution	60,000	30,000	30,000
Salary per month	5,000	4,000	2,000
Interest on capital per annum	4%	4%	4%

On 1 September 2019, Erman left the partnership and Endah joined the partnership. Erman withdrew all his profit and contribution while Endah contributed RM30,000 as capital into the partnership. The new agreement for the partnership is as follows:

	Ghani	Ramona	Endah
Salary per month	6,000	4,000	3,000
Interest on capital per annum	5%	5%	5%
Profit or loss sharing ratio	50%	30%	20%

The income statement for partnership for year ended 31 December 2019 is as follows:

		GERM Enterprise Income Statement For the Year Ended 31 December 2019
			Note	RM		RM
Sales			1			576,000
Less: Cost of Goods Sold			2			(138,000)
Gross Profit						438,000
Less: Operating Expenses
		Salary	3	(200,000)
		Rent expense	4	(40,000)
		Insurance	5	(4,500)
		Interest	6	(9,500)
		Office expenses	7	(40,000)
		Sundry		(6,000)
Operating expenses						(300,000)
Net profit from business operation						138,000
Add: Other Income
Gain from disposal of asset			8	12,000
Rental income			9	50,000		62,000
Total Net Profit						200,000

1. Sales include compensation received from the supplier who breached contract and insurance company for the damage of office equipment amounting to RM4,000 and RM6,000 respectively.

2. Cost of goods sold includes stock valued at RM7,000, yet to be sent to a customer due to delay in transporting the goods.

3. Salary includes: RM
Partners' salary 128,000
Ramona's entertainment allowance 11,000
Salary of Ghani's wife as marketing manager 12,000

4.
Rent expense includes rental of Erman's apartment and repair of Ramona's house amounting to RM9,000 and RM3,000 respectively.

5. Insurance includes: RM
Ghani's life insurance 1,400
Erman'scar insurance 1,200

6. Interest comprise of partners' interest and interest on business loan.

7. Office expenses include: RM
Penalty for Endah'straffic summon 300
Business penalty 1,800
Approved donation (during year-end sales) 9,000
Depreciation 20,000

8. Computation of balancing charge related to the disposal of asset was RM9,000.

9. Half of the rental income was from Endah's property and the remaining was from partnership's business premise.

Additional information:

i. Capital allowance for year of assessment 2019 was RM18,000.
ii. Loss brought forward was RM20,000.

QUESTION 4

A. Businesses have been hit severely in the light of Covid-19 pandemic and the Movement Control Order imposed by the Malaysian Government to curb the spread of the disease. Karim, a business owner of a restaurant in Negeri Sembilan, had to shut down his business as the abrupt decline in his business income could not sustain the business operating expenses. Briefly explain thetype of assessment that could be issued to Karim by the Director-General of Inland Revenue Board of Malaysia when he ceased his business, and why this assessment is issued.

B. Based on each of the situations below, explain the type of offence, the provision of the offence under Income Tax Act 1967, and penalty (fine/imprisonment) faced by the taxpayers:

i. Aaron submitted a duly completed return for the year of assessment 2019 on his own. He had declared business income from selling imported gift items and souvenirs. It was discovered during a tax audit that he had not declared his income from the rental business that he has been carrying on for the past 5 (five) years.

ii. Ben is a head of accounting department inLHS SdnBhd. For the year of assessment 2019, he was instructed by the director of the company (Tan), to reclassify certain entertainment expenses of the company (which are not allowable for income tax purposes) as purchases of goods and service. By doing so, he managed to understate the tax liability of the company by more than RM5,000 for 2019. This was discovered during a tax audit.

iii. Chong is a tax agent, appointed by RinataSdnBhd to prepare the tax computation for the company. A detailed statement for "Sundry Expenses" of RM80,000 provided by RinataSdnBhdhad clearly indicated that a donation of RM10,000 was included therein. Chong made an immediate request in writing for the receipt, advising the company that only donations made to approved bodies or institutions under section 44(6) would be eligible for deduction. RinataSdnBhd confirmed in a letter that the donation had been made to an approved body and that it was in the process of obtaining the receipt for it. In view of the impending due date for the submission of the return and relying on that confirmation, Chong made the relevant adjustments for the donation in the tax computation. It was discovered during a tax audit that there has been an understatement of the company's tax liability as the donation had been made to a non-approved body, about which the company had neglected to inform Chong as the tax agent subsequently.

i. Fatt, a graduate of Lim Kok Wing University, founded a startup business in Selangor after he graduated. He has been earning a steady income from his business venture in 2019. However, he did not declare any of his income to the Inland Revenue Board of Malaysia by filing Income Tax Return Form, as he was afraid of not getting any government assistance thereafter as his income exceeds the limit stipulated.

Attachment:- Principles Of Taxation.rar