QUESTION

Mr. Michael Lim (Mr. Lim) died sometime in May 2017. He left behind a wife, Madam Lim and four (4) children. He had a will that named his wife as the executor, and his four children as the beneficiaries. The will provided for Madam Lim to carry on his business after his death. Under the will, the

payment from the trust would be as follows:

(i) the first child would be one quarter of the distributable income of the trust, and

is to be paid at the discretion of the executor;

(ii) the sum paid to the second and third child shall be one half of the balance of

the distributable income after accumulation for the fourth child, a girl who was

only four years old in 2019. Madam Tan would be entitled to RM55,000

annuity per year.

During the year 2019, Madam Lim made the following payments from the trust:

Recipients Amount

(RM)

1. Annuity 55,000

2. First child 91,000

3. Second child 137,000

4. Third child 137,000

5. Fourth child (sum accumulated) 27,000

The trust received investment income during the year ended 31 December 2019 details of which

are as follows:

Particulars Amount (RM)

1 Rent from a property in Malaysia 21,210

2 Interest from a fixed deposit in a local bank 5,762

3 Dividends (Malaysia) (single tier) 9,583

4 Dividend (Singapore) (remitted in 2019) 13,638

Legal fee of RM5,280 was incurred to settle a third-party claims in connection with the trust. A negotiated lump sum payment of RM66,000 was made to settle the claim out of court. Madam Lim is a qualified accountant and charged a management fee of RM30,800 for managing the trust during the year. Also, during the year, the trust made the following donations:

(i) Food packages valued at RM4,400 to a charity home during Chinese New Year

celebrations; and

(ii) Cash donation of RM5,500 to an approved charitable institution. These expenditures were charged to the trust business account under 'Expenses' and except for these charges, Madam Lim has confirmed that the balance of the other expenses are wholly and exclusively incurred for the purposes of the business carried on by the trust. For the year of assessment 2019, the trust is entitled to a capital allowance of RM62,940 and balancing allowance of RM31,469. It has a balancing charge of RM20,890 on an asset disposed of in 2019.

The trust business has a loss brought forward of RM7,920 and also an unabsorbed capital allowance brought forward of RM66,948.

The trust business income for the financial year ended 31 December 2019 was as follows:

RM

Gross income from business 734,744

Less: Expenses 314,695

Net profit 420,049

The trust distributable income for the year ended 31 December 2019 before accumulation for the fourth child was RM358,946.

Required:

Compute the chargeable income of the trust and the beneficiary's share of the trust total income

for the year of assessment 2019, assuming section 61 (2) is applied.

(10 marks)