2. Annual bonus of one-and-a-half-month gross salary. The bonus was subjected to 11% EPF contribution and RM374 schedular tax deduction.
3. Monthly travelling allowance of RM500 and meal allowance of RM400 per month. These allowances were only paid up to February 2024.
4. JBX provided him with a mobile phone worth RM800 for work purposes. It also paid the monthly phone bills totalling RM1,200 for the year. Both the phone and bills were registered under the company’s name.
5. He was provided with a three-year-old car worth RM24,990 along with fuel. He only drove it for one month before the accident occurred.
6. He was given a single-storey terrace house as an accommodation. The house, which is owned by JBX, had the rateable value of RM1,000 per month. It also came with basic furniture in the living room, bedrooms, and kitchen. No electronic appliance was provided.
7. JBX provided and paid for the terrace house’s utilities, which bills were under its name. Srinivasan and his family had incurred a total of RM1,200 in utilities for the months they stayed there during the year.
8. JBX subsidised RM3,000 in interest on his loan of RM200,000 from a local bank. Srinivasan took the loan in the year 2017 to purchase a two-storey terrace house in Pekan Gerik.
9. JBX paid RM60,000 to cover the medical expenses for his injuries in the accident. It also made a cash payment of RM20,000 in March 2024 as compensation for his injuries.
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10. In July 2024, JBX renovated his two-storey terrace house in Pekan Gerik to make it disabled-friendly at a total cost of RM38,000. The entire renovation process, from architectural design to the construction itself, was fully performed by JBX using its own employees and materials.
11. Upon his departure from JBX, he was offered RM100,000 in ex-gratia. In return, he was required to sign an agreement not to sue the company for the accident. After several negotiations, he signed the agreement and was paid a lump-sum cash amount of RM250,000.
12. He withdrew RM30,000 from his investments in JBX’s unapproved provident fund. 85% of the amount came from his own investments. The balance was the interest earned by the fund.
Business Agreement with Sivagami
Srinivasan’s wife, Sivagami, is three years younger than her husband. For the past seven years, she has been operating Sivagami’s Cash & Carry, a stall selling prayer items and flower garlands near the Sri Subramaniar Temple in Gerik. She also takes in orders of traditional South Indian snacks and sweets.
The couple decided now that Srinivasan is certified as disabled, they should expand this business to be their main income-generating activity. They agreed that they should move the business from the stall into a proper shop lot next to the temple.
Both Srinivasan and Sivagami signed a business agreement which came into effect on 1st December 2024. The agreement contains the following clauses:
- Srinivasan was to invest the amount he withdrew from his provident fund in JBX. Sivagami was to invest an amount equal to half of Srinivasan’s investment. Each of them was to receive an interest of 4.00% per annum on their respective investment.
- Sivagami was to continue being the main person overseeing the business’ daily operations. Srinivasan was to assist depending on his health condition.
- Srinivasan and Sivagami were to receive monthly salaries of RM2,000 and RM3,000, respectively. Before this, Sivagami had never taken any salary from the business.
- Srinivasan and Sivagami were to share the profit or loss from the business at the ratio of 2:3.
The business’ statement of profit and loss for the year ended 31st December 2024 is as follows.
| Description | RM |
|---|---|
| Revenue from selling prayer items and flower garlands | 125,000 |
| Revenue from orders of snacks and sweets | 60,000 |
| Total revenue | 185,000 |
| Less: Costs of sales | (127,000) |
| Gross profit | 58,000 |
| Less: Expenses | |
| Salaries | (23,000) |
| Rental | (11,500) |
| Repairs and maintenance | (8,000) |
| Utility expenses | (6,480) |
| Interest expense | (150) |
| Miscellaneous expenses | (8,870) |
| Total Expenses | (58,000) |
| Profit before tax | nil |
Note:
1. RM18,000 was paid to Sivagami’s eighteen-year-old nephew who helped running the shop. The balance was paid to Srinivasan and Sivagami as their salaries for December 2024.
2. The rental expenses included the following items:
| Description | RM |
|---|---|
| Rental of old stall | 5,500 |
| Rental deposit for new shop lot (refundable) | 2,250 |
| Utilities deposit for new shop lot (refundable) | 1,500 |
| Rental of new shop lot | 2,250 |
3. RM6,500 was spent to renovate the new shop lot to accommodate wheelchair access for Srinivasan. The balance was incurred on general repair and maintenance activities.
4. RM350 of the amount was paid for January 2025’s electricity and water usages.
5. The interest was paid to Srinivasan and Sivagami for their investments in the business.
6. The miscellaneous expenses included the following:
| Description | RM |
|---|---|
| Depreciation | 4,770 |
| Cash and in-kind contributions to the Sri Subramaniar Temple in April and October 2024 | 3,100 |
| Cash contribution to a local orphanage (approved charitable institution) in December 2024 | 1,000 |
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The following assets had been purchased for the business during the year.
| Asset | Purchase Price (RM) |
|---|---|
| Air conditioner (excluding installation cost of RM382) | 1,649 |
| Cash register machine | 360 |
| Refrigerator | 2,605 |
| Shelves and racks | 4,000 |
| Tables and chairs | 1,000 |
Srinivasan and Sivagami had also received the following income during the year 2024:
| Income Source | Srinivasan (RM) | Sivagami (RM) |
|---|---|---|
| Interest from fixed deposit accounts in local banks | 9,000 | 12,000 |
| Net monthly rental income from leased farmland for the year | – | 4,750 |
Srinivasan and Sivagami share three children together. Their first daughter was born in 2012 while their twin sons were born two years later. The children are all studying in SJK(C) Chong Wa.
The couple has provided their list of expenditures for the year 2024. All these expenditures were supported with valid official receipts.
| Expenditure | Srinivasan (RM) | Sivagami (RM) |
|---|---|---|
| Purchase of a new electric wheelchair for Srinivasan | 1,300 | – |
| Tuition fees for Sivagami’s study in the Bachelor’s in Management programme in the Open University Malaysia | – | 3,780 |
| Medical expenses from the family’s clinic visits | 1,500 | 1,000 |
| Follow-up medical expenses for Srinivasan’s amputation (serious disease) | 4,000 | – |
| Dental treatments for children | 300 | 800 |
| Purchase of prescription eyeglasses for daughter | – | 200 |
| Personal cash donations to approved charitable organisations | 2,100 | 900 |
| Cash and in-kind donations to a neighbour whose wife passed away | 500 | 500 |
| Net savings in the children’s Skim Simpanan Pendidikan Nasional (SSPN) | 30,000 | – |
| Annual subscription of newspapers (print and electronic) | 950 | – |
| Purchase of gold jewelleries, bars, and coins | 100,000 | 2,000 |
| Purchase of revision books for children | – | 1,900 |
| Fees paid for children’s tuition classes | 2,400 | 4,800 |
| Subscription of online cooking magazines | – | 270 |
| Internet subscription for the family (registered under Srinivasan’s name) | 800 | 960 |
| Fees for sons’ football training camp. The camp was organised by a registered youth sports club | 820 | – |
| Life insurance premiums for Srinivasan and Sivagami | 9,100 | – |
| Medical insurance premiums for family | – | 10,000 |
| Voluntary EPF contributions | 100,000 | 20,000 |
| Annual premium for deferred annuity scheme under Srinivasan’s name | 7,400 | – |
Required:
Your superior has requested your group to prepare the following in anticipation of the next meeting with the clients:
1. Demonstrate, for the Year of Assessment (YA) 2024, the computation of:
a. Statutory Business Income for Srinivasan and Sivagami
(start your computation with the profit before tax figure).
(14 marks)
b. Statutory Employment Income for Srinivasan
(10 marks)
Note: Show ALL relevant workings. You should indicate using the word “nil” for any item referred to in the question of which no adjusting entry needs to be made in the tax computation. Round up your answers to the nearest Ringgit Malaysia (RM). Show the computation of capital allowances in a separate table.
2. Demonstrate the income tax payable computation of Srinivasan and Sivagami for YA2024 under the following circumstances:
a. The couple elects for separate assessments.
Sivagami is to claim the child relief.
(22 marks)
b. Sivagami elects for joint assessment
(start your computation with the total income figures).
(10 marks)
Note: Show ALL relevant workings. Round up your answers to the nearest Ringgit Malaysia (RM) except for the income tax payable values. You should indicate using the word “nil” for any item referred to in the question which requires no adjusting entries, reliefs, or rebates in the tax computation.
3. In reference to your answers in Question 2 above, explain to the clients the most tax-efficient option that is available for them in YA2024.
(4 marks)
Total: 60 marks
