Question Tag: Asset Realisation

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  • 5 Marks

PT – Nov2019 – L2 – Q5b – Taxation of Capital Gains

This question asks to explain the taxation rules on asset realisation upon the death of the asset owner.

An individual may realise an asset on the death of another person, by way of transfer of ownership of the asset.

Required:
What are the taxation rules on such transactions?
(5 marks)

    Where an individual realises an asset on the death of another person by way of transfer of ownership of the asset, the following taxation rules apply:

  • The individual is treated as deriving an amount in respect of the realisation equal to the market value of the asset at the date of death.
  • The person who acquires the asset is treated as incurring an expenditure of an amount equal to the market value of the asset at the date of transfer.

(5 marks)

  • 7 Marks

AT – May 2021 – L3 – Q2a – Mergers, Amalgamation and Reorganisation

Write a memo on the tax exposure after a merger involving three companies and asset revaluation gains.

There has been a merger among three companies: Ann Ltd, Bab Ltd, and Cee Ltd. The merger was geared towards creating a monopoly in the market. After careful revaluation of the assets and liabilities of the companies, the following is the outlook:

  • Ann Ltd: GH¢4,200,000
  • Bab Ltd: GH¢5,000,000
  • Cee Ltd: GH¢5,200,000

The following is the outlook of the new company after the merger:

  • Profit: GH¢5,000,000

Required:
As an intern of IKERN and Associates, write a memo to your partner on the company’s tax exposure after the merger.

Memo

To: Partner
From: Tax Intern
Date: 16 February 2021
Subject: Tax Exposure After the Merger

Introduction:
Following our discussion on the above subject matter, I furnish the following for your consideration.

Issues:
The gains on the realisation of an asset accruing to or derived by a company arising out of a merger, amalgamation, or reorganisation of a company are exempt from tax when there is continuity of at least fifty percent of the underlying ownership in the asset.

Tax Implication:
The merger of the three companies and the gains arising from the revaluations shall be assessed based on the underlying ownership in the new entity. If the underlying ownership in the new entity is less than 50%, the gains will be subject to tax at the corporate rate of 25%. If ownership is maintained at or above 50%, the gains are exempt from tax.

  • Ann Ltd: GH¢4,200,000
  • Bab Ltd: GH¢5,000,000
  • Cee Ltd: GH¢5,200,000

From the above gains, if the underlying ownership in the new company post-merger is less than 50%, the gains shall be taxed at the marginal rate of 25%. If the ownership is maintained at 50% or more, the gains will be exempt from tax.

The profit being made by the new company indicates the success of the merger, and it shall be taxed at the corporate tax rate of 25%.

Conclusion:
I hope the above helps you in your further action on the matter.
Yours faithfully,
Handsome Padii.

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