Question Tag: Employment Income

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  • 5 Marks

PT – April 2022 – L2 – Q3b(i & ii) – Income Tax Liabilities

Compute the tax liability on overtime allowances for Maame Agyeiwaa for January and February 2021.

b) Maame Agyeiwaa is a junior staff member of KayDee Ltd. Her monthly basic salary is GH¢800. She was paid an overtime allowance totalling GH¢100 during the month of January 2021. In February 2021, Maame Agyeiwaa was paid overtime allowance totalling GH¢500.

Required:
i) Compute her tax liability on the overtime allowance for the month of January 2021.
(2 marks)

ii) Compute her tax liability on the overtime allowance payments for the month of February 2021.
(3 marks)

i) Maame Agyeiwaa

  • 3 Marks

PT – April 2022 – L2 – Q3e – Income Tax Liabilities

Calculate the tax liability on Bisa's bonus income for 2021

Bisa works with Kaydei Ltd and earns an annual basic salary of GH¢140,000. He was paid a bonus of GH¢45,000 in 2021.

Required:
Determine the tax liability on the bonus.
(3 marks)

Bisa
Bonus as a percentage of basic salary

Bonus is more than 15% of annual basic salary therefore part of the bonus will be
taxed at 5% and the excess will be taxed at graduated rate.

Tax on Bonus: GH¢ GH¢
15% x GH¢140,000 = 21,000 x 5% = 1,050.00
Total Bonus 45,000
Added to other income 24,000

  • 5 Marks

PT – April 2022 – L2 – Q5c – Income Tax Liabilities

Explain how gifts received by individuals in relation to employment, business, or investment are taxed.

Gift means a receipt without consideration or for inadequate consideration.

When an individual receives a gift in relation to employment, business, investment, or otherwise, the following tax treatment applies:

1. Income Inclusion: The gift is added to the individual’s income and is taxed accordingly.
3. Tax Rate for Gifts: The individual may elect for the gift to be taxed separately. In such a case, the gift will be taxed at the rate of 15% on the total value of taxable gifts received by the person within a year of assessment.
(5 marks)

  • 20 Marks

PT – Nov 2023 – L2 – Q3a – Income Tax Liabilities

Computation of chargeable income for a physically challenged employee with various benefits and allowances.

Mr. Antitom (physically challenged) was employed as a Chief Accountant of Nangode Ltd on 1 April 2020 on an annual basic salary of GH¢60,000 x 10,000 – GH¢100,000. He was entitled to the following monthly allowances and benefits:

Allowances & Benefits Monthly Amount (GH¢)
Responsibility Allowance 4,400
Professional Allowance 6,600
House Help Allowance 8,200
Utilities 4,200
Overtime Allowance 6,000
Provision of furnished accommodation by the employer for which he paid 5% of his basic salary.
Provision of vehicle and fuel by the employer for both official and private use.
Bonus payment amounting to 25% of his basic salary.
He contributed 5.5% of his basic salary to the Mandatory Pension Scheme and an additional 10% to a Voluntary Pension Scheme approved by the National Pension Regulatory Authority.
Married with 3 children, 2 in approved Senior High Schools in Ghana, 1 at the University of South Africa.
Earned interest of GH¢4,000 on a savings account with Kilma Bank.
Received a net dividend of GH¢20,480 from an investment with Enoga Securities.
Required:
Compute the chargeable income of Mr. Antitom for the 2022 year of assessment.
(20 marks)

Antitom Computation Of Chargeable Income Year Of Assessment: 2022
Basis Period: January to December, 2022

Add Other Cash Benefits:

Less Reliefs and Deductions:

Note: Candidates who considered the non-taxation of interest and dividend income correctly were awarded marks.
(20 marks evenly spread using ticks)

  • 7 Marks

PT – Nov 2019 – L2 – Q3a – Income Tax Liabilities

Computes King Peter’s tax liability on overtime for the months of January and February 2019.

a) King Peter is a Junior Staff member of Sir James Company Limited. His monthly basic salary is GH¢700.00. He was paid overtime totaling GH¢50.00 during the month of January 2019.

Required:
i) Compute his tax liability on overtime for the month of January 2019. (2 marks)

In the month of February 2019, King Peter was paid overtime totaling GH¢500.00.

ii) Compute his tax liability on the overtime payments for the month of February 2019. (3 marks)

i) January 2019:
Description Amount (GH¢)
Percentage of overtime to basic salary: GH¢50/GH¢700 x 100% = 7.14%
This does not exceed 50% of basic salary.
Tax payable (5% of the overtime amount) 5% x GH¢50.00 = GH¢2.50
(2 marks)

ii) February 2019:

Description Amount (GH¢)
Percentage of overtime to basic salary: GH¢500/GH¢700 x 100% = 71.43%
This exceeds 50% of basic salary.
Tax payable will be calculated as follows:

(3 marks to be allocated)

  • 7 Marks

PT – May 2020 – L2 – Q3c – Income Tax Liabilities

Tax rules governing overtime and bonus payments under employment income.

c) What are the taxation rules for overtime payments and bonus payments under employment income?
(7 marks)

Overtime Payments:

Where an employer makes a payment for overtime work to a qualifying junior employee during a year of assessment, and the payment is up to 50% of the basic salary of the employee for the month, the employer is required to withhold tax at the rate of 5% from the payment. Any excess above the 50% is taxed at 10%.

A junior employee is the one whose qualifying employing income does not exceed eighteen thousand currency points (GH¢18,000.00) per annum.

(2 points @ 1.5 marks = 3 marks)

Bonus Payments:

  • Where an employer pays a bonus to an employee during a year of assessment and the sum of the payment during the year does not exceed 15% of the annual basic salary of the employee, the employer is required to withhold tax from the gross amount of the payment at the rate of 5%.
  • If the bonus exceeds 15% of the annual basic salary of the employee, the employer shall add any excess above the 15% payments to the employment income of the employee for the year, and withhold tax from the payment in accordance with the income tax rates for resident individuals (i.e., the graduated rates).
  • Tax withheld under overtime and bonus is a final tax on the overtime or bonus payment and the payment shall not be included in calculating income derived by the employee from that employment.
  • Where an employer makes a payment for overtime to an employee who is not a qualifying junior employee, the payment would be included in calculating the income of that employee from the employment and taxed at the graduated rates.

(4 points @ 1 mark each = 4 marks)

  • 4 Marks

PT – July 2023 – L2 – Q3b – Income Tax Liabilities

Explanation of what constitutes employment for the purposes of tax.

What constitutes employment for the purposes of tax? (4 marks)

For tax purposes, employment is defined as follows:

  1. Position of an Individual in Employment:
    • The individual holds a position in the employment of another person.
  2. Managerial Position:
    • The individual is a manager of an entity, other than a partner in a partnership.
  3. Fixed or Ascertainable Remuneration:
    • The individual receives a fixed or ascertainable remuneration in respect of services performed.
  4. Public Office:
    • The individual holds a public office.

Additionally, employment for tax purposes involves a contract of service rather than a contract for service, meaning the employer bears the risk of losses, and the employee is entitled to certain benefits and remuneration.

  • 16 Marks

PT – July 2023 – L2 – Q3a – Income Tax Liabilities

Calculation of loan benefits for three employees based on their loan details and income.

The table below shows the incomes of three employees of Agana Ltd in 2022 year of assessment.

Income Details Adom Aseda Ayeyie
Basic Salary (GH¢) 120,000 160,000 180,000
Medical Allowance (5% of Basic Salary) 6,000 8,000 9,000
Rent Allowance (10% of Basic Salary) 12,000 16,000 18,000
Fuel Allowance (15% of Basic Salary) 18,000 24,000 27,000
Total Cash Emoluments 156,000 208,000 234,000

Besides the cash emoluments stated above, the employees received loans from the employer as follows:

i) Adom received a loan of GH¢24,000 at a rate of 5% payable within 12 months.
ii) Aseda received a loan of GH¢48,000 at a rate of 8% payable within 24 months.
iii) Ayeyie received a loan of GH¢100,000 at a rate of 10% payable within 36 months. This loan is in addition to an outstanding loan of GH¢50,000 with the same terms and conditions during the previous twelve months. (Assume that the statutory rate is 30% per annum).

Required:
Determine the loan benefits applicable to each of the three employees for the 2022 year of assessment. (16 marks)

i) Adom

  • Loan amount: GH¢24,000
  • Interest rate: 5%
  • Loan repayment period: 12 months
  • Statutory rate: 30%

Since the loan repayment period does not exceed 12 months and the loan amount does not exceed Adom’s three months’ basic salary (GH¢30,000), no loan benefit is applicable for Adom.

(4 marks)

ii) Aseda

  • Loan amount: GH¢48,000
  • Interest rate: 8%
  • Loan repayment period: 24 months
  • Statutory rate: 30%

Loan Benefit Formula:
Loan benefit = (Interest payable at statutory rate) – (Interest paid by the employee)
= (GH¢48,000 × 30% × 2 years) – (GH¢48,000 × 8% × 2 years)
= GH¢28,800 – GH¢7,680
= GH¢21,120

Since the taxable loan benefit is limited to 25% of the total benefit:
Taxable loan benefit = GH¢21,120 × 1/4 = GH¢5,280
Applicable for 2 years, loan benefit for 2022 = GH¢5,280 ÷ 2 = GH¢2,640

(5 marks)

iii) Ayeyie

  • Loan amount: GH¢100,000 (plus GH¢50,000 outstanding)
  • Interest rate: 10%
  • Loan repayment period: 36 months
  • Statutory rate: 30%

Loan Benefit Formula:
Loan benefit = (Interest payable at statutory rate) – (Interest paid by the employee)
= (GH¢150,000 × 30% × 3 years) – (GH¢150,000 × 10% × 3 years)
= GH¢135,000 – GH¢45,000
= GH¢90,000

Since the taxable loan benefit is limited to 25% of the total benefit:
Taxable loan benefit = GH¢90,000 × 1/4 = GH¢22,500
Applicable for 3 years, loan benefit for 2022 = GH¢22,500 ÷ 3 = GH¢7,500

(5 marks)

  • 5 Marks

PT – Aug 2022 – L2 – Q5d – Income Tax Liabilities

Explain how gifts received not related to employment or business are taxed under the Income Tax Act.

An individual who is required to furnish the Commissioner-General (CG) with a return in relation to a gift has to do so to enable the CG subject it to appropriate tax.
Required:
Explain the treatment of a gift not received under employment or business.

An individual who receives a gift not related to employment or business can elect to have the market value of the gift taxed separately at a flat rate of 15%. The individual must furnish the Commissioner-General with a written return within 30 days of receiving the gift. The return is necessary to include the gift in the calculation of profits and gains of the individual, as required by the Income Tax (Amendment) (No. 2) Act, 2016 (Act 924)

  • 20 Marks

PT – Dec 2023 – L2 – Q3 – Income Tax Liabilities

Calculate chargeable income for a Finance Manager based on detailed employment benefits and allowances.

Abotsi has been in employment at Asempa Ltd since 1 August 2019 as Finance Manager on a salary scale of GH¢32,000 by GH¢8,000 to GH¢48,000.

His service conditions include the following:
i) Responsibility allowance of 18% of basic salary
ii) Utilities allowance per annum of 10% of basic salary
iii) Risk allowance of 20% on basic salary and car maintenance allowance of 5% of basic salary
iv) Leave allowance of GH¢1,900 per annum
v) Medical allowance per annum of GH¢3,500
vi) Meals allowance of GH¢700 per month
vii) Two house helps on GH¢500 wages per month each. The amount is paid to Abotsi in cash directly by the company
viii) Bonus of 25% of annual basic salary
ix) Annual Overtime allowance of GH¢18,000
x) Unaccountable entertainment allowance of GH¢2,000 a year
xi) Provision of a well-furnished bungalow in respect of which he pays GH¢400 per month as rent by way of deduction at source
xii) Provision of a vehicle with driver and fuel for both official and private purposes
xiii) Special retirement package by way of a provident fund of which he contributes 9% of his basic salary, while the company contributes 11%. (The scheme is approved by the regulatory body)
xiv) Social Security and National Insurance Trust contribution of 5.5% and the employer contributes 13% of basic salary
xv) On 1 January 2021, he was given a car loan of GH¢20,000 to purchase a car for his mother at a simple interest rate of 15% per annum. The institution gives similar facilities to other customers at the rate of 28% but the statutory rate (Bank of Ghana rate) is 25%. The loan is to be paid within the period of 24 months
xvi) He is married to Abotsiwaa and Abotsimaa who are unemployed and contribute little or no financial support to their husband. Their responsibilities are limited to the management of the house
xvii) He has six (6) children, four (4) of whom are in Silicon Valley International School, Accra-Ghana, while the rest are working
xviii) He is also responsible for the upkeep of four (4) aged relatives of his
xix) He is currently pursuing MPHIL in Finance at UPSA where he incurred GH¢25,000 by way of educational expenses in 2021
xx) He is a director of Adwoa Mansa Ltd and receives a director’s emolument of GH¢24,450 (net of taxes)
xxi) He received a dividend of GH¢20,000 (net of taxes) from the Afia Manu Bank. The dividend was taxed at 8%.

Required:
Calculate his chargeable income for the 2021 Year of Assessment. (20 marks)

Abotsi – Computation of Chargeable Income
Year of Assessment: 2021
Basis Period: January to December

Description GH¢
Basic Salary (August 2019 – July 2020) 32,000.00
Basic Salary (August 2020 – July 2021) 40,000.00 (7/12) = 23,333.33
Basic Salary (August 2021 – July 2022) 48,000.00 (5/12) = 20,000.00
Total Basic Salary: 43,333.33

Cash Allowances:

  • Responsibility Allowance (18% of GH¢43,333.33) = GH¢7,800.00
  • Utility Allowance (10% of GH¢43,333.33) = GH¢4,333.33
  • Risk Allowance (20% of GH¢43,333.33) = GH¢8,666.67
  • Car Maintenance Allowance (5% of GH¢43,333.33) = GH¢2,166.67
  • Total Cash Allowances: GH¢22,966.67

Other Cash Benefits:

  • Leave Allowance: GH¢1,900.00
  • Medical Allowance: GH¢3,500.00
  • Meals Allowance (GH¢700 x 12) = GH¢8,400.00
  • Househelps (GH¢500 x 2 persons x 12 months) = GH¢12,000.00
  • Bonus (Excess 10% of GH¢43,333.33) = GH¢4,333.33
  • Overtime Pay: GH¢18,000.00
  • Unaccountable Entertainment Allowance: GH¢2,000.00
  • Total Other Cash Benefits: GH¢50,133.33

Indirect Cash Payments:

  • Provident Fund (Employer 11% of GH¢43,333.33) = GH¢4,766.67
  • Social Security (Employer 13% of GH¢43,333.33) = GH¢5,633.33
  • Total Indirect Cash Payments: GH¢10,400.00

Total Cash Employment Income: GH¢126,833.33

Non-Cash Benefits:

  • Accommodation (10% of GH¢126,833.33) = GH¢12,683.33
    • Less Rent (GH¢400 x 12) = GH¢4,800.00
    • Net Accommodation Benefit: GH¢7,883.33
  • Car Benefit (12.5% of GH¢126,833.33) = GH¢15,854.17
    • Restricted to (GH¢600 x 12) = GH¢7,200.00
    • Net Car Benefit: GH¢7,200.00
  • Loan Benefit:
    • Statutory Interest (25% of GH¢20,000) = GH¢5,000.00
    • Actual Interest (15% of GH¢20,000) = GH¢3,000.00
    • Taxable Benefit (¼ of GH¢2,000.00) = GH¢500.00
    • Net Loan Benefit: GH¢500.00
  • Total Non-Cash Benefits: GH¢15,583.33

Qualifying Employment Income: GH¢142,416.66

Less: Reliefs and Deductions:

  • Provident Fund (Employee 9% of GH¢43,333.33) = GH¢3,900.00
  • Social Security (Employee 5.5% of GH¢43,333.33) = GH¢2,383.33
  • Marriage Responsibility Allowance: GH¢1,200.00
  • Child Education Allowance (3 children x GH¢600): GH¢1,800.00
  • Aged Dependence (2 aged relatives x GH¢1,000): GH¢2,000.00
  • Total Deductions: GH¢21,683.33

Net Employment Income: GH¢120,733.33

Other Income:

  • Director’s Fee (GH¢24,450 / 0.8) = GH¢30,562.50
  • Chargeable Income: GH¢151,295.83

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