Strategic Professional

– Options
Paper ATX
Advanced Taxation (Malaysia)

ACADEMIC SESSION – JULY TO DECEMBER 2023

PROGRESS TEST - FOR ACCA PAPER ATX (M)

LECTURER: MS KOK

GROUPS: 11 and 12

EXAM DATE: 11 OCTOBER 2023

Time allowed: 3 hours 15 minutes

INSTRUCTIONS TO CANDIDATES

ALL 4 questions are COMPULSORY and MUST be attempted

Please answer in either in a Microsoft Word or Microsoft Excel file. The system
will not accept both files .

Where the Microsoft Excel is used, please answer up to column “P”. Any
answers beyond column P will not be awarded any marks.

Do Not Turn Over the Paper Until Instructed to Begin Writing

TAX RATES AND ALLOWANCES (YA 2022)

The following tax rates, allowances and values are to be used in answering the
questions.
Income tax rates
Resident individual
Chargeable Income Rate Cumulative Tax
RM RM (%) RM
First 5,000 (0 – 5,000) 0 0
Next 15,000 (5,001 – 20,000) 1 150
Next 15,000 (20,000 – 35,000) 3 600
Next 15,000 (35,001 – 50,000) 8 1,800
Next 20,000 (50,001 – 70,000) 13 4,400
Next 30,000 (70,001 – 100,000) 21 10,700
Next 150,000 (100,001 – 250,000) 24 46,700
Next 150,000 (250,001 – 400,000) 24.5 83,450
Next 200,000 (400,001 – 600,000) 25 133,450
Next 400,000 (600,001 – 1,000,000) 26 237,450
Next 1,000,000 (1,000,001 – 2,000,000) 28 517,450
Exceeding 2,000,000 30

Resident company
Paid-up ordinary share First RM 600,000 Excess over RM 600,000
capital
RM 2,500,000 or less 17% 24%
More than RM 2,500,000 24% 24%

Non-resident
Company 24%
Individual 30%
Labuan entity - Income from a Labuan trading activity)
All chargeable profits :
- if fulfil substance requirements 3%
- if do not fulfil substance requirements 24%

Trust body – resident or non-resident

All chargeable income 24%
 Personal deductions
RM
Self 9,000
Disabled self, additional 6,000
Medical expenses expended for parents (maximum) 5,000
Medical expenses expended on self, spouse or child with serious disease and
for fertility treatment, including up to RM1,000 for medical examination
and RM1,000 for vaccination (maximum) 6,000
Basic supporting equipment for disabled self, spouse, child or parent (maximum) 6,000
Study course fees for skills and qualifications
(including self enhancement up to RM2,000 ) (maximum) 7,000
Lifestyle 2,500
Additional lifestyle allowance for sports related items 500
Spouse relief 4,000
Disabled spouse, additional 5,000
Child – basic rate (each) 2,000
Child – higher rate (each) 8,000
Disabled child (each) 6,000
Disabled child, additional (each) 8,000
Child care (below six years old) (maximum) 3,000
Breastfeeding equipment (maximum) 1,000
Life insurance premiums (maximum) 3,000
Contributions to approved funds (maximum) 4,000
Life insurance (public service) (maximum) 7,000
Private retirement scheme, deferred annuity premiums (maximum) 3,000
Medical and/or educational insurance premiums for self, spouse or child (maximum) 3,000
Deposit for a child into the National Education Savings Scheme (maximum) 8,000
Contribution to Social Security Organisation (SOCSO) (maximum) 350
Payment for use of electric vehicle charging facility for non-business use 2,500

Rebates
Chargeable income not exceeding RM 35,000 RM
Individual – basic rate 400
Individual entitled to a deduction in respect of a spouse or a former wife 800

Capital allowances
Initial Annual
Rate %
Rate %
Industrial buildings 10 3
Plant and machinery – general 20 14
Motor vehicles and heavy machinery 20 20
Office equipment, furniture and fittings 20 10
Computers 20 20
Agriculture allowance
Buildings for the welfare of or as living accommodation
for farm employees Nil 20
Other buildings used in the business Nil 10
All other qualifying agriculture expenditure Nil 50

Real property gains tax

Companies Individuals & Executors
incorporated who are non-citizens and
in Malaysia non-permanent residents
or Trustee of & Companies not All other
Categories of disposal a Trust incorporated in Malaysia persons
(%) (%) (%)
Disposal within 3 years 30 30 30
Disposal in the 4th year 20 30 20
Disposal in the 5th year 15 30 15
Disposal in the 6th year or 10 10 0
thereafter

Sales and services tax

Sales tax rate 5% / 10%

Service tax rate 6%

Stamp duty
Rates of duty under the First Schedule
Conveyance, assignment, transfer or absolute bill of sale Rate %
Sale of property
For every RM 100 or fractional part thereof :
On the first RM 100,000 1
On the next RM 400,000 2
On the next RM 500,000 3
On the excess over RM 1,000,000 4

Sale of company shares

On every RM 1,000 or fractional part thereof RM 3.00
Section A – BOTH questions are compulsory and MUST be attempted

Question 1

You are a tax associate of Tax Firm.

On 3 September 2022, you and your tax director met with Mr Han Son Tan , the chief
financial controller of Excellent Berhad (EB), a company listed in the Bursa Malaysia.

EB was involved in investment holding, share dealing and furniture manufacturing. EB

makes up its accounts to 31 May annually.

The following exhibits, available on the left hand side of the screen, provide information
relevant to the question;

1. Exhibit 1- Notes of meeting with EB

2. Exhibit 2- Personal tax affairs - extract from an email received
3. Tax director's email - outlining what you are required to do

This information should be used to answer the question requirements within your chosen
response option(s).

Exhibit 1- Notes of meeting with EB

Compensation sum
1. On 25 November 2022, EB acquired all the shares in Small Bhd. Puan Maimun, one of
the senior staff in Small, has been asked to leave the Company on 31 December 2022.
Puan Maimun, who is now 49 years old and still in good health, will receive a
compensation sum of RM 250,000 for the early termination of her employment.

2. Since 1 July 2005, Puan Maimun has been working for Small Bhd except for a period of
two years when she was seconded to Tiny Sdn Bhd, a 55% subsidiary of Small Bhd.

Grant and subsidy

3. EB’s holding company , Rosti Highway Bhd (RHB), an EV battery manufacturer, has
been in operation since 2000.

In 2022, RHB has also successfully obtained a grant from the Malaysian Investment
Development Authority (MIDA), a government agency for the following:

• RM3 million to subsidise the acquisition cost of the new machinery of RM10 million;
• Up to RM1 million to cover consultancy fees incurred to improve the manufacturing
process.

In addition, EB has provided a loan of RM400,000 to RHB to cover the purchase of

lithium, a high raw material costs of manufacturing the EV batteries. There is no
requirement for RHB to repay the loan back to EB.
 Exhibit 2- Personal tax affairs -extract from an email received from EB
EB’s appointment of virologist
4.EB has employed a virologist, James from the United States to oversee the implementation of
the research into virology with a view to generate a new drug . James entered Malaysia for the
first time on 16 November 2021 and he is expected to leave the country after seven months
when the project ends on 15 June 2022.

EB’s marketing manager

5. Mr Geng has just been offered the post of marketing director with EB. The annual
employment package offered is either RM250,000 in cash or a combination of cash of
RM150,000 and the following non-cash items:

– an increased contribution to the Employees Provident Fund (EPF) from 12% to 19%;
– school fees for his children of RM20,000 a year; and
– free accommodation in premises rented by EB for RM7,000 per month.

Mr Geng’s wife is a home-maker with no income of her own. They have two children, both
under ten years of age.

Since EB is very keen to retain Mr Geng with the company for long term , the director is
concerned about his tax matters and wish to provide him with the most tax efficient
remuneration package.

EB’s senior manager

6. Jonathan, a senior manager, been attached to EB for ten years, has been granted an option to
acquire 1,000 shares of EB at RM1 per share for an option period of 2 years. The market value
when the share option is available to Jonathan is RM4 on 21.7.2022. When Jonathan exercised
the option on 18.8.2022 , the market value is RM6.

Jonathan paid RM800 interest expense on a bank loan obtained to buy the share option. A
dividend in specie worth RM300 was received on 27 August 2022 . Nevertheless, these shares
were being disposed of by Jonathan on 1 September 2022 for RM9 per share.

To ensure the 1,000 shares would be available to Jonathan upon exercise of the option, EB
acquired 600 unit of treasury shares from a director of the Company at RM4 and issued 400
units of new shares to meet its obligations.
 Tax director’s email

To : Tax associate
From : Tax director, Shaun
Subject : Excellent Bhd
Date : 2 September 2022

Hi

I need you to prepare some notes in preparation for an internal meeting with the rest of the
engagement team. The notes should be set out in a manner which will make it easy for you to
refer to them during the meeting and should address the following issues;

(i)Determine, giving brief explanations why the sum received is considered a compensation
for loss of employment, the amount of the compensation sum on which Puan Maimun will
be chargeable to tax, if any, and the time at which it will be chargeable.
(8 marks)

(ii)The tax treatment of grant .

State the income tax treatment in relation to the grant or subsidy income received by RHB and
the deductibility of the relevant expenditure.
(6 marks)

(iii) Explain how James, the virologist will be taxed in Malaysia and, based on his tax
residence status for the years 2021 and 2022, advise how he might minimize his overall
Malaysian tax liability.
(8 marks)

(iv)(a)Compute the comparative tax payable by Mr Geng under each of the two alternative
employment packages in the appendix.

(b)Compute the relative cash available to Mr Geng for each package after paying
his income tax liability, children’s school fees and rent in the appendix.

Note: For the purposes of this part you should assume that the cost of his children’s
school fees and rent will be the same to Mr Geng as for his employer and treat the
employer’s contribution to the EPF as available cash.
(8 marks)

(v) Explain the relative merits of each package.

Note: You should consider both tax and non-tax issues in this part.
(3 marks)
(vi)Compute Jonathan’s taxable benefits in respect of his entitlement for the share option for
the relevant Year of Assessment.
(2 marks)
(v)Explain the income tax treatment of the following:
(a)the gain from the disposal of shares by Jonathan on 31 December 2022
(b)the dividend in specie of RM300 received on 27 December 2022
(c )the bank interest paid by Jonathan for acquisition of the share option
( 2 marks)

(v) In respect of EB, explain whether or not a tax deduction will be available on the
acquisition of the shares
(a) from the directors
(b) by issuance of new shares
( 3 marks)

I look forward to seeing your notes.

Regards
Shaun

Requirements

You should assume that today's date is 10 September 2022.

Respond to the instructions in the email from your tax director.
Note: The split of the mark allocation is shown in Exhibit 3 - Director's email.
(40 marks)

Professional marks will be awarded for the demonstration of skill in communication, analysis
& evaluation, scepticism and commercial acumen in your answer. (10 marks)
(50 marks)
Section B- all questions must be attempted

Question 2

You are a tax associate of Tax Firm and yesterday a client, Ms Nancy (Nancy), visited Tax
Firm’s office to meet with you and your tax manager.

The following exhibits, available on the left-hand side of the screen, provide information
relevant to the question:

1. Exhibit 1 – Information regarding Nancy’s investments and business ventures. It

relates to requirements (a) to (b).

2. Exhibit 2 – Information regarding Nancy’s various income sources. It relates to

requirements (a) to (b).

Exhibit 1

Nancy resides in Malaysia under the ‘Malaysia My Second Home’ programme. She spent 8
months and 9 months in Malaysia in each of 2021 and 2022 respectively.

She solely supports her only child who became 19 years of age in 2022.

Nancy’s investment portfolio comprises the following:

- rental property in New Zealand;

- a deposit money market account with a bank in Netherlands (NL); and

- shares in companies listed on the Bursa Malaysia.

On 1 May 2022, Nancy, together with another Malaysian resident individual, incorporated
a company, Macy Sdn Bhd (Macy), and immediately commenced a business of buying and
selling art works. All two founder members are directors, each holding half of the ordinary
paid-up share capital of RM 3·3 million. Macy will close its first set of accounts to 30
November 2022, and thereafter to 30 June each year.
Exhibit 2
During the basis period for the year of assessment 2022 (YA 2022), Nancy derived the
following income and gains :

- rental income from the rental property in New Zealand of which RM 55,000 (net of
New Zealand tax ) was remitted to Malaysia.

- interest equivalent to RM 50,000 earned from the money market account in the
Netherlands. This amount of interest was used to pay for her child’s PHD course in the
University of Amsterdam in Netherlands.

- a gain of RM 25,000 on the sale of one of her share investments.

- dividends of RM 14,600 from the remaining share investments she has in 10 listed
companies.

- with effect from 1 July 2022, Nancy will receive director’s remuneration of
RM 11,500 a month from Macy Sdn Bhd, payable to her bank account in Singapore.
She will also be provided with free accommodation in Kuala Lumpur by Macy. The
monthly rental cost of the accommodation, paid for by Macy, will be RM 13,000. The
accommodation in Malaysia is provided exclusively for use by Nancy, and in her
absence, by her immediate family members when they are in Malaysia.

- side income of RM 38,000 from working as a part-time legal advisor from 1pm to
5pm in a legal firm in Kuala Lumpur every Thursday and Friday in a week. On every
Monday, she has to fly to Singapore to give lectures in a college there. For this, she
was paid RM 50,000 which was remitted back to Malaysia. This income is subject to
tax in Singapore.

Required :

a) Explain how the following income and gains are treated for tax
purposes in Malaysia :
(i) rental income from the property in New Zealand (3 marks)
(ii) interest on the money market deposit with a New Zealand bank (2 marks)
(iii) accommodation from Macy Sdn Bhd (3 marks)
(iv) gain and dividends from the shares in companies listed on the (2 marks)
Bursa Malaysia
(v) side income from legal advisory and lecturing (6 marks)

You should include the scope of charge, derivation, specific taxing

provisions and any other relevant issues relating to tax treatment of each
source in the explanation.
b) Computation of Nancy’s income tax payable for YA 2022 (4 marks)
Based on the information available, prepare Nancy’s computation of tax
payable for YA 2022.

Your computation should indicate by the use of “0” any items which are
not taxable.
(20 marks)

Professional marks will be awarded for the demonstration of skill in analysis

and evaluation, and commercial acumen in your answer. (5 marks)

(25 marks)
Question 3

Assume today’s date is 8 October 2022.

You are a tax associate of Tax Firm. Yesterday, your tax director participated in a conference
call with prospective clients, Jonathan, the chief financial officer of Excel Great Bhd (EGB).
During the call, Jonathan explained his ventures in Malaysia.

Extracts from the notes of the conference call and from an email from your director detailing
the work you are required to do are included in the exhibits.

The following exhibits, available on the left-hand side of the screen, provide information
relevant to the question:

1. Notes of conference call dated 7 October 2022

2. Email extract from the clients dated 7 October 2022

This information should be used to answer the question requirements.

Exhibit 1 – Notes of conference call – dated 7 October 2022

During the calendar year 2022, the following ensue:

James
1. James, a Malaysian citizen, graduated as an engineer from a local university in 2019 and took
a year off before continuing his master’s degree in the same university commencing in 2022. He
supports EGB as a part-time engineer , overseeing the production process in the factory. On
average, he works 20 hours per month, with a monthly fee of RM3,000.

Mark’s income from mobile application

2.Mark is a director of EGB since 2018. As a hobby, he has developed a health monitor mobile
application, which he uses both for his personal use and for sharing with his friends. The
innovative application caught the eye of an entrepreneur who intends to commercialize the
technology. It is agreed between Mark and the entrepreneur that a company will be set up to
commercialize the technology and Mark will be given a 20% shareholding in the company.

Mark’s income from sale of sales

3.Based on the recommendations given by his friends, Mark borrowed some money from the
bank to invest in shares listed on the local stock exchange. During the period, he bought three
share counters, of which he has sold one share counter in December 2022 and made a gain of
RM20,000. He continued to hold the other two share counters.
4.EGB is venturing into education business with a new campus.
EGB has a wholly-owned subsidiary, Tanah Sdn Bhd (Tanah), which provides residential
accommodation to the students.

5. As part of EGB’s expansion plan, a new campus is being built on land owned by Tanah.
Upon completion of the campus property, it will be let out to EGB.

6. The managing director of EGB has been informed by a friend that the proposed arrangement
whereby Tanah will own and let out the new campus property to EGB is not tax efficient. The
friend has suggested that EGB should immediately acquire the campus property, and when it is
ready, the property will be used for its own college operations, rather than being leased from
Tanah. The value of the new campus property is RM20 million.

EGB’s bungalow
7. Immediately after the acquisition of a bungalow, EGB rented out the bungalow to a tenant
until December 2021. From 1 January 2022 to 1 March 2022, the bungalow was unoccupied,
but EGB maintained it in good condition and ready to be let out.

8. On 1 March 2022, EGB entered into a rental agreement requiring its tenant to pay
RM96,000, being one year’s rental in advance to cover the tenancy period of March 2022 to
February 2023 EGB has a year end of 31 December, resulting the receipt of the January and
February 2023 being received in advance in 2022.

For the calendar year 2022, David also incurred the following expenses:
RM
2022 quit rent and assessment 1,200
Roof repair (incurred on 20 November 2022) 1,500
2022 Mortgage interest 18,000

The bungalow was disposed on 1 March 2023 . Meantime , EGB continued to incur quit rent
and assessment and mortgage interest costs for the period up to 28 February 2023 of RM1,000
and RM15,000 respectively.

Exhibit 2 - Email extract from your tax director dated 7 October 2022

Following my meeting with Jonathan, please carry out the work on the following:

(a)(i) Identify with reasons, the nature of income received by James and explain the
appropriate tax treatment for this income.
(ii)Explain how the various amounts received by Mark be taxed and include the tax
treatment of the gains arising from the sale of shares.

(b) Explain how Excel Great Bhd (EGB) purchasing the new campus property from
Tanah Sdn Bhd (Tanah) could improve the tax position of the group. Discuss this from
the eligibility to industrial building allowance on the campus property.
 (c)(i) In view that the bungalow was not rented out from 1 January 2022 to 28 February
2022, explain the deductibility of the 2022 quit rent and assessment and the 2022
mortgage interest.

(ii) Explain the income tax treatment of the quit rent and assessment and mortgage
interest costs for the period up to 28 February 2023 of RM1,000 and RM15,000
respectively.

Requirements
The following marks are available:

(a) Tax treatment of income received (9 marks)

(b) Tax treatment of the new campus (6 marks)

(c) Rental from bungalow (5 marks)

Professional marks will be awarded for the demonstration of skill in analysis

and evaluation, and commercial acumen in your answer. (5 marks)

(25 marks)
END OF PAPER