Professional Documents
Culture Documents
ANSWER
The transaction appears to be an isolated transaction by people with diverse background.
However the activity of acquiring parts, assembling and selling of the cranes has the color of an
adventure in the nature of trade for the following reasons:
There was a profit motive
There was an organized activity of acquiring parts, assembling and selling of the cranes
resembling a business process.
The activity yielded no personal enjoyment other than to make profit from the sale of the cranes.
QUESTION 5
Mr Presley is a music teacher who graduated with a Masters degree from the London School of
Music. He teaches aspiring music students to play the piano at his home in Dengkil. He has
three classes every for the various grades of students. He charges the students a fee by the
number of hours the lessons are taught.
On weekends, he plays the piano at an international hotel. He has a contract with the hotel under
which Mr Presley is entitled to a free welcome drink (a glass of beer) and is to be paid RM200
per hour to play western classical music on the piano for three hours, from 7 pm to 10 pm. The
piano is provided by the hotel. Under the contract, the hotel can ask him to play after midnight at
their discretion.
Required:
Determine the status of Mr Presley for income tax purposes i.e. whether he is a professional
musician or an employee exercising an employment under a contract of employment.
ANSWER
As a music teacher, Mr Presley is exercising a profession as he runs his own classes and imparts
professional knowledge and skill to music students in an environment that he controls, as well as
assuming business risk in the process. The fees received are therefore professional income and
would be assessment under section 4(a).
The income earned by playing the piano at the international hotel is an employment income i.e.
there is a master servant relationship where the hotel pays him for his services, he is provided the
tools of the trade by the hotel and is required to play on specific days and time as determined by
the hotel.
QUESTION 6
What is the general provision relating to gross income and what is the principle of taxability of
receipts?
ANSWER
Under section 22 Gross income from a business would consist of the following:
Gross income of a person from a source of his for the basis period for the year of
assessment
Sums receivable or deemed to be receivable from insurance, indemnity, recoupment,
recovery, reimbursement or otherwise
Compensation for loss of income
A receipt is taxable only if it is income falling within the meaning of the taxing statutes of the
Income Tax Act 1967 (as amended). Receipts of a capital nature are not taxable.
QUESTION 7
Area Trading Sdn. Bhd. deals with recycled paper. In 2007 it found the business was very
competitive and therefore entered into an agreement with its competitor also operating in the
area. Under the arrangement to run for 25 years, both companies will share the raw materials and
will distribute the recycled products in their own segregated market at prices agreed by both
parties. In this way both companies will be able to make a reasonable profit and stay in business
since the machinery for the recycling process is very expensive and use-specific, in addition to
the market being limited. The arrangement worked very well until a new management took over
the competitor. They were not in favor of the arrangement and called off the arrangement. They
agreed to pay Area Trading RM 25m in settlement.
Required
1.
What is the tax implication of the amount received by Area Trading Sdn. Bhd. and of the
payment made by the competitor?
2.
Would it make any difference to the tax treatment had Area Trading Sdn. Bhd. made
several such agreements in the course of its trading activities?
ANSWER
The sum received would not be taxable the arrangement relates to the profit making structure
and the cancellation of the arrangement is actually destroying that structure which would be a
loss of capital advantage. The payment made by the competitor may also not be allowed the
payment is not part of the trading expenditure and therefore may be considered to be a capital
payment.
If the company had made several such arrangements it could be considered to be part of the
operating style and as such the receipts may not be considered to be capital but revenue.
Activity
November 2005
December 2006
June 2007
September 2007
October 2007
December 2007
January 2008
Required
1.
State the date of commencement MyVi Spares Sdn. Bhd.
2.
What is the significance of the determination of the commencement date
ANSWER
The date of commencement is the day the raw materials arrived.
Case law: The Birmingham & District Cattle By-Products. Co. Ltd. V CIR
Expenses incurred prior to the date of commencement are treated as pre-commencement
expenses and are not tax deductible.