Answer to Question #157671 in Financial Math for Srinivad

Question

Mr. Robert (33 years old), unmarried, is a Malaysian tax resident. Details of his income in the year 2020 were as follows:

Mr. Robert commenced employment with QB Printing Sdn Bhd on 1.11.2017. His monthly gross salary was RM2,500. His share of Employees Provident Fund contribution during the period was 11% and employees’ contribution to Social Security Organisation scheme was RM12.25 per month. He also received petrol allowance of RM400 per month (exclusively in performing his duties). On 31.3.2020, he was retrenched by the company where he was paid compensation for loss of employment amounting RM24,000.

After his retrenchment, he had been jobless for 3 months. During that period, he helped his friend who is a property agent to recommend potential buyers. He successfully sold 2 properties and received RM35,000 broker’s commission. He incurred printing charges of RM100 for photocopy plans and titles.

Further, he owns a sole proprietor business for selling stationeries. His mother helps him to run the business. She was paid RM1,200 per month since 1.1.2015. The followings were extracted from the accounts:

Adjusted loss (5,000)

Balancing charge 12,000

Balancing allowance 3,000

Capital allowance 5,000

There was an unabsorbed capital allowance of RM2,000 brought forward from the year of assessment 2019.

Income from other source:

 Fixed deposit interest amounting to RM3,200 was received from Public Bank Berhad on 12.12.2020.

The followings were his expenditures in the year 2020:

 Donations of clothing, books and magazines to an approved institution amounting to RM1,500.

 He purchase a computer costing RM3,500 for his own use at home on 12.2.2020.

Additional information:

 Mr. Robert is the only son and he stays with his parents. Both of them are 75 years old and residents in Malaysia. His father receives monthly rental income amounting to RM500 from a low cost house.

Required:

(a) Compute the income tax liability (if any) of Mr. Robert for the year of assessment 2020. (18 marks)

(b) Pursuant to sections 77(1), 103 and 82(1) of the Income Tax Act 1967, advise Mr. Robert for his responsibilities as a taxpayer in Malaysia for the year of assessment 2020 and penalties for noncompliance if he committed to offences. (10 marks)

(c) Assuming that Mr. Robert has a sister, a resident and taxpayer in Malaysia, she shares the parents’ expenses with him and they equally pay for their father’s medical expenses amounting to RM8,000 on 30.6.2020. Other relevant information remains unchanged. In accordance to Section 46(1)(c) and 46(1)(o) of the Income Tax Act 1967, advise them on the claim of reliefs. Your answers must be supported by reasons, qualifying criteria and comparison of the reliefs

Answer 1

a) tax calculation

The tax is calculated as the product of the tax base by the corresponding percentage. The percentage depends on the appropriate level of income. The tax base is all income (wages, commissions, business profits, interest on deposits, etc.) minus benefits. Benefits include the treatment of a parent, the purchase of a computer, and charity.

b)If you pay your taxes late, a penalty of 10% will be imposed on the balance of tax unpaid after the deadline of 30 April 2020. If the tax and penalty is not paid within 60 days, a further penalty of 5% will be imposed on the amount owed.

If you disagree with the late payment penalty, you can forward an appeal in writing to the Collection Unit of LHDN within 30 days of being issued a Notice of Increased Assessment. However, the penalty imposed has to be settled regardless of any appeal – if you are successful, LHDN will refund you the relevant amount.

c)Those who did not make a claim for medical treatment for parents are entitled to this relief. Parents must be legitimate or legally adoptive parents (stepparents not included), aged 60 years and above, and each parent’s annual income from all sources must not exceed RM24,000 for that year of assessment. The allowable relief is RM1,500 for one mother and RM1,500 for one father; if more than one individual claims for this deduction, the amount has to be equally divided according to number of individuals claiming for that same parent.

Claim allowed: RM1,500 per parent (only allowed if no claims made under medical expenses for parents)