Question Tag: Financial derivatives

Conti Ltd has been in the business of buying and selling baskets. The company’s chargeable income for the 2021 year of assessment is GH¢7,000,000.

The chargeable income includes the following adjustments:

1. GH¢200,000 was spent on staff lunch, with management stating that the staff were not affected by this payment.
2. Financial cost from derivative transactions amounted to GH¢20,000,000.
3. Financial gain from swaps arrangement was GH¢1,000,000.
4. Goods invoiced to a related company amounted to GH¢12,000,000, although these goods would have been sold to unrelated parties at GH¢13,130,000.

Additional information:

• Interest on loans amounting to GH¢3,200,000 was added to the financial cost. 80% of the interest relates to capital work in progress, and the remainder supports working capital.
• GH¢500,000 in net dividends was received from Ann Ltd, a resident company where Conti Ltd holds 24% voting power. The dividend has been added to revenue.

Required:
i) Compute the tax payable.
ii) What are the tax implications of the lunch for staff, interest paid, and the dividend received?
iii) Identify tax planning measures to reduce the tax liability related to the dividend.
iv) What is the tax implication of the financial cost from derivative transactions, and what is its impact on the company?