10-03 - TAX 1 MIA QE/MAC 2010 TAXATION QUESTION 1(a) Ah...

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TAX 1 MIA QE/MAC 2010 CONFIDENTIAL TAXATION QUESTION 1(a) Ah Tong is not correct in his approach to the matter of the taxability of the income from operating the bus. The Income Tax Act 1967 (as amended) defines ‘business’ to include a profession, vocation, and trade and every manufacture , adventure or concern in the nature of trade, but excludes employment. The definition does not rule out any illegal activities as not falling within the meaning of trade, or adventure in the nature of trade. Therefore, once it is established that the transaction or activity is in the nature of a trade or adventure in the nature of trade, then it follows that any gains that arises from such activities would fall within the meaning of section 4(a) which provides that ‘gains or profits from a business for whatever period of time carried on’ would be chargeable to tax. There are several case laws that support this approach: 1 In the case of Partridge v Mallandaine (2 TC 179) the courts held that the gain from the illegal activities is liable to tax. In this case, two persons attended race courses as book makers on horse racing and made profits from the habitual betting on horses. The taxpayers argued that they are not carrying on any business, and even if they do, it was illegal and therefore the income derived therefrom is not liable to tax. In determining that what is being done is the carrying on of a trade, Denman J said: ‘...in my opinion, if a man carried on a systematic business of receiving stolen goods and made by it £2,000 a year, the Income Tax Commissioners would be right in assessing him thereon'. 2 In the case of Mann v Nash ( 16 TC 523), profits derived from the use of gaming machines, some of which were illegal for public use, it was held that the income derived is taxable since the income is derived from the carrying on of a business. 3 In the case of Southern v AB (18 TC), the profits of a bookmaker derived solely from betting which were under the relevant law at that time, illegal, were held to be assessable to income tax. Ah Tong should therefore declare the income since it was derived from the carrying on of a business of providing transport services – the fact that the business is operated without a license, permit or is illegal is not an issue. (5 marks)
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TAX 2 MIA QE/MAC 2010 CONFIDENTIAL QUESTION 1(b) Note Add (+) Ded (-) RM 000 RM 000 RM 000 Net profit as per Profit and Loss account √ 151,461 Less: Cost of goods sold 1 √ 10909 Rental income 2 √ 65000 Advertisement 3 Staff recruitment etc Nil Condolence message and wedding announcement (RM 20,000 x 2) √ 40 Cash donation for school library √ 50 Contribution to 'Save the Trees' √ NA Bad and doubtful debts 4 Increase in general provision √24 Recovery √100 Depreciation √ 300 Donation 5 √400 Entertainment 6 Cost of ink cartridges √ NA Annual dinner √ NA Refreshment for staff √ NA Disbursement of entertainment expenses √ 230 Fines and penalties 7 Late payment
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This note was uploaded on 11/10/2010 for the course UM ceaa1122 taught by Professor Sam during the Spring '10 term at Calumet College.

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10-03 - TAX 1 MIA QE/MAC 2010 TAXATION QUESTION 1(a) Ah...

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