- 20 Marks
Question
Mancheri Company Limited was incorporated under the Companies Act, 1963, (Act 179) on 1st April, 2018 to prospect for diamonds in the Oti River in Mancheri in the Oti Region of Ghana. The Managing Director was presented a draft management report on the operations of the company. A review of the Comprehensive Income Statement for the year ended 31st March, 2019 showed a loss of GH¢3,663,000. He was not happy with the loss declared. He remembered a radio discussion, while on duty to Accra, where a Ghana Revenue Authority (GRA) official being interviewed talked on “Unrelieved Losses” in his presentation. He therefore approached you to explain and advise him on the implications of the loss on future tax liabilities of the company.
A summary of the Income Statement was as follows:
| Description | GH¢ | GH¢ |
|---|---|---|
| Income from Operations | 108,000 | |
| Operational Cost | 2,240,000 | |
| Administration and General Expenses | 1,395,000 | |
| Finance Charges | 136,000 | |
| 3,771,000 | ||
| Net Loss | 3,663,000 |
Required:
Explain in a report to the Managing Director what are “Unrelieved Losses” 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
Report on Unrelieved Losses
CITG
Accra
The Managing Director,
Mancheri Company Limited
Mancheri.
Dear Sir,
Unrelieved Losses under Income Tax Act
This is in response to your request for 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 and losses from separate mineral operation may be deducted only in calculating future income from that operation and not income from any other activity.
Under Section of the Act, an unrelieved loss of person /company in a specified priority sector for any of any of the previous five years of assessment of assessment from the business or
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
a) The profit would taxed at a reduced rate the loss shall be deducted only in calculating income taxed at the same reduced rate, a lower reduced rate or exempt amounts, or
b) 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 and mining which is a priority area the company can recoup the losses for the year over the next five or carry forward the losses as when they are ascertained over five year period.
This is submitted for your perusal and in case of any further explanation, do not hesitate to contact me.
MCITG
- Tags: Income Tax Act, Mining, Unrelieved losses
- Level: Level 2
- Topic: Income Tax Computation
- Series: FEB 2020
- Uploader: Samuel Duah