Question Tag: Tax Treatment

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  • 5 Marks

PT – Mar 2024 – L2 – Q5c – Income Tax Liabilities

Explain the tax treatment of a gift received.

What is the tax treatment of a gift received?

According to the Income Tax Act, 2015 (Act 896), the tax treatment of a gift received is as follows:

  • When a person receives a gift in respect of their employment, business, or investment, the gift is added to the person’s income from employment, business, or investment and taxed at the appropriate income tax rate.
  • However, where an individual receives a gift other than a gift received in respect of business or employment, the individual may elect to pay tax at the rate of 25%.
  • 4 Marks

AT – Aug 2022 – L3 – Q1a – International taxation

Tax treatment for a non-resident company using a subsidiary to execute a project.

Jantua Ltd (Jantua) is a company incorporated in the Republic of Israel with subsidiaries across other countries, including Frankaa Company Ltd (Frankaa) in Ghana. All subsidiaries were incorporated in their respective countries by Jantua.

Jantua won a contract with the Ministry of Roads and Highways to construct a road in Ghana. Jantua used its subsidiary, Frankaa, to carry out the project. Jantua billed the Ministry of Roads and Highways for the work done. Likewise, Frankaa billed Jantua for management and technical services on the road project.

Required:
What is the tax treatment of this arrangement?
(4 marks)

The winning of contract by Jantua Ltd to construct roads, makes Jantua Ltd a
permanent establishment in Ghana for a period of 90 days or more. This means that
once the 90 days’ period is reached, Jantua Ltd will be required to file its tax returns.
Its withholding tax is not final after it attains the status of a permanent establishment
in Ghana.
Additionally, it is required to withhold on the payment to Frankaa Ltd on the
management and technical service fees.

  • 6 Marks

AT – NOV 2021 – L3 – Q1a – Business income – Corporate income tax | International taxation

Compute tax payable for a Free Zone Enterprise based on income from local and export sales and determine the treatment of certain adjustments.

Orga Ltd has the following information relating to its operation as a Free Zone Enterprise for the 2020 year of assessment with a basis period from January to December each year:

Description Amount (GH¢)
Revenue 35,000,000
Cost (21,000,000)
Profit 14,000,000

Additional information:

  • Depreciation of GH¢200,000 has been added to the cost above.
  • Revenue: Local sales GH¢25,000,000; Exports GH¢10,000,000.
  • The Managing Director was provided with a mini bar and a swimming pool as part of his employment package costing GH¢1,200,000 in his private residence. The employer added only GH¢200,000 as part of the employment income for tax purposes. The total cost has been adjusted to the cost above.
  • The dividend received from the United States of America net of taxes of 10% was GH¢22,500. This income has not yet been recorded, although it has been credited in the bank statement.
  • The excess proceeds from the sale of a depreciable asset over the written down value amount to GH¢300,000. This has not yet been recorded in the company’s accounts.

Required:
i) Compute the tax payable. (6 marks)
ii) Explain the tax treatment of the cost of the swimming pool and mini bar. (2 marks)

i) Computation of Tax Payable

Description Amount (GH¢)
Profit for the year (given) 14,000,000
Add back non-allowable expenses:
Depreciation 200,000
Domestic expenditure (Swimming pool & minibar) 1,000,000
Adjusted profit 15,200,000
Add other income:
Dividend (grossed up from GH¢22,500) 25,000
Excess of proceeds over WDV 300,000
Chargeable income 15,525,000

Tax computation (Local sales and exports):

Description Local Sales Exports
Chargeable income allocation 11,089,285.71 4,435,714.29
Tax rate 25% 15%
Tax payable 2,772,321.43 665,357.14
Total tax payable GH¢3,437,678.57

ii) Tax Treatment of Swimming Pool and Mini Bar
The cost of the swimming pool and mini bar is considered domestic expenditure and is generally not allowable for tax purposes. However, since the company added GH¢200,000 to the Managing Director’s employment income, that portion is allowable for tax purposes. The remaining GH¢1,000,000 must be added back to the company’s income for tax purposes.

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