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- 6 Marks
Question
The following has been extracted from the tax records of Mbangba Ltd relating to the 2018 year of assessment, which it intends to benefit in terms of tax outcome from the 2019 year of assessment.
| Item | Amount (GH¢) |
|---|---|
| Tax loss recorded for the first time in 2018 Y/A | 400,000 |
| Financial Cost carried forward from derivatives- 2018 | 100,000 |
| Bad Debts from Customers crystallized but not utilized in 2018 | 1,200,000 |
Lawomba Ltd in March 2019, acquired 68% equity shares of Mbangba Ltd and rebranded the name as Lawomba Ltd and conveyed the circumstance after the deal was clinched to the Ghana Revenue Authority to amend its records accordingly and recognize them as the legitimate persons in control of Mbangba Ltd.
The management of Lawomba Ltd has written to you making available the above disclosures for your tax opinion.
Required:
What is the tax implication of the above transactions in the records of Lawomba Ltd?
Answer
The acquisition of 68% of Mbangba Ltd will result in a change in the underlying ownership of Mbangba Ltd by more than 50%.
Tax Implications:
- Separate Years of Assessment: The period before the change and the period after the change in underlying ownership in the assets shall be treated as separate years of assessment.
- Disallowed Tax Loss: The tax loss of GH¢400,000 incurred in the 2018 year of assessment cannot be utilized by Lawomba Ltd.
- Disallowed Financial Cost: The financial cost of GH¢100,000 from derivatives brought forward from 2018 cannot be benefited by Lawomba Ltd.
- Disallowed Bad Debts: Bad debts of GH¢1,200,000 crystallized but not utilized in 2018 cannot be accounted for by Lawomba Ltd.
- Taxable Gains on Realization: Any gain on the realization of assets during this period is taxable.
- Tags: Business Reorganization, Change in Ownership, Tax Loss
- Level: Level 3
- Topic: Mergers, amalgamation, and reorganization
- Series: NOV 2019
- Uploader: Theophilus