Question Tag: Personal Deductions

The following tax planning measures can be adopted to reduce the tax liability of a sole proprietorship business:

1. Personal Reliefs:
   The sole proprietor can benefit from personal reliefs, such as:
   • Marriage/Responsibility Relief (GH¢1,200)
   • Old Age Dependent Relief (GH¢1,000, limited to two relations)
   • Old Age Relief (GH¢1,500)
   • Child Education Relief (GH¢600 per child, limited to three children)
   • Disability Relief (25% of assessable income from employment or business)
2. Contributions to Pension Schemes:
   Contributions towards pension schemes, such as Tier 1, Tier 2, and Tier 3, are tax-deductible up to 35% of declared income. This helps to reduce taxable income while investing for retirement.
3. Changing the Character of Income:
   By investing in treasury bills or other tax-exempt financial instruments, the sole proprietor can earn interest income that is tax-free, rather than expanding business operations and being subject to the highest marginal tax rate (30%).
4. Mortgage Interest Deduction:
   The interest on a loan taken for the acquisition of a residential property can be used to reduce taxable income. This is applicable for one residential house in a taxpayer’s lifetime, providing a tax benefit.

Conclusion:
These tax planning measures can help reduce the overall tax liability of a sole proprietorship business, thereby maximizing after-tax income.