TAXATION EAB41203
TUTORIAL - BUSINESS INCOME
1. A piece of land owned by 2 brothers Hin (teacher) and Jin (engineer) was disposed
for a profit of RM1million.
The land was purchased in 2014 when a friend of Jin informed him of a sale
advertisement in the newspaper. The brothers thought it would be good idea to build
homes for their families and their children’s families upon their retirement. Hin
withdrew money from his EPF while Jin withdrew money from his savings to pay for
70% of the purchase price. The remaining 30% was paid by a bank loan taken by the
two brothers.
Two years after the purchase, the brothers were approached by a used car dealer
who wished to buy the land. The brothers declined the offer to sell the land but
agreed to rent it out to the used car dealer for a period of 3 years. Upon expiry of the
tenancy agreement apportion of the land was planted with fruits which were
distributed among the brothers; relatives and friends.
In July 2020,the land was sold in order to settle the debts owned by Jin as well as to
pay for the overseas education of Hin’s children. This is the brothers’ first sale
transaction of real estate.
Determine with brief explanations and by reference to the badges of trade, whether
or not the profit from the above disposal is liable to income tax.
2. Explain with reasons whether the profits arising from the following transactions are
liable to tax:
a. Yanni, an employee of a textile company and Shaza a director of a canned food
manufacturing concern made some profits on the purchase and sale of 8 units of
cotton spinning plant. This is the only time Yanni and Shaza dealt in a transaction
of this nature. The units were sold to different purchasers. Expenses such as
commission, advertising, insurance, repair travelling andentertainment were
incurred in facilitating the sale.
b. Lou has varied business interests. While on a business trip overseas, he
purchased a piece of jewellery for his personal use. He expected the value of
jewellery to appreciate over the years. The purchase was made through a broker
and was financed by borrowing. 3 years later, he sold the jewellery making a
substantial profit. Lou has not disposed of any jewellery previously.
3.
Talib, a grocer cum licensed money lender, signed an agreement with Tony in
February 2002 to purchase a piece of rubber land for RM250,000. The land situated
7 kilometres away from Sg Petani was surrounded by a newly developed housing
area. Under the terms of the agreement, the vendor Tony agreed to:
i.
Demolish all existing buildings on the land
ii.
Apply for conversion of land use from agriculture to residential; and
iii.
Obtain the local authority’s approval fro the construction of residential houses
on the land.
Tony failed to fulfil term (ii) and (iii) and the agreement was terminated.
In June 2012, Talib purchased the land from Tony for the same price. In the following
year, Talib made 2 applications, one to the State government for the conversion of
rubber land into residential land and another to the Sg Petani town council for
approval to build residential houses on the land. Both applications were approved in
2019. In 2020, Talib sold the vacant lot to Hi-Lo Sdn Bhd for RM1.5 million payable
by way of shares in the company. The shares were later transferred to his children.
State with reasons, whether the profit on the sale of the land is subject to income tax.
4. Net Capable Sdn Bhd provides internet space to various businesses to place their
products to be sold via cyberspace. On 1 April 2020, Saudi Trading (Dubai), a
company in Dubai acquired an exclusive right for 3 years to promote middle east
products via the net, which Net Capable undertake not to accept similar placement in
the net. Net Capable was paid RM400,000 as rental of the net space for 3 years.
Determine with brief explanations and by reference to ITA and case laws whether or
not the exclusive right payment of RM400,000 is liable to income tax.
the case.
5. En Wakeel is in the business of selling insurance. He has registered his insurance
business as a sole proprietor. During his free time, En Wakeel drives a grab car. For
YA2020, En Wakeel submitted his tax returns based on his insurance business but
did not include the revenue he obtains from the grab business.
Advise En Wakeel on the proper tax treatment for the income he gets from driving
grab car.
6. Makcik Bawang is a full time housewife with 3 schooling kids. During the last school
holidays, Makcik Bawang joined a trip organised by her sister to Vietnam with the
intention of going on holiday. Makcik Bawang bought many clothes and hijabs during
the trip. Upon coming back to Malaysia, she regretted some of the purchases as she
had overspent her money. She invited her neighbours for tea and during the event
she managed to sell off 50 pieces of the clothes and hijab with the gross profit of
RM2,000 to her neighbours. 20 of her neighbours bought these hijabs from her.
Advise Makcik Bawang on tax implication for the profits she gained from sale of the
hijab and the expenses she incurred on her trip to Vietnam.
7. Ms Gula Sweety is a part time lecturer. To fill her time, Ms Gula has taken up a
hobby of furniture painting. Soon she has many painted furniture in her house. Some
of her friends who visited her house wanted to buy the painted furniture. Ms Gula
initially did not want to sell the furniture but eventually sold off the furniture as she
was running out of space in her house. In total, Ms Gula sold off 4 units of furniture
with the profit of RM4,000.
Advise Ms Gula on whether she needs to declare these sales as business income.
8. Amirule is currently studying Bachelor in Accounting at UniKL Business School.
Amirule did not get any study loan because he did not meet the loan criteria. In order
to support himself and his studies he works at a restaurant over the weekend and
send a few students to university in the morning and late afternoon during the week
days. To date he has earned RM4,800 from his work at the restaurant for the past 5
months and he gets an average of RM1,000 per month from sending the students to
class. The students are also his coursemates. Amirule has not registered any
business and he uses his own car to send the students.
Determine what type of income earned from both sources. Justify your answer.