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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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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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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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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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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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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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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Level: Level 3

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

AT – May 2017 – L3 – Q2 – Business income – Corporate income tax

Compute the chargeable income, explain adjustments, and compute tax payable for a self-employed individual.

Question

Mr. George Amoako, a self-employed single parent with two children attending a private University in Ghana trades as George Amoako Enterprise. He commenced business on 1st January 2016 and submitted the following extracts of his financial statements for the year ended 2016:

Item	Amount (GH¢)
Gross Profit b/d	20,420
Interest on savings account	2,020
Gifts received	1,500
Interest on treasury bills	790
Auditor’s fees	800
Depreciation of assets	1,200
Computers purchased	2,500
PAYE paid on his personal salary	450
Employee social security contribution (other staff)	396
Office rent	2,400
Personal salary (net)	7,200
Other staff wages	4,300
Stationery	852
Vehicle purchased for CEO’s personal use	18,000
Transport	1,300
Net Loss	(14,668)
Total	24,730

Required:

a) Determine the Chargeable Income of Mr. George Amoako for 2016 year of assessment. (10 marks)

b) Support your computations with relevant explanations. (5 marks)

c) Compute all Taxes payable. (5 marks)

(Total: 20 marks)

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2017

AT – March 2023 – L3 – Q5a – Business income – Corporate income tax

Compute the income tax payable by the trustees of Randy Koomson’s trust for the 2021 year of assessment.

Question

Randy Koomson, who hails from Cape Coast in the Central Region, died in January 2021 and left his businesses and estates with trustees, who happened to be non-residents. Randy Koomson has two children: Araba Koomson and Kwamina Koomson. These two children were made the beneficiaries, and each of them is entitled to 1/3 of the net distributable income of the trust with the rest for administrative expenses.

The terms of the trust deed provided for discretionary payments to the beneficiaries and donations towards worthwhile causes. During the year 2021, discretionary payments of GH¢300,000 each were made to the children.

Gross Profit, before discretionary payments and other expenses below, for the year 2021 was GH¢3,500,000.

The following expenses were incurred:

The Ghana Revenue Authority has agreed on a capital allowance of GH¢72,550.

Required:
Compute the income tax payable by the trustees on the income for the 2021 year of assessment. (10 marks)

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: MAR 2023

AT – March 2023 – L3 – Q3d – Business income – Corporate income tax

Discuss how tax laws treat business losses and support business growth through loss carry forward.

Question

ou have been asked to contribute to a public forum on the topic “business losses though not good have a direct effect on business development and growth as they are deductible allowances.”

When businesses make losses, to the extent that the losses are allowable, management becomes happy from the standpoint of taxation while shareholders are not too happy about the losses as these may make it impossible for them to receive dividends.

Required:
How are tax losses treated in businesses and how do the tax laws support the growth of businesses in loss-making?

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: MAR 2023

AT – March 2023 – L3 – Q2b – Business income – Corporate income tax

Discuss the tax implications of expenditures incurred for shareholders, executive directors, and non-executive directors.

Question

Mamba, a company resident in Ghana, has spent the following amounts on its officers for 2020 and 2021 years of assessment:

Expenditure	Shareholders (GH¢)	Executive Directors (GH¢)	Non-Executive Directors (GH¢)
2020	10,000,000	2,000,000	3,000,000
2021	20,000,000	3,000,000	3,000,000

The breakdown of the expenditure is as follows:

Shareholders: The company spent half the amounts for each of the years for its Annual General Meeting (AGM). The rest of the amount was spent on scholarships for shareholders’ children’s educational scholarships.
Executive Directors: The amount spent in 2020 was on providing security arrangements in the private residence of the Managing Director. The 2021 amount was spent on recreational facilities at the Deputy Managing Director’s private home.
Non-Executive Directors: The amounts for both years were spent to provide the directors with employable skills on the international arena when they exit as non-directors.

Required:
Enumerate the tax implication of these expenditures and comment on how the Ghana Revenue Authority would treat each of the expenditures. (6 marks)

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: MAR 2023

AT – March 2023 – L3 – Q1b – Business income – Corporate income tax

Compute the tax payable by Manpower Ltd, considering foreign income and capital allowances.

Question

Kofi Agyemang worked in Canada for a very long time and relocated to Ghana to benefit from the One District One Factory (1D1F) initiative. Kofi Agyemang set up a company called Manpower Ltd and was granted approval by the 1D1F Secretariat to operate a manufacturing company at Koforidua, the capital town of Eastern Region.

An extract from the accounts of Manpower Ltd for the 2021 year of assessment was as follows:

Description	GH¢
Chargeable Income	2,000,000
Dividend from Val Ltd:
Ghana (gross)	100,000
Canada (net of tax)	120,000
Interest on current account from:
Ghana (gross)	80,000
Canada (net of taxes)	100,000
Rental Income:
Ghana (gross)	200,000
Canada (gross)	150,000
Depreciation	67,000

Additional information:
i) Taxes paid on the foreign income:

Dividend: GH¢18,000
Interest: GH¢15,000
Rental income: GH¢15,000

ii) Capital allowance agreed with the Ghana Revenue Authority amounted to GH¢140,000.

Required:
Compute the tax payable by Manpower Ltd for the 2021 year of assessment. (8 marks)

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: MAR 2023

AT – May 2016 – L3 – Q3b – Business income – Corporate income tax

Compute the penalties payable by the company

Question

b) ABC Ltd is a company under self-assessment and prepares accounts to 31st March each year. Its estimated chargeable income for the year 2014 was GH¢1.2 billion. However, the Company’s Returns, which were submitted to the Large Tax Payers Office at the VAT House on 15th April, 2015, showed a chargeable income of GH¢1.8 billion.

Compute the penalties payable by the company.

(6 marks)

(Note: Rate of Company Tax: 25%)

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2016

AT – May 2016 – L3 – Q2 – Business Income – Corporate

This question asks for the computation of chargeable income based on the profit and loss account details for a manufacturing company for the 2014 Year of Assessment.

Question

Below is the Profit or Loss Accounts of Osu Mart Ltd, a manufacturing company in Accra for the year ended 31st December 2014, submitted to the Commissioner of Domestic Tax Revenue Division of the Ghana Revenue Authority on 30th April 2015.

a) Compute the chargeable income of the company for the 2014 Year of Assessment. (18 marks)

b) State the significance of the Auditor’s Certificate to the Examination of Accounts. (2 marks)

Answer

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Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2016

AT – May 2016 – L3 – Q1 – Tax administration in Ghana, Business income – Corporate income tax

Compute the tax liabilities and take-home pay for an employee provided various benefits and allowances for the 2014 Year of Assessment.

Question

Mr. Frank Danso was employed by Ghana Trust Ltd on 1st September 2010 on a salary scale of GH¢4,500 x 500-7,500 as the financial controller of the company. He is provided with the following as part of his conditions of service for the 2014 Year of Assessment:

i) Well-furnished rented flat by his employers in respect of which he pays GH¢100 per month as rent by way of deductions at source.
ii) Watchman allowance of GH¢200 per annum, paid directly to Mr. Frank Danso.
iii) Risk allowance of GH¢905 per annum.
iv) Leave allowance of GH¢500 per annum.
v) Garden boy allowance of GH¢100 per quarter paid directly to Mr. Frank Danso.
vi) Medical allowance of GH¢680 per annum.
vii) Meals allowance of GH¢50 per month.
viii) Two maidservants each on wages of GH¢200 per annum. The amount is paid to the maid servants directly by the company.
ix) Bonus of 40% on annual basic salary.
x) Entertainment allowance of GH¢400 a year (accountable).
xi) Duty post allowance of GH¢100 per month.
xii) He has Life Assurance Policies with EIC Ltd. Below are the details:

Policy	Sum Assured (GH¢)	Annual Premium (GH¢)
A	4,000	420
B	2,800	240
C	16,000	1,650
D	5,000	525

xiii) He is entitled to a company car and fuel for both official and private use.
xiv) He has two wives and ten children; four of whom are in SHS in Accra, and the rest are gainfully employed; he caters for 3 of his aged relatives.
xv) He contributes 7% of his salary towards the company’s Provident Fund which has been approved by the National Pension Authority, and he also contributes 5.5% of his salary to the SSNIT.

Required:
a) Compute his tax liabilities for the 2014 Year of Assessment using 2014 rates.
(15 marks)

b) Determine his take-home pay for the 2014 Year of Assessment.
(5 marks)

Total: 20 marks

Answer

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Level: Level 3

Topic: Business income - Corporate income tax, Tax administration in Ghana
Series: MAY 2016

AT – Nov 2016 – L3 – Q4b – Business income – Corporate income tax

Calculate the tax payable by Bambara Ltd and comment on the treatment of specific income and expenses

Question

b) Bambara Ltd has the following summarized income statement relating to the 2015 year of assessment:

	GH¢
Revenue	100,000
Cost of Sales	65,000
Gross Profit	35,000
Operating expenses	20,000
Net profit	15,000

Upon a closer scrutiny, the following came up:

i) Dividend net of withholding tax received from A Ltd was GH¢10,000. The amount received was added to revenue above. Bambara Ltd has 10% equity interest in A Ltd.
ii) Bad debts of GH¢1,000 were recovered. This was adjusted to the Income Surplus Account.
iii) A penalty of GH¢2,000 was paid and has been added to operating costs to determine the net profit as disclosed.
iv) Capital allowance agreed with Ghana Revenue Authority was GH¢1,000, and depreciation of GH¢1,300 was added to operating costs.
v) Taxes paid in previous quarters amounting to GH¢1,200 were added to operating costs to determine the net profit.
vi) It came to light that an amount of GH¢11,400 net of 5% withholding tax relating to the supply of goods was not brought into the accounts at all on account of omission. The withholding tax was certified correct.

Required:
Determine the tax payable by Bambara Ltd and comment on any four reasons for the inclusion and/or non-inclusion of the transactions in the determination of income. (10 marks)

Answer

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Tags: Adjustments, Corporate Income, Tax computation
Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2016

AT – Nov 2016 – L3 – Q3c – Business income – Corporate income tax

Explain the arm’s length principle and its application in tax transactions between related parties.

Question

c) The Commissioner-General of the Ghana Revenue Authority expects persons conducting business with related parties to ensure that the transaction is at arm’s length.

Required:
Explain the arm’s length principle in tax transactions. (4 marks)

Answer

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Tags: Arm's Length Principle, Tax Compliance, Transfer Pricing
Level: Level 3