| ACT3402: Taxation |
OBJECTIVE
The objective of this assignment is to expose students to the real taxation practice by applying the knowledge learned in both ACT3401 and ACT3402 courses. You are expected to deliver your skills in tax computation and planning for a partnership registered in Malaysia. In this regard, you and your group members can act as tax consultants who have been hired by this partnership to solve issues pertaining to tax.
SCENARIO
Three friends, A, B and C (please name them and give a name to the partnership) have decided to pool their resources, skills, and expertise to venture into the business of selling/providing (choose the type of business of your choice). After several discussions, they decided to form a general partnership and the three friends will be the partners, sharing profit and losses (determine the profit-sharing ratio). The partnership will start its business on 2016 (agree on the commencement date of the business).
The business was doing quite well, and profits have been steadily increasing from year to year. At the end of 2019, the partners anticipated that they have to increase the partnership’s capital to boost sales. The partnership needed additional capital in order to meet demands from loyal customers.
Thus, on 25 June 2020, one of the partners, B agreed to disposed off his personal property and the cash proceed will be brought into the partnership business as additional capital. (Give all necessary details of the personal property disposed off, the date and method of acquisition of the asset, etc).
During the year 2021, one of the partners, C had to leave the partnership due to poor health and suggested that his wife be brought into the partnership, replacing him. The remaining 2 partners were actually reluctant to accept his wife (well known for her irritating behavior) as one of the partners.
Since the partnership did not draw up its own partnership agreement, and due to unforeseen circumstances it was made known to them that the partnership might have to be dissolved if they still disagree to accepting partner C’s wife as a partner.
Partner B, however, is thinking of persuading partner A to team up with him to either form a Limited Liability Partnership (LLP) or a private limited company (Sdn. Bhd.). He had, over the recent years heard about the advantages of setting up an LLP instead of a general partnership like the one they are in.
On the other hand, he also has ideas of converting the partnership into a private limited company. But he is still unsure of many things and is doubtful with the minimum information that he has, partner A could be persuaded. So he approached your group (as tax consultants) to help him further explain to partner A.
INSTRUCTIONS
In a group of three,
Please proceed with advising the partners with regards to their income taxability for the YA2021.
Assist them in deciding which is better for them (in terms of tax implications and other reasons you think that should be taken into consideration) :-
(a) proceed/continue as a general partnership; accepting Partner C’s wife as a new partner OR
(b) convert to Limited Liability Partnership (LLP) OR
(c) convert to a private limited company (Sdn. Bhd.)
Your advice should include the advantages and disadvantages, the criteria/conditions to be satisfied if any, the registration procedures, and other related matters you deemed necessary. TAX
PLANNING ISSUES SHOULD ALSO BE COVERED.
Then, prepare a write up of your group’s own scenario of this assignment, detailing the points in need of mention and further specification, and the best option/advice you would give on the future of the partnership (choose either (a), (b) or (c)) Along with this, in order to give better advise, you are needed to:-
GUIDELINES
1. Determine the BASIS PERIOD FOR THE FIRST TWO years of assessment of the partnership upon commencement.
2. Create/prepare the statement of profit and loss (management account) of the partnership for the year of assessment 2021. Then, using the statement created/prepared, carry out tax computation for the partnership, showing clearly the COMPUTATION OF THE DIVISIBLE
INCOME of the partnership for the year of assessment 2021.
(Marks will be allocated based on how creative you are in producing the statement of profit and loss of the partnership. The items of gains/income and losses/expenses etc. and all additional information are all up to your discretion and mindful creativity.
3. Your answer should also include the computation of capital allowances, balancing charges/balancing allowance on plant & machinery used in the partnership business (compulsory), industrial building allowances available (compulsory)/balancing charge/allowance if any, and agriculture allowances where applicable (depending on the type of business, you are in).
4. Compute the INCOME TAX PAYABLE OF PARTNER B (come up with fictitious personal reliefs, additional income/expenses, etc. (maximum of 3 each), to further illustrate your computation. Note: Please give a short summary of the details.
5. Show also the computation of REAL PROPERTY GAINS TAX payable by B if any, upon the disposal of his personal property, taking into consideration all points mentioned earlier.
