Scribd
Upload
372 views

ACC2054 Tutorial 3

This document contains a summary of four questions from an ACC2054 Malaysian Taxation System tutorial. Question 1 asks whether compensation received for the early cancellation of a distribution agreement is taxable. The summary concludes that it is taxable as the compensation reflects profits the company would have received under the full agreement. Question 2 involves issues around recovery of bad debts and goods taken for personal use. The summary outlines which amounts constitute gross income and which laws are applicable to each part of the question. Question 3 asks whether proceeds from logged timber sold after acquiring land is capital or income. The summary concludes the proceeds are capital as the logging was part of developing the land into a plantation. Question 4 addresses taxability

Uploaded by

Euvan Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
372 views

ACC2054 Tutorial 3

This document contains a summary of four questions from an ACC2054 Malaysian Taxation System tutorial. Question 1 asks whether compensation received for the early cancellation of a distribution agreement is taxable. The summary concludes that it is taxable as the compensation reflects profits the company would have received under the full agreement. Question 2 involves issues around recovery of bad debts and goods taken for personal use. The summary outlines which amounts constitute gross income and which laws are applicable to each part of the question. Question 3 asks whether proceeds from logged timber sold after acquiring land is capital or income. The summary concludes the proceeds are capital as the logging was part of developing the land into a plantation. Question 4 addresses taxability

Uploaded by

Euvan Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

ACC2054 Malaysian Taxation System – Tutorial 3

Question 1
DA Distributors Sdn Bhd acts as a distributing agent for a number of chemical
manufacturers. It has recently entered into an agreement with Kimica Sdn Bhd to
act as its distributing agent for a period of five years. The agreement was cancelled
after two years by Kimica Sdn Bhd and DA Distributions Sdn Bhd received a sum of
RM60,000 as compensation for the cancellation of the agreement.
Required
State with reasons, whether the compensation received by the Company is taxable.
Solution: Taxable (slide 30)
1) Since DA is a distributor for several chemical manufacturers, this is not the
only such agreement it entered into. Hence its business structure is likely to
be unaffected by the cancellation
2) Moreover, the compensation arised in the normal trading of the company.
Hence it would be reasonable to expect that contracts are entered and
cancelled from time to time
DA acts as a distributing agent for various chemical manufacturers. As such, the
number of agreements it has can vary from time to time and may be cancelled,
varied or amended as necessary. Therefore, it is normal incidents of business that
an agreement may be cancelled. The RM 60k compensation is a taxable receipt as it
generally reflects the profit which the company would or might have received if the
agreement had not been terminated prematurely.
Further check the Income Tax Act 1967 (get the PDF) S 22(2) b [just ctrl F
“compensation] {but this course not really test on law, wait and double check with
lecturer}
Just say, DA only have 3 suppliers, 20 mill revenue but of that 17 mill from Kimica
products. So by termination of agreement, might threaten going concern. Hence can
be argued that the compensation instead will be capital in nature
Question 2
Bashara operates a mini market in Mantin. In 2015, Bashara wrote off a RM7,000
trade debt. This bad debt written off was then claimed as a deduction against its
gross income of the year of assessment 2017. In 2018, Bashara recovered
RM2,000 of that debt that was written off.
In 2014, Bashara gave a personal loan of RM1,500 to her employee. This loan was
fully written off in 2017, but was not allowed as a deduction against its gross income.
In 2018, she recovered RM1,000 of the loan that was written off.
During the year 2018, it was established that the total cost of the goods taken for
Bashara’s household was amounted to RM5,200. No payment was made. If these
goods were being sold to customers, the total sales price would be RM6,900.
ACC2054 Malaysian Taxation System – Tutorial 3

RM 2k debt recovered in 2018 constitutes gross income from Bashara’s business for
the YA2018, because the trade debt previously written off was allowed as a
deduction against the gross income. [S30(1)]
The RM 1k personal loan recovered in 2018 does not constitutes gross income from
Bashara’s business for the YA2018 because the debt previously written off was not
allowed as a deduction against the gross income. [here S30(1) not applicable]
Any stock in trade which has been taken for private purposes by the proprietor
without payment/consideration is to be treated as gross income at market value. As
such, the goods withdrawn of RM 6,900 constitute gross income from the business
for the YA 2018.
Laws applicable
i) Recovery of bad debt S30 (1)
ii) S39
iii) S24(2)
In situation ii), the loan written off was not a deduction because the loan itself is not
related to the business source. If the business was a bank or loan shark then it
would be different, but giving loans has nothing to do with a mini market ie not a
source of income for this particular business.
Question 3

Gamuda Bhd entered into an agreement with the Pahang state government for the
acquisition of 2,000 acres of rain forest. The capital sum payable by Gamuda Bhd for
the land was RM200 per acre. Gamuda will develop the land into an oil palm
plantation in 3 years time.

Soon after the acquistion, Gamuda fell and logged the timber on the land and
eventually sold the timber to a manufacturer of wooden furnitures.

Required
Advise Ganuda Bhd whether the proceeds from the sale of the logged timber would
be assessable to income tax.
ACC2054 Malaysian Taxation System – Tutorial 3

Solution: Badges of Trade


No frequency of transaction
However, it fulfills subject matter as timber is normally the subject of trading
Quick turnover is debatable? Gamuda logged the timber soon after but it only sold it
“eventually”.
Under the circumstances of this case, the falling and extraction of timber was a
necessary process (to clear the land for plantation purposes) inseperable from the
process of developing the land into an oil palm estate.
The timber was part of the capital asset acquired by a payment of a capital sum, and
the proceeds from the sale of the timber would effectively reduce the further
expenditure of developing a capital asset ie the estate.
Hence, the proceeds from the sale of timber would be regarded as capital in nature
and thus not assessable to income tax.

Question 4 (ACCA)
A manufacturing company in Malaysia exports 20% of its products to Australia. The
sales proceeds are credited to the company’s bank account in Australia.

Required:
Explain the taxability of the income retained in the company’s Australian bank
account.

S12(1)(b) [ More appropriate] – Since manufacturing is done in Malaysia, gross


income from sale of product is taxable.
S12(1)(a) ?? Operations Test - Stocks maintained in Malaysia
Then use slide 23 example ie depending on if direct sale to customer or if through
foreign branch
As the company carries on a manufacturing business in Malaysia, any income from
the export of product manufactured in Malaysia in the course of its manufacturing
business is deemed to be gross income from that manufacturing business derived
from Malaysia S12(1)(b)
The fact that the sales proceeds are not repatriated to Malaysia does not change the
fact that the income is derived from Malaysia
As the scope of charge in Malaysia is that all income derived from Malaysia is
chargeable to income tax in Malaysia, the sales proceeds from the 20% export to
Australia is subject to income tax in Malaysia.

You might also like