Topic: Business income - Corporate income tax

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AT – Nov 2024 – L3 – Q5b – Tax Implications of Foreign Acquisition

Evaluate the tax implications of a 70% equity acquisition by a foreign company and the proposed funding option

Question

Baimbil LTD, based in Australia, has decided to acquire a company in Ghana instead of starting a new one.

The shareholders of Borketey LTD, a resident company in Ghana, have decided to sell the company due to cash flow challenges. As a result, Baimbil LTD approached the management of Borketey LTD and engaged a consultancy firm to perform due diligence checks. Following this, Baimbil LTD acquired 70% of the equity of Borketey LTD.

Below is an extract from the books of Borketey LTD for the 2023 year of assessment:

Description	Amount (GH¢)
Share Capital	1,000,000
Retained Earnings	(500,000)
Shared Deals	50,000
Bad Debts (Sold to MN LTD, now bankrupt)	1,000,000

Proposed Financing by Baimbil LTD:

The following proposals have been tabled for consideration after the acquisition:

Baimbil LTD to provide GH¢100 million as debt with 2% interest above the market rate.
Baimbil LTD to provide GH¢100 million as additional equity capital.
Baimbil LTD to provide collateral for a bank facility of GH¢100 million in Ghana.

Required:

(i) Evaluate the tax implications of the 70% equity acquisition.

(ii) Evaluate the tax implications of the three proposed financing options.

Answer

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Tags: Capital Allowance, Corporate Restructuring, Equity Acquisition, Foreign Investment, Thin Capitalization, Withholding Tax
Level: Level 3

Topic: Business income - Corporate income tax
Series: Nov 2024

AT – Nov 2024 – L3 – Q1a – Computation of Partnership Chargeable Income

Compute the partnership's chargeable income for the 2023 year of assessment.

Question

Takyi and Kuro commenced a retail business in Goaso, Ghana on 1 January 2020, under the partnership name Ntaafo LTD, sharing profits and losses equally. On 1 January 2023, Tawia was admitted as a new partner. Takyi, Kuro, and Tawia then shared profits and losses in the ratio of 3:2:1 respectively. The partnership prepares its accounts to 31 December annually.

The partnership’s profit and loss account for the year ended 31 December 2023 is as follows:

Note	GH¢	GH¢
Gross Trading Profit		4,365,000
Compensation	(1)	50,000
Total Revenue		4,415,000
Less: Operating Expenses
Audit Fees		25,000
Rent and Rates	(2)	348,000
Wages and Salaries	(3)	1,410,000
Interest on Capital	(4)	205,000
Contribution towards National Insurance Scheme		111,000
Trade Debts Written Off (Bad Debts)		92,000
Legal Fees	(5)	43,000
Entertainment	(6)	270,000
Motor Expenses	(7)	87,000
Repairs and Maintenance	(8)	190,000
Commission	(9)	310,000
Printing and Stationery		82,000
Electricity and Telephone		51,000
Depreciation		123,000
Sundry Expenses		270,000
Total Expenses		3,617,000
Net Profit		798,000

Notes:

Compensation:
- Compensation received from suppliers for delays in supplies: GH¢70,000
- Court fines paid to client for negligence: (GH¢20,000)
Rent and Rates:
- Rent for business premises: GH¢180,000
- Rent for Takyi’s private residence: GH¢156,000 (Disallowed)
- Business operating permit paid to Goaso Municipal Assembly: GH¢12,000
Wages and Salaries:
- Takyi: GH¢180,000
- Kuro: GH¢240,000
- Tawia: GH¢66,000
- Mrs. Takyi (staff): GH¢120,000
- Mrs. Tawia (staff): GH¢144,000
- Other staff: GH¢660,000
Interest on Capital:
- Takyi: GH¢30,000
- Kuro: GH¢40,000
- Tawia: GH¢10,000
- Bank interest: GH¢125,000
Legal Fees:
- Renewal of annual tenancy agreements: GH¢8,000
- Collection of trade debts: GH¢10,000
- Preparing contract documents (suppliers and contractors): GH¢5,000
- Preparing contract documents to acquire a new company: GH¢20,000 (Disallowed)
Entertainment:
- The entertainment expenses relate to the partners’ private enjoyment (Disallowed).
Motor Car Expenses:
- Petrol: GH¢52,000
- Repairs: GH¢30,000
- Fines for late renewal of vehicle license: GH¢5,000 (Disallowed)
Repairs and Maintenance:
- Replacement of bolts and nuts on Plant and Machinery: GH¢10,000
- Major expenditure on Landscaping and Renovation: GH¢180,000 (Capitalized)
Commission:
- Takyi (for introducing a new customer to the business): GH¢20,000 (Disallowed)
- Salesmen and Saleswomen: GH¢230,000
- Unidentified recipient: GH¢60,000 (Disallowed)

Other Information:

Capital allowance agreed with the Ghana Revenue Authority (GRA) was GH¢234,000 for the 2023 year of assessment.

Required:
Compute the partnership’s chargeable income for the 2023 year of assessment.

Answer

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Tags: Adjusted Profit Computation, Capital Allowance, chargeable income, Disallowed Expenses, Partnership Taxation, Tax adjustments
Level: Level 3

Topic: Business income - Corporate income tax
Series: Nov 2024

AT – Nov 2018 – L3 – Q5b – Business income – Corporate income tax

Computation of taxes payable by a mining support services company, including adjustments for dividends, tax losses, and investment deductions.

Question

Manla Ltd, since its incorporation, has been providing Mining Support Services (MSS) in line with its mandate, and the following is relevant to its operations for the 2017 year of assessment:

Details	GH¢
Chargeable income	240,000,000
Loss from investment deducted in arriving at the chargeable income	700,000
Dividend (gross) received from A Ltd (a mining company) where Manla Ltd has 26% voting power	20,000
Provision for bad debts written off	400,000
Tax loss from 2014 deducted	20,000
Net dividend received from a US-based company after 5% withholding tax	9,500
Items worth GH¢ 60,000 granted to a powerful shareholder were adjusted in arriving at chargeable income	60,000

(Note: Manla Ltd has a basis period from January to December.)

Required:
i) Compute the taxes payable by Manla Ltd. (6 marks)
ii) Comment on the treatment of the investment loss of GH¢700,000. (2 marks)

Answer

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Tags: chargeable income, Dividend tax, Mining Support Services, Tax computation, Tax Losses
Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2018

AT – Nov 2018 – L3 – Q3b – Business Income, Corporate Income Tax

Analysis of tax payable for a company planning to operate in a regional capital vs. a district capital based on projected financial performance.

Question

The following information is an extract of projected financial performance of YZ Ltd, a manufacturing company that intends to go into operation with a basis period from January to December. Management is contemplating operating in either Kumasi or Konongo, but the results are expected to be the same irrespective of the location. The following projected results from January to December Year 1 are worth analyzing:

	Kumasi (Regional Capital)	Konongo (District Capital)
Revenue	GH¢ 3,000,000	GH¢ 3,000,000
Cost	GH¢ 1,200,000	GH¢ 1,200,000
Gross Profit	GH¢ 1,800,000	GH¢ 1,800,000
Expenses	GH¢ 1,000,000	GH¢ 1,000,000
Net Profit	GH¢ 800,000	GH¢ 800,000

The following additional information is relevant:
A building to be bought on 1 March Year 1 for GH¢400,000 has been granted full year’s depreciation at the rate of 20%, and the same has been added to the projected cost above.

Required:
i) Compute the projected tax payable based on the information above and recommend where management is likely to site the entity and why.
ii) What other TWO (2) factors, apart from what has been identified in (i) above, may dictate siting a manufacturing business in a regional capital?

Answer

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Tags: Capital Allowance, District Capital, Regional Capital, Tax computation, Tax Decision
Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2018

AT – NOV 2018 – L3 – Q2C – Business income – Corporate income tax, Tax administration in Ghana

Calculate taxable income and tax payable for an individual with multiple income sources, and identify tax compliance issues for a private practice.

Question

c) Kate Oppong, a physically challenged, works for the Ministry of Health as an eye surgeon and optician based at Komfo Anokye Teaching hospital in Kumasi. She dedicates most of her free time to her private practice, as well as writing books and articles for the Ghana Medical Journal. Kate is also part of the medical team for the local NGO and Sight Restoration, which is involved in cataract surgery for the disadvantaged members of society in remote rural areas.

Kate’s private practice is located in Kumasi and has a staff complement of six employees who are all full time workers. Kate only attends to the patients at her private practice strictly by appointment and her patient base has been steadily growing due to her experience and dedication.

In terms of her service contract with Sight Restoration, Kate is required to participate in all the cataract operations scheduled for the year. Her service contract is for a year, subject to renewal as and when donor support is available.Sight Restoration’s field staff, of which Kate is one, are paid a predetermined monthly salary plus an attendance allowance which is paid only after each cataract operation. The field staff is also entitled to a one-off representation allowance for participating in scheduled seminars.

Kate Oppong’s earnings and deductions for the year ended 31 December 2017 were:

Notes:

This amount is part repayment of the interest free personal loan of GH¢12,000 advanced to Kate on 1 January, 2017, repayable over two years. The Bank of Ghana interest rate for the year ended 31 December 2017 was constant at 20%.
This amount was fully expended towards the travelling costs for Kate and her minor son for his medical treatment in South Africa.
No employees tax (PAYE) or corporate income tax was paid in respect of the amounts paid to the employees of the private practice (including Kate) or the profits from the practice. This was because in Kate’s opinion her operations were ‘private’ and as such not subject to tax and also because she believed that she was already contributing her fair tax share from her other two employers.
Kate is a single parent and takes care of her single son in the senior high school. She also takes full responsibility of her aged mother.

Required:

i) State the Ghana Revenue Authority’s (GRA) requirements which have been breached by Kate Oppong and consequences of the breach based on the information given in note (3). (5 marks)

ii) Calculate the taxable income of and income tax payable by Kate Oppong for the year ended 31 December 2017. Note: All computations should be rounded to a whole cedi. (9 marks)

Answer

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Tags: Benefits in kind, Corporate Tax, Employment Income, NGO income, PAYE, Personal income tax, Private practice income, Tax Compliance
Level: Level 3

Topic: Business income - Corporate income tax, Tax administration in Ghana
Series: NOV 2018

TX – May 2019 – L3 – Q3A – Capital Gains Tax

Compute the tax on capital gains from a property sale and explain the concept of realisation of capital assets.

Question

a)
i) Anthony purchased a house in Koforidua at a cost of GH¢480,000 in the year 2011. In 2011, he spent GH¢24,000 to repair and renovate the house. In March 2018, he spent extra GH¢18,000 on renovation with the intention to sell the house. Anthony engaged a Valuer in June 2018, to value the building and the Valuer charged GH¢5,400.

In July 2018, he placed an advert on ‘Zuria FM’ for the sale of the building and paid GH¢1,800. During the same period, he sold the house through an agent for GH¢660,000 to Kwame Burger and the agent’s commission was 3% of the sale value. Anthony also paid GH¢1,500 for stamp duty and legal permit for conveyance of the building to Kwame Burger.

Required: i) Compute any tax payable. (4 marks)

ii) What constitutes realisation of capital assets? (2 marks)
i) Compute any tax payable. (4 marks)
ii) What constitutes realisation of capital assets? (2 marks)

Answer

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Tags: Capital Gains, Property Sale, Realisation of Assets, Tax computation, Taxation Act
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2019

TX – May 2019 – L3 – Q5c – Business Income – Corporate Income Tax

Evaluate the statement regarding offsetting losses from export of non-traditional products against profits from local sales.

Question

A company engages in exports of non-traditional products and makes local sales of its products. It has as recently, as of 2018, recorded huge losses on the exports but makes gains on the local sales and intends to offset the loss against the profit from the local sales as both represent its business activities.

Required: Evaluate the above statement critically in light of the tax provisions and its effect, if any, on revenue.
(4 marks)

Answer

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Tags: Business income, Export, Local sales, Losses, Non-Traditional Products, Revenue
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2019

TF – May 2018 – L3 – Q2a – Capital Allowance

Calculate the capital allowances and chargeable income of Sekyiwaa Annam Industries Ltd for the year 2017.

Question

Sekyiwaa Annam Industries Limited manufactures personal hygiene soaps and related products at their factory in Takoradi. The company commenced business operations on 1 April 2016 and had an assessed loss of GH¢150,200 for the period ended 31 December 2016.

The company recorded a net profit of GH¢762,800 for the year ended 31 December 2017 after taking into account the following transactions in the income statement:

Gross rental income of GH¢180,000 received from the leasing of one wing of the office building. The rental income portion constitutes 10% of the office building.
Net interest received on bank deposits from Ghana Commercial Bank of GH¢10,028. Withholding tax of 8% has been deducted.
The registration of Trademarks at a total cost of GH¢75,000 in respect of the Company’s personal hygiene soaps that is to last for 10 years. The research and development expenses incurred in connection with these soaps amounted to GH¢15,000 and the company intends to expense it. The legal costs incurred to complete the registration of the Trademark was GH¢5,000.
A donation of GH¢120,000 worth of furniture was made to a local government-assisted school as part of the Company’s corporate social responsibility program, which was duly acknowledged by Ghana Education Service (GES).
Depreciation of fixed assets of GH¢57,000.
Replacement of two motor vehicle engines costing GH¢51,000.
Exceptional costs amounting to GH¢150,000 as a result of the production manager sustaining an injury while working on one of the production lines in the factory. GH¢35,000 of the costs relate to a payment made to the production manager as severance pay. GH¢110,000 was used to acquire additional computers. The remaining GH¢5,000 of the costs represent fines imposed by the Factory Inspectorate Department of the government following the incident.
Purchases of a Computer Server for accounting and human resource needs at a cost of GH¢20,000.
Additional Information:
Details of the Company’s other fixed assets, at cost, are provided below. These were all acquired/constructed during the year to 31 December 2016:

Asset Cost (GH¢)
Factory Building 800,000
Plant and Machinery 510,000
Office Building 420,000
Furniture and Office Equipment 60,000
Motor vehicles (Goods Vans) 130,000
Computers 30,000

Required:
i) Calculate the capital allowances claimable by Sekyiwaa Annam Industries Limited for the year ended 31 December 2017 using all the available information.
(8 marks)

ii) Calculate the chargeable income of Sekyiwaa Annam Industries Limited for the year ended 31 December 2017 and the tax payable.
(6 marks)

Answer

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Tags: Capital Allowance, chargeable income, Corporate Tax, Manufacturing, Taxable Income
Level: Level 3

Topic: Business income - Corporate income tax, Capital allowance
Series: MAY 2018

TF – May 2018 – L3 – Q5b – Minerals and mining

Computation of corporate tax payable for AB Ltd in the mining sector.

Question

AB Ltd is a mining company operating at Kyebi in the Eastern Region. The following data is relevant for the last quarter of 2017 year of assessment:

The following additional information is relevant:
i) Royalty has not been computed and paid on the above yet.
ii) Depreciation of an amount of GH¢1,000,000 was part of the cost of operation above.
iii) Proceeds from sale of depreciable assets amounting to GH¢500,000 were added to
revenue above.
iv) Capital allowance agreed with the Mining Unit of Ghana Revenue Authority was agreed
to be GH¢800,000.
Required:
Compute the taxes payable by AB Ltd to Ghana Revenue Authority and comment on any
TWO items as to why you allowed or disallowed it in the tax computation. (5 marks)

Answer

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Tags: Capital Allowance, Corporate Tax, Depreciation, Mining operations, Tax computation
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2018

AT – April 2022 – L3 – Q4 – Capital allowance | Business income – Corporate income tax

Calculate capital allowance and chargeable income for Joefel Company Ltd. Explain sources of revenue from upstream petroleum operations in Ghana.

Question

a) Joefel Company Ltd, manufacturer of fruit juice for local consumption commenced business on 1 October 2019, with accounting year-end at 31 December each year. The company submitted its accounts for 2019 and was assessed accordingly. The company submitted its tax returns for 2020 year of assessment to the Ghana Revenue Authority on 30 April 2021. Below are the details:

Additional information:
1) Advert and publicity
Radio and television 3,300
Newspaper advert 2,400
Permanent signboard at the company’s entrance in 2020 18,000

2) Installation of plant and others
Installation of plant 21,500
Heavy duty Generator bought in 2019 to support Plant and Machinery 20,500
General maintenance before the use of the plant 18,000

3) Staff Welfare
Staff medical bills 3,700
Safety wear for staff 10,500
Canteen Equipment purchased on 30 November 2020 12,000

4) Donation and Subscription
Goods given as gratis to customs officials 13,000
Donation of goods to SOS Children Village 10,000
Subscription to Association of Ghana Industries 5,000

5) Wages and Salaries
Old staff 120,000
Fresh graduates employed by Joefel Company Ltd. (Fresh graduates
constitute 1% of total workforce) 26,000

6) Other Income
Compensation from a customer for cancellation of a sale order 8,000
Compensation for loss of trading stock of the company 10,000
Compensation for cancellation of purchase order by supplier 5,000

Note 2) above has not been included in the plant and machinery acquired.

Required:

a
i) Compute the appropriate capital allowance for 2019 and 2020 years of assessment.
(8 marks)
ii) Calculate the chargeable income of the company for the 2020 year of assessment.
(6 marks)
b) Explain of the following sources of revenue accruing to the Government of Ghana from the upstream petroleum operations in Ghana:
i) Royalty.
ii) Carried Interest.
iii) Additional Interest.
iv) Additional Oil Entitlement.
(6 marks)

Answer

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Tags: Additional Interest, Additional Oil Entitlement, Capital Allowance, Carried Interest, chargeable income, Petroleum Operations, Royalty
Level: Level 3

Topic: Business income - Corporate income tax, Capital allowance
Series: APR 2022

AT – May 2020 – L3 – Q4b – Business income – Corporate income tax

Explain the treatment of unrelieved losses for ABC Ltd based on given business and investment income/loss for 2017 and 2018.

Question

ABC Ltd declared profit (loss) as provided for in the table below:

Required:
Explain how the unrelieved losses will be treated.

Answer

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Tags: Business income, Investment income, Loss relief, Unrelieved losses
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2020

AT – May 2020 – L3 – Q4a – Business income – Corporate income tax

Compute the chargeable income for Mamavi, a retail business owner, for the year ended 31 December 2018 based on the provided profit and loss account.

Question

Mamavi is a retail business woman with a chain of shops in Ghana. She commenced business on 1 March 2011, with the business name of Unity Enterprise. She sells health foods, fruits, vegetables and juices.

The Enterprise’ profit or loss account for the year ended 31 December 2018 as prepared by the Accountant are reproduced below:

NOTES

A business loan was taken out to finance the cost of improvements to the store, in particular
the juice bars. The interest element included in the loan repayment amounted to GH¢1,750.
A mortgage loan was taken out by Mamavi to buy the family a house in Hlefi, Volta Region.
The interest element in the loan repayment for the mortgage was GH¢2,670.

This court case was as a result of a car hitting Mamavi when she was walking her dog out
at night. The car owner claimed Mamavi stepped out in front of him and therefore it was
her fault. Mamavi’s Lawyer told her to respond to the allegation because she needed five
sessions of physiotherapy to help heal her leg. Mamavi is suing the car owner for her costs.

GH¢700 of the painting cost related to the painting of Mamavi’s private house. The balance
related to painting her shop. GH¢1,200 lease charges relate to the leasing of a car for the
business
Required:
Compute Mamavi’s chargeable income for the year ended 31 December 2018

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2020

AT – Nov 2020 – L3 – Q5b – Business income – Corporate income tax

Tax computation for Percy-Perry Construction Ghana Ltd and Percy-Perry Engineering Company USA Ltd, addressing related party transactions and withholding tax implications.

Question

Percy-Perry Engineering Company (USA) Ltd is incorporated in the USA and has Percy-Perry Construction (Ghana) Ltd as its subsidiary in Ghana. The foreign company was awarded a road construction contract by the Government of Ghana at a total sum of GH¢9 million on 1 January 2019. The company subcontracted the job to Percy-Perry Construction Ghana Ltd at GH¢7 million. Both companies entered into a technical service agreement under which the parent company would provide equipment and technical personnel for the execution of the contract.

The contract was successfully executed by Percy-Perry Construction Ghana Ltd during the year ended 31 December 2019, and the statement of comprehensive income of the company showed the following:

Description	Amount (GH¢)
Contract Fees	7,000,000
Less:
– Cost of Materials	(910,000)
– Hiring of Equipment	(795,000)
– Technical Personnel Cost	(555,000)
– Other Administration Expenses	(223,000)
– Depreciation	(110,000)
Net Profit	4,407,000

The following additional information is provided:

The equipment hired from the parent company at GH¢795,000 could have been hired from another company at GH¢600,000.
If the parent company did not provide the technical personnel, Percy-Perry Construction Ghana Ltd could have employed the same personnel at GH¢450,000.
Capital allowances for the year have been agreed at GH¢65,000.
The contract fees were subject to withholding tax.

Required: i) Compute the Companies Income Tax payable by Percy-Perry Construction Ghana Ltd for the relevant year of assessment and comment on the treatment of any two of the transactions.
(5 marks)

ii) Compute the Companies Income Tax payable by Percy-Perry Engineering Company (USA) Ltd to the Ghana Revenue Authority for the relevant year of assessment.
(2 marks)

iii) Explain THREE (3) objectives of the Ghana Investment Promotion Centre (GIPC).
(3 marks)

Answer

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Tags: Company income tax, Ghana-USA tax relations, Related Party Transactions, Transfer Pricing, Withholding Tax
Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2020

AT – NOV 2021 – L3 – Q1a – Business income – Corporate income tax | International taxation

Compute tax payable for a Free Zone Enterprise based on income from local and export sales and determine the treatment of certain adjustments.

Question

Orga Ltd has the following information relating to its operation as a Free Zone Enterprise for the 2020 year of assessment with a basis period from January to December each year:

Description	Amount (GH¢)
Revenue	35,000,000
Cost	(21,000,000)
Profit	14,000,000

Additional information:

Depreciation of GH¢200,000 has been added to the cost above.
Revenue: Local sales GH¢25,000,000; Exports GH¢10,000,000.
The Managing Director was provided with a mini bar and a swimming pool as part of his employment package costing GH¢1,200,000 in his private residence. The employer added only GH¢200,000 as part of the employment income for tax purposes. The total cost has been adjusted to the cost above.
The dividend received from the United States of America net of taxes of 10% was GH¢22,500. This income has not yet been recorded, although it has been credited in the bank statement.
The excess proceeds from the sale of a depreciable asset over the written down value amount to GH¢300,000. This has not yet been recorded in the company’s accounts.

Required:
i) Compute the tax payable. (6 marks)
ii) Explain the tax treatment of the cost of the swimming pool and mini bar. (2 marks)

Answer

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Tags: Depreciation, Dividend income, Excess Proceeds, Export Sales, Free Zone Enterprise, Local sales, Tax computation, Tax Treatment
Level: Level 3

Topic: Business income - Corporate income tax, International taxation
Series: NOV 2021

AT – Nov 2020 – L3 – Q4b – Business income – Corporate income tax

Evaluate the tax implications of financing a vehicle through a finance lease arrangement versus an outright purchase for a mining company.

Question

A mining company in Ghana intends to buy a vehicle (Pajero) for official use under a finance lease arrangement or an outright purchase. The cost profile of the vehicle is as follows:

i) Outright Purchase: Cost at GH¢80,000.

ii) Finance Lease Arrangement: Cost inclusive of interest is GH¢105,000, to be paid over three years. The interest component is GH¢30,000 to be spread over the three years.

Required:
Determine which of the options you would advise to be adopted.

Answer

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Tags: Capital Allowance, Finance lease, Investment Decision, Outright purchase, Tax implications
Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2020

AT – Nov 2020 – L3 – Q4a – Business income, Corporate income tax

Compute the tax payable by Kaka Ltd for the 2019 year of assessment, including capital allowances, fresh graduate incentives, and royalties.

Question

Kaka Ltd is a mining company that has been operating in Ghana for some time now. The following relates to Kaka Ltd’s 2019 year of assessment:

Description	Amount (GH¢)
Revenue	10,200,000
Cost	4,000,000
Profit	6,200,000

The following additional information is relevant and has been adjusted in arriving at the profit stated above:

Depreciation, depletion, and amortization: GH¢2,000,000.
Cost incurred in overburden stripping and shaft sinking during production to improve access amounted to GH¢800,000.
Contribution towards a worthwhile cause is GH¢10,000. This was in support of a hole-in-heart child, duly acknowledged by the Ghana Health Service.
Royalty of GH¢80,000 was paid without recourse to the revenue from production.

Additional information:

An asset (Capital Asset) acquired in 2016 for GH¢1,000,000 was sold for GH¢200,000 in 2019.
Capital allowance (written down value brought forward) on the assets as of 31 December 2018 was GH¢4,000,000.
10 fresh graduates were recruited in the 2019 year of assessment; 4 of them completed universities in the USA, while the others completed the University for Development Studies in Ghana. They were paid GH¢120,000 as salaries. The total workforce for 2019 was 60 employees.

Required: i) Compute the tax payable by Kaka Ltd.
(10 marks)

ii) The mining company indicated that it had an idle cash of GH¢100,000. If it adds it to its working capital, an additional income of GH¢10,000 would accrue but with an option to purchase Treasury Bills, the interest would remain at GH¢10,000.

Required:
Advise Management on the tax implication of the proposed investment.
(2 marks)

Answer

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Tags: Capital Allowance, Corporate Income Tax, Fresh graduate incentive, Mining operations, Royalty
Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2020

AT – MAR 2024 – L3 – Q4 – Business Income – Corporate Income Tax | Capital Allowance

Covers capital allowance computation, tax rules on long-term contracts, and chargeable income calculation.

Question

Finstruct Ltd has been awarded an airport terminal project. The project started on 1 January 2022 for a contract sum of GH¢60,000,000. The construction of the airport is to be completed on 31 December 2023.

Finstruct Ltd has a financial year ending on 31 December each year. On 31 December 2022, the accounts appropriate to the airport contract contained the following:

Cost Item	GH¢
Cost of construction materials	25,500,000
Direct wages of construction staff	22,100,000
Hire of special equipment	300,000
Cost of soil test	100,000
Purchase of fuel and lubricants	750,000
Consultancy services	135,000

Additional information:
i) Materials costing GH¢340,000 sent to the site were returned to the company’s warehouse.
ii) Materials sent to the site worth GH¢675,000 were still unused at the construction site as of 31 December 2022.
iii) Finstruct Ltd pays some of its workers the first week of the ensuing month after the end of the current month. GH¢57,000 is still owed for wages as of the close of the year 2022, and this was not included in the accounts.
iv) A bill amounting to GH¢45,000 was submitted late by Finstruct Ltd, and as of 31 December 2022, the bill had not yet been paid. This was not included in the accounts.
v) It is estimated that the cost to complete the project as of 31 December 2022 should be GH¢8,265,180.
vi) The following details are available on assets of Finstruct Ltd:

Required:
a) Compute the capital allowance for Finstruct Ltd for the year 2022. (6 marks)
b) Explain the tax rules on long-term contracts and compute the percentage of contract completion of the project. (4 marks)
c) Compute the chargeable income of Finstruct Ltd for the year ended 31 December 2022. (10 marks)

Answer

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Tags: Capital allowances, chargeable income, Construction Contracts, Corporate Taxation, Long-Term Contracts, Tax computation
Level: Level 3

Topic: Business income - Corporate income tax, Capital allowance
Series: MAR 2024

AT – Nov 2020 – L3 – Q1 – Tax administration in Ghana | Business Income – Corporate Income Tax

A report on tax incentives for Free Zone Enterprises, tax implications for local sales, and requirements for foreign investors to start trading in Ghana.

Question

Esther Naah, a Ghanaian by birth, has spent most of her life in the United Kingdom. She has made a lot of savings and would want to invest in Ghana. She has heard of the Ghana Free Zone Authority and been told that the rationale behind the free trade zone is the development of disadvantaged regions. You work in a Tax Consulting firm and your Managing Partner has called on you to brief Esther, on the following issues during her next appointment to the Tax Consulting firm.

Required: Draft a report that will incorporate the following:

a) Tax incentives and benefits for Free Zone Enterprises.
(10 marks)

b) What will be the tax implication if the Free Zone Enterprise sells into the local markets?
(4 marks)

c) What are the requirements a foreigner should meet in order to start a trade in Ghana?
(6 marks)

Answer

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Tags: Capital requirement, Corporate Income Tax, Foreign investors, Free Zone Enterprises, Ghana Investment Promotion Center (GIPC), Local sales, Tax Incentives
Level: Level 3

Topic: Business income - Corporate income tax, Tax administration in Ghana
Series: NOV 2020

AT – Mar 2024 – L3 – Q3a – Business income – Corporate income tax

Discussing the tax implications of providing an asset to a company as capital or loan contribution.

Question

Agogo Ghana Ltd is a manufacturing entity in Ghana. Mr. Konto, a citizen and resident of Malaysia, owns 80% of the company’s shares. Mrs. Konto, a citizen and resident of Malaysia and wife of Mr. Konto, also owns 15% of the shares of the company. Mr. Bawa, the son of Mr. Konto, holds the remaining 5% of the shares in the company. As of 1st June 2023, the company had a share capital of GH¢400,000. A report submitted by the management to the Board of Directors indicated that the company needs to acquire a plant valued at GH¢1,000,000 to enable the company to increase its production capacity. Mr. Konto, who is the majority shareholder, has offered to finance the purchase of the plant for the company but is unsure whether to provide the plant as a loan or as capital.

Required:
Advise Mr. Konto on the income tax treatment of providing the asset to the company as capital or loan contribution.

Answer

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Tags: Capital financing, Dividend taxation, Loan financing, Thin Capitalization
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAR 2024

AT – Dec 2023 – L3 – Q4 – Business income – Corporate income tax

Computing the maximum capital allowances and chargeable income for STE Ltd for the year ended 31 December 2021.

Question

STE Ltd was incorporated in 2020 and commenced business operations on 1 January 2021, specializing in manufacturing and distributing solar panels and related products. The company secured a two-year loan of GH¢750,000 with an interest rate of 15% per annum from a local financial institution. The loan was applied as follows:

Loan Application	Amount (GH¢)
Showroom construction at Tema	100,000
Procurement of plant and machinery	250,000
Procurement of raw materials	300,000
Procurement of commercial vehicles	70,000
Amount applied towards 2021 consultancy fees	30,000
Total	750,000

The company’s fixed asset register as at 31 December 2021 is as follows:

Fixed Assets	Cost (GH¢)	Depreciation (GH¢)	Net Book Value (GH¢)
Head office building	150,000	3,750	146,250
Factory building	120,000	6,000	114,000
Furniture and fittings	65,000	6,500	58,500
Office computers	80,000	16,000	64,000
Total	415,000	32,250	382,750

STE’s statement of comprehensive income for the year ended 31 December 2021 is as follows:

Additional information:

Staff welfare includes a penalty for late PAYE payment (GH¢5,000), staff end-of-year party (GH¢7,350), and initial payroll software license (GH¢14,000).
Advertising and marketing includes GH¢3,800 spent on entertaining the Marketing Director’s family and friends.
Utility costs include GH¢13,640 for installing solar panels at the Tema showroom.
Interest consists of GH¢15,000 for a loan establishment fee, GH¢56,250 for 2020 interest, and GH¢112,500 for 2021 interest.
Research and development contributions were made to the Energy Commission of Ghana for solar-powered cookers and heaters research.
The operating licence was paid to the Tema Metropolitan Assembly for the factory’s initial license.

Required:
a) Calculate the maximum capital allowances claimable by STE Ltd for the year ended 31 December 2021.
b) Calculate the chargeable income and tax payable by STE Ltd for the year ended 31 December 2021.

Answer

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Tags: Business income, Capital allowances, Corporate Income Tax, Depreciation
Level: Level 3