QUESTION 3 AB Development Sdn Bhd ('the company') was incorporated on 1 October 2003 with the objective of constructing and developing commercial and residential properties. The company bought a piece of land in February 2004, and applied for development approval in May 2004. However, due to some technical problem, the land was bought over by the government in November 2011, for the purpose of agriculture project. The company was paid RM75 million in March 2013 as the final settlement. The company filed a notice of objection but was rejected. The Inland Revenue Board raised an assessment on the compensation received by the company, under the Income Tax Act 1967 (as amended) for the year of assessment 2013. However, the company, on the advice of its lawyers, objected to the assessment. REQUIRED: Explain the basis on which the Inland Revenue Board raised an assessment on the RM75 million compensation received by the company. (6 marks) ) Summarize the basis used by AB Development's lawyers in advising the company to object the assessment. (14 marks) (Total mark: 20 marks) (Overall Total: 100 marks) -END OF QUESTIONS SUPPLIMENTARY INSTRUCTION 1. Calculations and workings should be made to the nearest RM. 2. All apportionments should be made to the nearest whole month. 3. All workings should be shown. TAX RATES AND ALLOWANCES The following tax rates, allowances and values are to be used in answering the questions. Income tax rates Resident individuals Chargeable income Rate Cumulative tax RM RM % RM First 5,000 (0 - 5,000) 0 0 Next 15,000 (5,001 - 20.0001 1501 Next 15.000 (20,001 - 35,000 3 6501 Next 15.000 (35,001 - 50,000 8 1,8001 Next 20.000 (50.001 - 70,000) 14 4,600 Next 30,000 (70,001 - 100,000) 21 10,9001 Next 150,000 (100,001 - 250,000) 24 46,9001 Next 150,000 (250,001 - 400,000) 24.5 83,6501 Next 200,000 (400,001 - 600,000 25 133,6501 Next 400,000 600,001 - 1,000,000 26 237,650 Next 1,000,000 1,000,001-2,000,000 28 517,650 Exceeding 2,000,000 30 Resident company First Excess over Paid up ordinary share capital RM2,500,000 or less More than RM2,500,000 RM500,000 RM 500.000 17% 24% 24% 24% Non-residents Company Individual 24% 28% Personal reliefs and allowances RM 9,000 6,000 (maximum) 5,000 6,000 (maximum) (each) 1,500 (maximum) 6,000 Self Disable self, additional Medical expenses expended on parents Medical expenses expended on self, spouse or child with serious disease, including up to RM500 for medical examinations Parental care Basic supporting equipment for disable self, spouse, child or parent Study course fees for skills or qualifications Lifestyle allowance Spouse relief Disable spouse, additional Child - basic rate Child - higher rate Disable child Disable child, additional Childcare (below six years old) Breastfeeding equipment Life insurance premiums and contributions to approved funds (maximum) 7,000 (maximum)2,500 4,000 3,500 (each) 2,000 (each) 8,000 (each) 6,000 (each) 8,000 (each, maximum) 1,000 (maximum) 1,000 (maximum) 6,000 (maximum) 3,000 Private retirement scheme contributions, deferred annuity premiums Medical and/or education insurance premiums for self, spouse or child Deposit for a child into National Education Savings Scheme Contribution to Social Security Organization (SOCSO) (maximum) 3,000 (maximum) 6,000 (maximum) 250 Rebates Chargeable income not exceeding RM35,000 RM Individual - basic rate 400 Individual entitled to a deduction in respect of a spouse or a former wife 800 Value of benefits in kind Car and fuel scale Cost of motor car Prescribed annual value of Prescribe annual value of (when new) private usage of motor car private petrol RM RM RM Up to 50,000 1.200 600 50,001 to 75,000 2,400 900 75,001 to 100.000 3,600 1,200 100,00 to 150,000 5,000 1,500 150,001 to 200,000 7.000 1,800 200,001 to 250,000 9,000 2.100 250,001 to 350,000 15,000 2.400 350,000 to 500,000 21,250 2,700 500,001 and above 25,000 3.000 The value of the motor car benefit equal to half the prescribed annual value (above) is taken if the motor car provided is more than five (5) years old. Where a driver is provided by the employer, the value of the benefit is fixed at RM600 per month. Other benefit RM per month Household furnishings, apparatus and appliances, Semi-furnished with furniture in the lounge, dining room, or bedroom Semi-furnished with furniture as above plus air-conditioners and/or curtains and carpets Fully furnished premises 70 140 280 Domestic help Gardener 400 300 Capital allowances 14 Initial allowances Annual allowance (IA) (AA) Rate% Rate% Industrial buildings 10 Plant and machinery - general 20 Motor vehicles and heavy machinery 20 20 Office equipment, furniture and fittings 20 10 Agriculture allowance Buildings for the welfare of or as living accommodation for farm employees 20 Other buildings used in the business NIL 10 All other qualifying agriculture expenditure NIL 50 NIL Real property gains tax Companies Individuals All other -non- persons residents and non- permanent residents Rate % Rate % Rate % Category of disposal Disposal within three (3) years after the date of acquisition 30 30 Disposal in the fourth (4*) year after the date of acquisition 20 20 Disposal in the fifth (5) year after the date of acquisition 15 15 Disposal in the sixth (6) year after the date of acquisition or thereafter 5 30 30 30 5 0 Goods and services tax (GST) Standard rate 6% Registration limit RM500,000 Sales and services tax (SST) Sales tax 10% Service tax 6%