ASSIGNMENT

BFN3114 Tax Planning

TRIMESTER 3, 2020/2021

No Student Name Student Id

1 SWEETHAA A/ P ARUMUKAM aka Arumugam 1181100269
2 GITALOSHNI A/ P VELU 1181101068
3 SHANTAANA LAKSHMI A/P KESAVAN 1191301906
4 ALI IMRAN BIN MASURI 1181302191
5 MUHAMMAD TAUFIQ BIN BORHAN 1181303199
QUESTION 1

A new colleague of yours, Mr. Robert just joined the company. He is from Nottingham,
United Kingdom. He is offered for a two years’ job contract. He is excited to understand
the taxation of the employment income he is going to earn. He went to see you to gather
information on the Malaysian taxation system. He also asks for explanation on the
comparison between Malaysia and the UK taxation system, particularly for individual
taxpayers.

Required:
Write a note to Mr. Robert explaining the following:

(i) The Malaysian Taxation system. Income is taxed on an entity in relation to a time frame. In
income tax law, these time frames are constituted by accounting or financial periods, basis
periods and year of assessment. The current year assessment system (CYA) operates with effect
from the year of assessment 2004. This simply means that the income earned in the period 1 Jan
to 31 Dec 2017 would be taxed for the period 1 Jan to 31 Dec 2017 for the year of assessment
2017. A method whereby a taxpayer is responsible for calculating his own tax and making
payment within the specified period. Taxpayers are given the onus to self-assess and self-pay
their income tax. Taxpayers are required by law to determine their taxable income, compute their
tax liability and submit their tax returns based on existing tax laws and policy statements issued
by the tax authorities. The Inland Revenue authorities would check and verify tax returns
through tax audits and the implementation of a penalty system to enforce compliance with tax
law. The self-assessment system (SAS) was implemented in two stages: companies in 2001
followed by businesses, partnerships and salaried individuals in 2004. An individual (without
business income) would have to submit his return by the 30 April of a given year for income
derived in the previous year. E.g. The tax return for the year of assessment 2010 must be
submitted by 30 April 2011. The due date for an individual with business income is 30th June for
a given year for income derived in the previous year. E.g. the tax return for year of assessment
2010 must be submitted by 30th June 2010. The return will state the individual’s chargeable
income and tax payable as determined by him or her.
(ii) Compare the taxation system between Malaysia and the UK, particularly for individual
taxpayers.

Malaysia has a territorial tax system. Residents and non-residents alike are taxed on
Malaysian-sourced income, however foreign-sourced income is rarely taxed, even by residents
and/or local businesses. In Malaysia, the taxation system for an individual resident scale rate
based on level of income ranges from 0% to 28%, while for non-residents the flat rate is 28%,
whereas in the United Kingdom, the income tax rates and bands range from 0% to 45%, with
basic rate, higher rate, and additional rate. Besides, In Malaysia, the new deadline for reporting
your income tax returns via e-Filing is 30 June 2020 for residents who do not operate a business
and 30 August 2020 for those who do operate a business, but in the United Kingdom, certain
persons are required to file a tax return each year. This is a form that you use to report your
income and capital gains for a certain tax year. Apart from that, in Malaysia, they form a
corporation called Ekuinas to help the Bumiputras mingle with the economy. The government
solely utilizes the money it collects from taxpayers to help Bumiputra businesses, not those of
other races. This indicates that money is used within the country, or intra-country financial
movement. In contrast, in the United Kingdom, they brilliantly develop and begin plans that
apply to all firms. One example is the 0 percent tax and interest that a UK corporation should pay
if it borrows money from a Hong Kong lender. This helps to decrease money outflows, saving
the government a significant amount of money. Additionally, in Malaysia, taxpayers must keep
adequate records for a period of seven years from the end of the year in which company revenue
is earned. However, in the United Kingdom, you must maintain your records for at least 22
months following the end of the tax year for which the tax return is filed. Keep your documents
until at least the end of January 2023 if you file your 2020 to 2021 tax return online by 31
January 2022. Besides, it is considered tax avoidance in Malaysia if you do not file your income
tax without a legitimate justification. It involves a fine of RM200 to RM2,000, as well as the
possibility of jail or both. However, in the United Kingdom, tax avoidance may result in fines of
up to 200 percent of the tax owed, as well as imprisonment time. For instance, tax evasion can
result in a six-month jail term or a £5,000 fine, with a potential term of seven years in jail or an
infinite fine.
QUESTION 2
Ts. Teoh works as an IT specialist with a multinational company in Kuala Lumpur. His
wife,Mrs. Karen is a retired government servant. She runs a small business with her old
friend, Ms.Yasmin. The couple has three children and all of them are Malaysian residents
for the purpose of the Income Tax Act 1967 (as amended).Ts. Teoh’s income and benefits
from his employment for the year ended 31 December 2020 are as follows:

Ts. Teoh
(i) Gross salary of RM 12,000 per month.
(ii) A 2-month bonus received on 30 December 2020.
All the salary and bonus received are subject to Employees’ Provident Fund (EPF)
contribution. The employer contributes 11% and the employee contributes 9% to the EPF.
The salary is also deducted with Socso of RM15 per month.
(iii) A travelling allowance for official duties of RM500 per month.
(iv) Ts. Teoh took a week of annual leave. He and his wife went to Kundasang, Sabah. The
flight ticket and cost of accommodation of RM1,500 of the leave passage were paid by the
company.
(v) He also took oversea leave passage, Jogjakarta Indonesia of RM735. This refers to cost
of the ticket only and it was paid by the company.
(vi) An immediate family medical and dental benefits of RM5,000 covered by the company.
(vi) Ts. Teoh had a month-long business trip to Sabah and Sarawak. The company had provided
him with hotel accommodation throughout the entire month. The room costed RM150 per
night.
(ix) A car costing RM100,276 when new and for which the fuel cost was borne by him. The
car is 70% for official use and 30% for personal/non-official use.
During the year, Ts. Teoh had incurred the following expenditures:
(i) A donation of hamper worth RM1,000 and cash RM2,000 to an approved institution.
(ii) Medical expenses for his in-law’s medical treatment of RM1,800.
(iii) Books and magazines of RM1,400.
(iv) Personal computer and sport equipment of RM1,200 and RM450 respectively.

The couple has three children. The first child, aged 20 years old is currently in the first year of a
degree program in a local university. The second and the third child, aged 15 and 13 years old are
at secondary school. During the year, Ts. Teoh received rental income of RM15,000 and single
tier dividends from several companies listed in Bursa Malaysia of RM3,750.
Computation of Statutory Income from Employment of Ts. Teoh for the year ended 2020
Notes RM RM

Section 13 (1) (a)

Salary RM12,000 x 12 144,000

Bonus RM12,000 x 2 24,000

Travelling Allowance for 500 x 12 = 6,000 NIL

official duties

Section 13 (1) (b)

Leave passage 1,500 NIL

Kundasang

Oversea leave passage to 735 NIL

Jogjakarta

Medical & dental NIL

benefits

Car RM5,000 x 30% personal use 1,500

Fuel NIL

Section 13 (1) (c)

Business trip to Sabah & (3% x RM168,000) x 1/12 420

Sarawak
(Accommodation -
Hotel)

Gross Income 169,920

Less: Allowable expense

Statutory Income

Add: Other Sources of

Income

Rental income 15,000

Dividend 3,750 NIL

Aggregate income 184,920

Less: Donation
- Hamper 1,000 NIL
- Cash 2,000 2,000

Total income 182,920

Less: Reliefs
Lifestyle
- Books 1,400
- Personal 1,200
computer
- Sport equipment 450 2,500
- Self 9,000 9,000
- Child (University) 8,000 8,000
- Child (Below 18) RM2,000 x 2 4,000
- EPF 4,000 27,680
- SOCSO RM15 x 12 mths 180

Chargeable income 155,240

Tax

On the first RM150,000 Tax rate 22,900

On the balance
(155,240 - 150,000) 5,240 24% 1258

Tax charge 24,158

Rebate NIL

Zakat NIL

Tax Payable 24,158

Mrs. Karen
Mrs. Karen and her good friend, Ms. Yasmin have been carrying on a partnership business
since 1 January 2016 and the accounts are prepared to 31 December each year. The
partnership agreement provides the following:
(i) Interest on capital of 10% per annum for each partner.
(ii) Capital contribution of RM40,000 (Karen) and RM60,000 (Yasmin).
(iii) Salary of RM2,000 per month for each partner.
(iv) Profit sharing ratio of 2/5 (Karen) and 3/5 (Yasmin)

Karen Yasmin
Interest on capital 10% 10%
Capital contribution RM40,000 RM60,000
Salary (per month) RM2,000 RM2,000
Profit sharing ratio 2/5 3/5

On 30 June 2020, Yasmin migrated to Canada. She left the partnership and withdraw his
capital and profit up to the date.
New partner, Hana joins the partnership. The new agreement is as follows:
(i) Interest on capital of 10% per annum for each partner
(ii) Capital contribution of RM50,000 (Karen) and RM50,000 (Hana).
(iii) Salary of RM2,000 per month for each partner.
(iv) Profit sharing ratio of 1/2 (Karen) and 1/2 (Hana).

Karen Hana
Interest on capital 10% 10%
Capital contribution RM50,000 RM50,000
Salary (per month) RM2,000 RM2,000
Profit sharing ratio 1/2 1/2

The partnership’s trading, profit and loss account for the year ended 31 December 2020
shown net profit of RM78,000. The profit has been deducted with partners’ salaries and
partners’ interest on capital for the year. It has also been deducted with depreciation of
RM26,000, legal fees to amend the agreement of RM1,000 and cash donation on 24
December 2020 to an approved institution of RM2,000.
Capital allowance for the YA 2020 is RM22,000.
During the year, Mrs. Karen incurred the following expenditures:
(i) Sport equipment and sport attire of RM300 and RM438 respectively.
(ii) Medical and education insurance with Hong Leong Insurance for her family totaling
RM2,500.
(iii) Medical expenses for both of her parents for RM2,000. Mrs. Karen takes very good
care of her parents whose house is just a few blocks from her house.
(iii) Full set of supplement and skincare treatment for the family of RM1,900.

Required:
For the year of assessment 2020, assuming Ts. Teoh and Mrs. Karen opt for separate
assessment, and Ts. Teoh claims the children relief, compute the tax payable for:
(i) Ts. Teoh and
(ii) Mrs. Karen.

RM RM
Net Profit 78000
Add: Non-allowable expenses
Depreciation 26000
Legal fees to amend the agreement 1000
Cash donations to approved institution 2000 29000

Add: Partnership private expenses

Salaries for partners income 48000
Interest on partners capital contributions 10000 58000

Provisional adjusted income 165000

Less: Partnership private expenses (58000)
Divisible income 107000
Divisible Income Karen (RM) Yasmin (RM) Hana (RM) Total (RM)
(1/1 - 30/6) 107000*6/12=
53,500 21400 32100 NIL 53500
(1/7 - 31/12)
107000*6/12= 53,500 26750 NIL 26750 53500
48150 32100 26750 107000
Add: Partnership private
expenses
Salaries for partners
income *24,000 *12,000 *12,000 48000

Interest on capital
allowance *4,500 *3,000 *2,500 10000
Adjusted Income 76650 47100 41250 165000

Less: Capital allowance *(11,000) *(11000) 22000

Statutory income 65650 47100 30250 143000
Less: Approved donations
Less:Cash donations (2000
x ½) (1000) (1000) (2000)
Total Income 64650 47100 29250 141000
RM RM RM RM
Less: Relief
Self 9000
-Sport equipment 300
-Sport attire 438
-Medical & education tax 2500
-Skincare treatment 1900
Medical expenditure for
both parent (Karen) 2000
(16138)
Chargeable income 48,512
Tax on the first RM35,000 600
On the balance
(48,512-35,000) 13,512 tax rate 8% 1081
1681
Rebate NIL
Tax Payable 1681

*Notes*
Salaries for partners income:
Karen: (2000 x 6) + (2000 x 6)= RM24,000
Yasmin: 2000 x 6 = RM12,000
Hana: 2000 x 6 = RM12,000

Interest on capital allowance:

Karen: (40000 x 10% x 6/12) + (50000 x 10% x 6/12)= RM4,500
Yasmin: 60000 x 10% x 6/12= RM3,000
Hana: 50000 x 10% x 6/12= RM2,500

Capital allowance:
Karen: 22000 x 1/2= RM11,000
Hana: 22000 x 1/2= RM11,000
Reference:
● https://drive.google.com/file/d/1qGh1V_Uv0l1ZxKNQcD1ighmo3VghtWfp/view
(Income tax rates for individuals for the Year Assessment page 2)
● https://classroom.google.com/u/0/w/MzEyMTY0OTMwMzE4/tc/MzEzOTk1NDM2OD
Qy (Cost of car page 4)