CIA2005 Individual Income Tax

Tutorial 6

Question 1
Labu purchased a piece of rubber land for RM250,000 from Labi in March 2005. The land
situated 10 kilometres away from Sungai Petani, which was surrounded by a newly
developed housing area. In the following year, Labu made two applications, one to the State
Government for the conversion of rubber land into residential land and another one to the
Sungai Petani Town Council for approval to build residential houses on the land. Both
applications were approved in 2016. In 2017, Labu sold the vacant land to Lobo Sdn Bhd for
RM1.5 million payable by way of shares in the company. The shares were later transferred to
his children.

Required:
State, with reason, whether the profit on the sale of the land is subject to income tax.

Question 2
Rani runs a ballet and ballroom dancing class. Fees are charged based on the total number of
lessons per course and the full fees are payable in advance. If for any reason a pupil were
unable to attend a lesson, Rani would refund the fee for that lesson. For the accounting year
ended 31.12.2017, Rani received fees totalling RM200,000. Of this amount, RM160,000
relates to lessons completed up to 31.12.2017 while the balance of RM40,000 relates to
lessons yet to be given or fees refundable to pupils.

Required
Explain with reason, whether the RM40,000 received by Rani is assessable to tax for YA
2017.

Question 3
Langkawi Co-operative Housing Society (LCHS) purchased a piece of land, which was later
subdivided with the intention of building houses on the land and selling the houses to its
members. A developer agreed to buy a portion of the divided lots and promised to sell the lots
to the taxpayer’s members at the same price. Demand for the houses was poor and LCHS was
forced to sell the remainder of the lots to the developer. The developer was also released from
its obligations to sell the lots to the taxpayer’s members.

Required:
State, with reason, whether the profit arising from the sale of land is subject to income tax.

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Question 4
State, with reasons, whether the expenditure incurred in the following circumstances is
deductible for tax purposes:

a) Zack Sdn Bhd bought a second hand factory for RM300,000 which was vacant for
many years and in need of repairs. Soon after it was acquired, the company incurred
RM100,000 on extensive repairs which included RM10,000 on repainting of the
factory walls and RM20,000on replacement of the roof tiles with new tiles of similar
quality. The balance of the repair costs was mainly incurred on the rewiring of the
electrical system, improving the drainage system surrounding the factory, renovations
and alterations to the factory.

b) Express Bus Service Sdn Bhd is in the business of transporting passengers by modern
coaches from Kuala Lumpur to another town in Malaysia. The drivers are paid a basic
salary and a commission based on the number of trips made. In some of the long
distance trips, the drivers were issued summonses by traffic police for overloading
and for exceeding the speed limit along the highways. Any fines for such offences
would be borne by the company.

c) Sandeep Singh, a lawyer has just started his law practice as an advocate and solicitor.
To equip the reference library for his practice, Sandeep incurred the following
expenses:
i. Purchased Malayan Law Journal and other aw textbooks for RM15,000;
ii. Subscribed to periodicals such as Current Law Journal and Weekly Law
Reports costing RM600 per annum;
iii. Paid RM100 for the cost of binding the periodicals.

d) Tintin Sdn Bhd, a mining company, was forced to close its mine and ceased tin
mining operations due to the depressed tin prices. The company laid off its employees
and paid retrenchment benefits totalling RM500,000 as required by labour law.

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Question 5
Amar, a Malaysian resident has income from the following sources for YA2017:

RM
Business income 1:
Gross income 9,550,000
Expenditures (Note) 7,230,000
Capital allowances 150,000
Balancing allowance 30,000
Balancing charge 50,000
Capital allowance brought forward 80,000
Unabsorbed business loss brought forward 80,000

Business income 2:
Current year business loss 400,000

Other income:
Rental 250,000
Interest received during the year 35,000
Dividend (net of tax 25%) 75,000

Note:
Included in expenditures for the year were the following:
RM
Depreciation 1,067,000
Cash donation to State Government 250,000

Required:
Compute the chargeable income for Amar for YA2017.

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Question 6

Information submitted by Clarissa:

YA 2016 YA 2017
RM RM
Business A
Adjusted income / (loss) (10,000) 5,000
Balancing charge 6,000 -
Capital allowances 4,000 1,000

Business B
Gross income 35,000 38,000
Expenditure (note 1) 34,500 55,000
Capital allowances 7,000 2,000
Capital allowances brought forward 1,500 -
Loss brought forward from previous year 1,200 200

Adjusted rental income 4,000 6,000

Interest (note 2) 3,200 4,150
Dividends (exempt) - 1,800
Dividends (net of tax at 25%) 1,350 -

Note 1:
Specific bad debt provision 2,000 5,000
Depreciation 3,500 4,500
Donations to approved institutions 1,000 500

Note 2:
Interest is from Rakyat Banking Berhad (a resident bank) on fixed deposit.

Required:
Compute the chargeable for Clarissa for YA 2016 and 2017.