Paper F6 (MYS)

Fundamental Level – Skills Module

Taxation
(Malaysia)
Monday 3 December 2007

Time allowed
Reading and planning: 15 minutes
Writing: 3 hours

ALL FIVE questions are compulsory and MUST be attempted.

Tax rates and allowances are on pages 2–4.

Do NOT open this paper until instructed by the supervisor.

During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

SUPPLEMENTARY INSTRUCTIONS:
1. Calculations and workings need only be made to the nearest RM.
2. All apportionments should be made to the nearest month.
3. All workings should be shown.

TAX RATES AND ALLOWANCES

The following rates and allowances are to be used in answering the questions on this paper.

Income tax rates

(Rates applicable to all chargeable income liable to tax and not specifically chargeable at a different rate)

Resident individuals

Chargeable income Tax payable

Band Cumulative Rate Cumulative
RM RM % RM
2,500 2,500 0 0
2,500 5,000 1 25
15,000 20,000 3 475
15,000 35,000 7 1,525
15,000 50,000 13 3,475
20,000 70,000 19 7,275
30,000 100,000 24 14,475
150,000 250,000 27 54,975
Excess 28

Resident companies

Having a paid up ordinary share capital not exceeding RM2·5 million

The first RM500,000 20%

The remainder 27%

Other resident companies

All 27%

Selected personal deductions

RM
Single individual – basic rate 8,000
– disabled rate 14,000
Wife/husband – basic rate 3,000
– disabled rate 6,500
Child – basic rate 1,000
– enhanced rate 4,000
– disabled rate 5,000
Life insurance and approved schemes 6,000
Parents’ medical expenses 5,000
Own medical costs 5,000
Necessary basic supporting equipment 5,000
Educational and medical insurance 3,000
Books, magazines etc. 1,000
Computer 3,000

2
 Rebates
RM
Single individual – chargeable income up to RM35,000 350
Individual entitled to a deduction for a spouse or a former wife –
chargeable income up to RM35,000 700

Prescribed value of a motor car and its related benefits

Cost of motor car Annual prescribed Annual prescribed

(new) benefit of motor car 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 annual value of the motor car benefit can be reduced to half of the prescribed
value if the car provided is more than five years old, but the value of petrol remains
unchanged.

Prescribed value of household furnishings, apparatus and appliances

Type of benefit Annual value

RM
Semi-furnished with furniture in the lounge, dining room or bedroom 840

Plus one or more of the following:

air-conditioners, curtains and carpets 1,680

Plus one or more of the following:

kitchen equipment, crockery, utensils and appliances
i.e. fully furnished 3,360

Prescribed value of other benefits

Type of benefit Annual value

RM
Telephone – fixed or mobile:
hardware 300
bills 300
Gardener 3,600
Domestic servant 4,800
Driver 7,200

3 [P.T.O.
 Capital allowances

Initial Annual
% %
Industrial buildings 10 3
Plant and machinery – general 20 14
Motor vehicles and heavy machinery 20 20
Computers, information technology equipment
and computer software 20 40
Office equipment, furniture and fittings 20 10

Sales and service tax rates

Sales tax 10%
Service tax 5%

4
ALL FIVE questions are compulsory and MUST be attempted

1 Encik Albert and his wife, Puan Sherry are Malaysian residents living together as husband and wife throughout the
basis year 2007. Their income for the year ended 31 December 2007 is expected to be as follows:
RM
Albert
Gross dividends 1,000
Net rental income 6,050
Sherry
Employment income 40,000
Interest from fixed deposits (non exempt) 70
Net rental income 21,930
Albert claimed tax reliefs for the following expenses incurred by him:
RM
Donation to an approved institution 50
Insurance premium on his own life 1,500
Purchase of books 800
Purchase of a computer for family use 2,700
Sherry claimed tax reliefs for the following expenses incurred by her:
RM
Employees Provident Fund contributions 4,400
Medical expense for her mother 2,300
Purchase of books 300
Albert and Sherry have two children. The first child, aged 20 years, is unmarried and disabled. The second child,
aged 19 years, is unmarried and studying for an engineering degree at Universiti Malaya. Sherry claimed relief for
both children.

Required:
(a) Using three columns, compute the tax payable/repayable by Encik Albert and Puan Sherry for the year of
assessment 2007:
(i) Under separate assessment. (11 marks)
(ii) Under joint assessment, assuming Encik Albert is the one who elects. (8 marks)
(b) Based on the tax computations in (a) above, explain the tax benefits to Encik Albert and Puan Sherry of being
jointly assessed for the year of assessment 2007. (7 marks)
(c) Advise Encik Albert what he would be required to do if he wanted to have his income jointly assessed in his
wife’s name. (1 mark)
(d) Identify the relevant facts from the above scenario which qualify Encik Albert to elect for joint assessment.
(3 marks)

(30 marks)

5 [P.T.O.
2 JJ Sdn Bhd is engaged in the production of batik textiles. The company’s profit and loss account for the year ended
30 September 2007 is as follows:
Note RM000’s RM000’s
Sales 1 17,952
Cost of sales (9,505)
–––––––
Gross profit 8,447
Add: Rental income 2 18
–––––––
8,465
Less:
Repairs and maintenance 3 750
Foreign exchange 4 6
Bad debt provisions 5 159
Salaries and wages 6 1,600
Advertisements 7 703
Penalty for late payment of sales tax 34
Depreciation 900
Approved donation 22
–––––––
(4,174)
–––––––
Profit before taxation 4,291
–––––––
Notes:
(1) Sales includes a sum of RM155,000 received from a supplier of dye as compensation for the poor quality of the
dye.
(2) Gross rents received in respect of a residential property for the year ended 30 September 2007.
(3) Repairs and maintenance includes the following expenses incurred on the residential property rented out during
the financial year:
RM
Quit rent 1,000
Assessment 4,000
Fire insurance 3,000
———
8,000
———
(4) Foreign exchange comprises:
RM
Unrealised loss on the purchase of silk from China 13,000
Realised gain from the purchase of silk from India (7,000)
———–
6,000
———–
(5) Bad debt provisions comprise:
RM
Bad debt written off * 165,000
Specific provision carried forward 33,000
General provision carried forward 59,000
Bad debts recovered ** (26,000)
Specific provision brought forward (44,000)
General provision brought forward (28,000)
————
159,000
————
* The bad debt written off is in respect of an invoice amounting to RM165,000, inclusive of sales tax of
RM15,000.
** Bad debts recovered includes a sum of RM5,000 recovered in respect of a loan to an ex-employee.
6
 (6) Salaries and wages include:
RM
Leave passages provided to management staff 25,000
and their families
Leave passage in respect of the company family day 9,000
in which senior management personnel participated
Salaries of two disabled employees 24,000
———–
58,000
———–
(7) Advertisements includes a sum of RM610,000 incurred on sponsoring arts and cultural performances approved
by the relevant authority, in line with Visit Malaysia Year 2007. The sum comprised RM230,000 incurred on
foreign arts and RM380,000 incurred on local cultural performances.
(8) Other information
(i) For the year of assessment 2007, capital allowances for plant and machinery amount to RM499,000 and
industrial building allowance amounts to RM375,000, excluding any allowances or adjustments attributable
to the assets referred to in (ii), (iii), and (iv) below.
.
(ii) Capital expenditure was incurred on new heavy machinery during the year. Alteration to the factory was
carried out for the installation of the machinery. The expenditure incurred was as follows:
RM
Cost of machinery 280,000
Cost of alteration to the factory 33,000
Incidental costs 7,000
––––––––
320,000
––––––––
(iii) An old van, bought in August 2004 at a cost of RM75,000 was sold for RM7,000 in December 2006.
(iv) Partitions which are non-movable were put up in the factory to facilitate the production process. The cost of
the partitions amounted to RM100,000.

Required:
(a) Compute the chargeable income of JJ Sdn Bhd for the year of assessment 2007. Your computation should
start with the profit before taxation figure and follow the descriptions used in the notes to the profit and loss
account, indicating ‘nil’ in the appropriate column for every item that does not require adjustment.
Note: detailed workings of the capital allowances must be shown. (22 marks)
(b) Explain your treatment of the items stated below:
(i) Repairs and maintenance in respect of the rented residential property (note 3);
(ii) Realised gain from the purchase of silk from India (note 4); and
(iii) Bad debt written off (note 5). (3 marks)

(25 marks)

7 [P.T.O.
3 (a) (i) Encik Yeoh, who operates a seafood restaurant not located in an hotel, is licensed under the Service Tax Act.
On 8 July 2007, he charged a customer RM630 for food and drinks inclusive of service tax.

Required:
State the amount of service tax to be paid to the Customs Department in respect of the bill, the due date
for payment, and how the due date is determined. (2 marks)

(ii) Encik Siva & Co, a firm of registered surveyors, is a taxable person licensed under the Service Tax Act. The
firm issued an invoice to Mayo Sdn Bhd on 17 April 2006 for services rendered (excluding service tax) as
follows:
RM
Surveying services in respect of a piece of land in Johore Bahru 9,300
Valuation fees in respect of a condominium in Singapore 10,500
Consultancy fees in respect of a shopping complex in Kuala Lumpur 14,200

As at 30 June 2007 the total amount on the above invoice, including service tax, remained outstanding.

Required:

Tabulate the details of the invoice issued to Mayo Sdn Bhd on 17 April 2006 in respect of the services
rendered including the service tax, where relevant. State and explain the due date for the payment of
the service tax to the Customs Department. (4 marks)

(iii) Bay Sdn Bhd charged service tax amounting to RM29,000 in an invoice issued on 17 June 2007. The
service tax was remitted to the Customs Department on 14 October 2007.

Required:
Compute the penalty imposed for the late payment of the above service tax. (4 marks)

(b) Encik Julian is employed as a senior manager in the marketing department of Style Sdn Bhd. His income for the
year ended 31 December 2007 is as follows:
RM
Salary 174,000
Travelling allowance 18,000
The company made the following payments and provided him with the following benefits (the benefits are for the
whole year, unless stated otherwise):
Reimbursement of salary of the driver employed by Julian, amounting to RM11,400.
From 1 January to 30 September 2007 Julian was provided with a company car costing RM99,000, which he
was required to share with another employee. From 1 October to 31 December 2007 Julian was provided with
a new company car costing RM165,000, solely for his own use. Petrol was provided by the company for the
whole year.
Leave passage to Europe taken by Julian and his wife in December, at a cost of RM4,600.
Unfurnished living accommodation provided to Julian from 1 July to 31 December 2007, at a cost of RM8,000
per month.
Other information:
Julian claimed travelling expenses incurred on visiting company clients, amounting to RM19,000.

Required:
Compute the statutory income from employment of Encik Julian for the year of assessment 2007. Use the
prescribed value method for the benefits provided by the company. (10 marks)
(20 marks)

8
4 (a) State the circumstances in which an employer is NOT required to give notice to the Director General of Inland
Revenue in respect of the cessation of employment by his employee. (2 marks)

(b) List the relevant considerations to be taken into account in determining whether an item of expense is
deductible in arriving at the adjusted income from a business source. (6 marks)
(c) Ruby Sdn Bhd is required to pay a royalty amounting to RM120,000 to Encik Reno, a non resident.

Required:
State the tax compliance required of Ruby Sdn Bhd under the Income Tax Act on paying the royalty amount
to Encik Reno. Your answer should include the time frame for compliance. (2 marks)
(d) Describe the scope of sales tax. (5 marks)

(15 marks)

5 (a) Encik Jeff, a Canadian citizen, came to Malaysia on 28 July 2007 and left Malaysia permanently on 31 October
2007. The record of Encik Jeff’s stays in Malaysia have been as follows:

Year Stay in Malaysia Days in Malaysia

2003 20 December to 31 December 12
2004 1 January to 31 December 366
2005 1 January to 5 January 5
1 August to 30 November 122
2006 Absent 0
2007 28 July to 31 October 96

Required:
State, with explanations, the resident/non resident status of Encik Jeff for each of the years of assessment
2003 to 2007 (inclusive). (9 marks)

(b) On 8 October 2007 Miss Nonaka took a 10 am flight to Singapore to attend a concert. On 9 October 2007 she
took a return flight arriving at Kuala Lumpur International Airport at 11pm.

Required:
State, with explanations, the tax treatment of Miss Nonaka’s visit to Singapore, under the Malaysian
residence rules. (1 mark)

(10 marks)

End of Question Paper