- 10 Marks
Question
Dekey Company Ltd was incorporated under the Companies Act, 2019 (Act 992) on 1 January 2021 to prospect for diamonds in the Densu River in the Eastern Region of Ghana.
A review of its Comprehensive Income Statement for the year ended 31 December 2021 showed a loss of GH¢29,304,000 for the 2021 year of assessment.
An extract of the Comprehensive Income Statement is as follows:
| Description | GH¢ |
|---|---|
| Income from Operations | 864,000 |
| Operational Cost | 17,920,000 |
| Administration and General Expenses | 11,160,000 |
| Finance Charges | 1,088,000 |
| Net Loss | (29,304,000) |
The CEO of Dekey Company Ltd remembered a discussion on “Unrelieved Losses” during a training workshop. The CEO has approached you, a final year tax candidate, to explain and advise him on the implications of the loss on future tax liabilities of the company.
Required:
Write a report explaining to the CEO what “Unrelieved Losses” are and the rights available to the company for the loss declared at the end of its first year of operations under the Income Tax Act, 2015 (Act 896).
Answer
Memo
To: The Managing Director, Dekey
From: Final Level Candidate
Date: 19th August 2022
Subject: Unrelieved Losses under the Income Tax Act
This is in response to your request for an explanation on the above subject.
Unrelieved Loss is the amount of a loss that has not been deducted in calculating the income of a person or company, including amounts not written off as bad debts.
Under Section 82 of the Income Tax Act, 2015 (Act 896), unrelieved loss of a company from separate mineral operations shall be deducted in the order in which the losses from the separate mineral operations are incurred. Losses from separate mineral operations may be deducted only in calculating future income from that operation and not from any other activity.
From the Act, there is an unrelieved loss of a person/company in a specified priority sector for any of the previous five years of assessment from the business. There is also an unrelieved loss of the person/company in all other sectors for any of the previous three years of assessment from the business.
Where a person makes a loss, and if the loss were a profit:
- If the profit would be taxed at a reduced rate, the loss shall be deducted only in calculating income taxed at the same reduced rate or a lower reduced rate.
- If the profit would be exempt, the loss shall be deducted only in calculating exempt amounts.
An unrelieved loss from a business may be deducted in calculating income from an investment, but an unrelieved loss from an investment shall be deducted only in calculating income from an investment.
From the above analysis, as a company operating in the mining sector, Dekey can carry forward the losses for the year over the next five years, recouping the losses as and when they are ascertained.
This is submitted for your review, and if further clarification is needed, do not hesitate to contact me.
Thank you,
Yesu Dodoo
- Tags: Income Tax Act, Loss carryforward, Mineral Operations, Unrelieved losses
- Level: Level 3
- Topic: Tax administration in Ghana
- Series: AUG 2022
- Uploader: Kwame Aikins