- 20 Marks
Question
Mr. Abu Sakari has been appointed the Head of Tax Department of Jubilee Hub Limited with effect from 1st January 2014 on annual basic salary of GHS84,000.00. Mr. Sakari also enjoys the following allowances and benefits by virtue of his position:
i. Risk allowance of GHS400.00 per month.
ii. Responsibility allowance of GHS500.00 per month.
iii. Child education allowance of GHS600.00 per month.
He is provided with a soft furnished accommodation by the company as well as a Toyota Camry saloon car which is fuelled by the company. He contributes 5.5% of his salary to the Social Security Fund and the company contributes 13%. He is a widower with four children. The first child is pursuing a BSc. Nursing program at the University of Ghana, the second child attends Presbyterian Boys Senior High School, Legon, and the last two girls attend University of Ghana Junior High School, Legon. He is fully responsible for the upkeep of his father aged 61 years and his mother aged 58 years.
He has two life assurance policies with the following details:
| Company | Sum Assured (GHS) | Annual Premium (GHS) |
|---|---|---|
| a) Vanguard Life Company | 48,000.00 | 4,900.00 |
| b) Enterprise Life Company | 45,000.00 | 3,200.00 |
You are required to:
a) Compute Mr. Abu Sakari’s tax liability for the 2014 year of assessment.
b) Determine Mr. Abu Sakari’s take-home pay for the 2014 tax year.
Answer
(a). Abu Sakari
Computation of tax liability
2014 Year of Assessment
Basis Period: 01/04/2014 – 31/12/2014
| GH¢ | GH¢ | |
|---|---|---|
| Basic Salary | 84,000.00 | |
| Add Cash Allowances | ||
| Risk allowance | (400 x 12) | 4,800.00 |
| Responsibility allowance | (500 x 12) | 6,000.00 |
| Child Education allowance | (600 x 12) | 7,200.00 |
| Total cash emoluments | 102,100.00 | |
| Add: Benefits in kind | ||
| Car Element | (10% x 102,000.00) | 10,200.00 |
| Restricted to | (300 x 12) | 3,600.00 |
| Rent element | (10% x 102,000.00) | 10,200.00 |
| Assessable income | 115,800.00 | |
| Less: Reliefs | ||
| Social security contribution | (5.5% x 84,000.00) | 4,620.00 |
| Responsibility (marriage) | 200.00 | |
| Child education | (3 x 200) | 600.00 |
| Aged Dependant | (1 x 100) | 100.00 |
| Life Assurance | 8,000.00 | |
| Chargeable income | 102,280.00 | |
| Tax liability | 22,735.00 |
Determination of relief for life assurance
| Vanguard Life Company | |
|---|---|
| Premium Paid | 4,900.00 |
| 10% of Sum Assured | 10% x 48,000.00 = 4,800.00 |
| 10% of Assessable income | 10% x 115,800.00 = 11,580.00 |
| Relief (GH¢) | 4,800.00 |
| Enterprise Life Company | |
|---|---|
| Premium Paid | 3,200.00 |
| 10% of Sum Assured | 10% x 45,000.00 = 4,500.00 |
| 10% of Assessable Income | 10% x 115,800.00 = 11,580.00 |
| Relief (GH¢) | 3,200.00 |
Total Relief = (4,800.00 + 3,200.00) = GH¢8,000.00
Tax Computation
| Income (GH¢) | Tax Rate (%) | Tax Charged (GH¢) | |
|---|---|---|---|
| First | 1,584.00 | ||
| Next | 792.00 | 5% | 39.60 |
| Next | 1,104.00 | 10% | 110.40 |
| Next | 28,200.00 | 17.5% | 4,935.00 |
| Excess | 70,600.00 | 25% | 17,650.00 |
| 22,735.00 |
(b). Take Home Pay – 2014 tax year
| GH¢ | GH¢ | |
|---|---|---|
| Total Cash Emoluments | 102,000.00 | |
| Less: | ||
| Social security contribution | 4,620.00 | |
| Life Insurance Premiums Paid | 8,100.00 | |
| Income Tax | 22,735.00 | |
| 66,735.00 |
- Tags: Deductions, Employment Income, Life Insurance, Social Security, Take-home pay
- Level: Level 2
- Topic: Employment Income Taxation
- Series: FEB 2016
- Uploader: Samuel Duah