Tutorial 3 – Week 4Topic 3: Taxes in your Financial PlanDiscussion Questions1. Discuss the differences between chargeable income, tax reliefs, exempt income, tax payable and tax rebates.-Chargeable Income (Section 13(1) Income Tax Act 1967) - Includes all income that are legally subject to tax (e.g. employment, business and casual income)-Exempt income - Limited amounts of income allowed to be excluded from tax (e.g. for artistic works, approved donations, royalties)-Tax Reliefs - Legally allowed deductions directly from chargeable income. -Tax Rebates – Legally allowed deductions against Income Tax Payable (e.g. low income rebate & Zakat)2. From a taxation perspective, discuss the implication of the lowering of the EPFcontributions from 11% to 8% in the revised budget announcement from March 2016 toDecember 2017.If an individual were to opt for the reduction of the EPF mandatory tax deductions from11% to 8% his/her disposable income would increase and this would increase thechargeable income. Since the limited tax relief for EPF and life insurance remainsunchanged at RM6,000, for individuals who have not fully utilized this increase inchargeable income, this could lead to higher tax payable..Problem Questions1. Encik Hashim Daud is an Engineer at PD Engineering Bhd. During the year ended 31December 2016, he has been provided with the following remuneration details: His annual salary was RM80,000 and was paid some bonus about RM20,000. Interestsubsidies paid by his employer amounting to RM6,000 for the year 2016 for his remaininghome loan of RM250,000. As a token of appreciation for his long term service for more than10 years, during the annual dinner, he was presented a Tag Heuer watch worth RM5,000.Question: (i) Compute his tax payable.(ii) Based on your analysis, discuss the situation that Encik Hashim is in and how can he furtherreduce his tax payable?Suggested answer:- BIK - Interest subsidies by employer for principal value not exceeding RM300,000 istax exempted. -However the watch’s value (perquisite) should be included in the gross incomeRM4,000 (RM5,000-RM2,000) after deducting RM2,000 tax exempted by virtue ofparagraph 25C, Schedule 6, ITA 1967.RMAnnual salary 80,000Bonus 20,000Perquisite-Tag Heuerwatch 3,000Total gross income103,000Less: Tax Relief: Personal 9,000EPF 6,000 *(0.11 x RM100,000 = 11,000, but max RM6,000)Chargeable income 88,000Tax on first RM70,000 5,600Next RM18,000@21% 3,780Tax liability Y/A 2016 9,3802. Paul Selvaraj is a finance manager of Masterhill Bhd. He has been offered the opportunity to own30,000 units of ordinary shares of the company via an Employee Share Option scheme for free.The price of the share at the date of grant was RM2.50 per unit. He accepted the offer, exercisedall of them and subsequently sold at the price of RM3.60 per unit. His current remuneration package for 2016 is as follows:- Annual salary RM100,000- Bonus RM25,000- Medical treatment paid by the employer RM1,000- Accommodation rental (paid by company) RM12,000 per year, not for business related use.His salary and bonus is subject to Employee Provident Fund (EPF) contributions at 11%. Paul hasbeen happily married for 12 years. He and his wife have 2 school going children ages 7 and 9.His wife is currently a housewife with no income - as such, his wife has elected for jointassessment. His total monthly tax deductions for Y/A 2016 is RM18,000. During the year, he has also incurred the following relevant expenses:Medical expenses for father in law RM1,500Medical expenses for his mother 2,000Books and magazine 2,500Purchase of computer (1st time after 3 years) 4,500Question: (i) Compute his tax payable.(ii) Based on your analysis, discuss the situation that Mr Paul is in and how can he further reduce his tax payable?Paul Selvaraj – Year of Assessment 2016 Gross Income RM RM RemarksSec. 4(b): Employment Income Sec. 13(1)(a)- Annual Salary 100,000 - Bonus 25,000 - Free ESOS 75,000 Capital appreciation not taxed 200,000 Sec. 13(1)(c )- Accommodation 12,000 S.32(2)-lower of 12,000 &30% x 125,000 (gross income.ie:salary, bonus, allowance) = 37,500 Aggregate/Total Income 212,000Less: Relief- Self (9,000) - Child (4,000)- Spouse (4,000) - Medical (mother) (2,000)- Books…. (1,000)- Purchase of computer (3,000) - EPF & Insurance (6,000) (11%x125,000 = 13.750), max 6000 (29,000) Chargeable Income 183,000 Tax PayableFirst 150,000 = 23,900.00 Balance 33,000 x 24% = 7,920.00 31,820.00 Less: MTD 18,000.00