Topic: Corporate Tax Liabilities

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  • 20 Marks

PT – April 2022 – L2 – Q4 – Corporate Tax Liabilities

Calculate the tax payable for Therry Ltd for the 2020 year of assessment using the provided financial data and adjustments.

The following extract relates to the financial data of Therry Ltd, a company resident in Ghana with a basis period from January to December each year. Therry Ltd has submitted its tax returns to GRA for the 2020 year of assessment:

The following additional information is available:

Interest Charges:
a. Interest on loan for MD’s personal housing project GH¢500,000
b. Foreign exchange loss on loan GH¢320,500
c. Bank charges GH¢75,000
Donations:
a. Osu Children Home GH¢10,000
b. Pastor (Azigi Church) GH¢30,000
c. Labone Senior High School GH¢20,000
d. National Disaster Management Organisation GH¢50,000
e. Political Parties Fundraising GH¢90,000
An amount of GH¢200,000 disclosed in the accounts was paid for repairs and improvements of an old machine bought three years ago. It is hoped that the performance of the machine will be enhanced after the improvements.
Creditors of the company agreed to cancel an amount of GH¢120,000 standing as part of the credit balance as incentive to the company. This has not been taken into account by the company in its tax returns to GRA.
An amount of GH¢300,000 being cost price of goods was issued to a related party outside Ghana at cost. The margin on the goods waived was sighted as GH¢40,000 in a correspondence with the related party.
Tax paid on account was GH¢20,000.
The company booked capital allowance unutilised certified by GRA from 2019 year of assessment as GH¢300,000.
Capital allowance agreed with GRA after taking into account all relevant issues was GH¢1,050,000 for 2020 year of assessment.
The machine (Pool 3 asset) had a written down value of GH¢4,000,000 as at 1 January 2020.
An allowable bad debt included in the selling and distribution expenses for 2019 amounted to GH¢100,000. The company recovered the amount in 2020 but no transaction was recorded in 2020.
Therry Ltd disposed off one of its capital assets for GH¢250,000 to the Managing Director. It cost the company GH¢300,000 to acquire the asset some years ago. An investigation revealed that the market value of the asset at the time of the sale was GH¢350,000. The company has already included the loss of the sale of the asset in administration expenses.
Required:
Determine the tax payable for the 2020 year of assessment. (20 marks)

Therry Ltd
Determination of tax payable for the 2020-year of assessment
Basis period: 01/01/2020 to 31/12/2020

Repairs and improvements:
Pool 3 asset Written down value at 01/01/2020 = GH¢4,000,000
Depreciation allowance (20%) = GH¢800,000
Written down value at 31/12/2020 = GH¢3,200,000
Allowable repairs and improvements (5% x GH¢3,200,000) = GH¢160,000
Disallowed repairs and improvements = GH¢200,000 – GH¢160,000 = GH¢40,000

Gain/Loss on realisation of capital asset:
Consideration received = GH¢350,000
Cost of asset = GH¢300,000
Gain on realisation = GH¢50,000

  • 10 Marks

PT – April 2022 – L2 – Q1c – Tax Administration

Calculate the taxes payable for each quarter for Bumu Manufacturing Company based on estimated chargeable income and tax paid.

c) You have been offered an appointment by Bumu Manufacturing Company (BMC) as Tax Manager responsible for preparing and filing tax returns on behalf of the company. BMC files its returns with the Osu Medium Taxpayers Office of the Ghana Revenue Authority. The company’s Tax Identification Number is C0000261178. The company prepares accounts to 31 December each year.

BMC estimated its chargeable income for the 2019 year of assessment as GH¢3,000,000. Subsequently, the company secured a Government contract and anticipates in the third (3rd) quarter that its chargeable income would be GH¢4,500,000.

Additional Information:
Tax paid on account:
1st quarter GH¢100,000
2nd quarter GH¢120,000
3rd quarter GH¢200,000

Required:
Compute the taxes payable for BMC for each quarter.
(10 marks)

c) Taxes payable for BMC for each quarter

Where A = Tax payable (Annual tax payable),
B = All withholding up to the end of the
respective quarter + any other taxes paid in respect of that annual tax payable,
C = the number quarters remaining
1st Instalment
A = 25% X GH¢3,000,000 = GH¢750,000
B = 100,000
C = 4
Instalment payment = (750,000 – 100,000)/4 = GH¢162,500

2nd Instalment
A = GH¢750,000
B = 100,000 + 120,000 +162,500= 382,500
C = 3
Instalment payment = (750,000 – 382,599)/3 = GH¢122,500

3rd Instalment
A = 25% x GH¢4,500,000 = 1,125,000
B = 100,000 + 162,500 + 120,000 + 122,500 + 200,000 = 705,000
C = 2
Instalment payment = (1,125,000 – 705,000)/2 = GH¢210,000

4th Instalment
A = GH¢1,125,000
B = 705,000 + 210000 = 915,000
C = 1
Instalment payment = (1,125,000 – 915,000)/1 = GH¢210,000

(Marks are evenly spread = 10 marks)

  • 5 Marks

PT – Nov 2023 – L2 – Q5c – Income Tax Liabilities

Define and distinguish between capital, depreciable, and investment assets under the Income Tax Act.

Section 133 of the Income Tax Act, 2015 (Act 896) provides for the interpretation of capital assets, depreciable assets, and investment assets.

Required:
What are the distinguishing features of capital assets, depreciable assets, and investment assets under the above-mentioned legislation? (5 marks)

Capital Asset:

  • A capital asset is an asset employed in a business or investment, but excludes trading stock or depreciable assets.

    • Depreciable Asset:

  • A depreciable asset is an asset employed in the production of income from a business. It is expected to lose value due to wear and tear, obsolescence, or effluxion of time. However, it excludes goodwill, an interest in land, a membership interest in an entity, and trading stock.

    • Investment Asset:

  • An investment asset is a capital asset held as part of an investment, which includes shares or securities in a company, a beneficial interest in a trust, or an interest in land or buildings. It excludes the primary private residence of an individual if it has been owned by the individual continuously for three years before disposal and lived in for at least two of those three years.

(5 marks)

  • 5 Marks

PT – Nov 2023 – L2 – Q5d – Income Tax Liabilities

Explain the tax treatment for the gift of a vehicle received by a business under the Income Tax Act.

Bansey Enterprise received a vehicle from Unilever as the best distributor of Unilever products.

Required:
Explain to the Managing Director of Bansey Enterprise how to treat the gift of the vehicle for tax purposes. (5 marks)

Gift Tax Treatment:
Under the Income Tax Act, 2015 (Act 896), when a person receives a gift in respect of employment, business, or investment (other than under a will, upon intestacy, or by way of transfer to a spouse, child, or parent), the gift is taxable under income tax law.

  • A gift in business is considered part of business income and is added to the profits of the business.
  • The value of the taxable gift is determined based on the market value of the asset at the time of receipt.
  • In the case of Bansey Enterprise receiving a vehicle, the market value of the vehicle must be added to the business income for the year of assessment.
  • Tax is levied on the gift as part of the business’s total gains and profits.
  • Effective 2023, individuals who opt to tax gifts separately are taxed at a rate of 25%, increased from the previous 15%.

(5 marks)

  • 4 Marks

PT – Nov2019 – L2 – Q4c – Income Tax Liabilities

This question asks to explain the taxation rules governing research and development expenses.

c) Explain briefly the taxation rules governing research and development expenses. (4 marks)

Research and development expenses that meet the requirements of being wholly, exclusively, and necessarily incurred during the year by the person and in the production of income from the business or investment may be deducted, irrespective of whether they are of a capital nature.

Research and development expenses refer to expenses incurred by a person in the process of developing the person’s business and improving business products or processes. However, these expenses exclude those that are included in the cost of an asset used in the research and development process.

(4 marks)

  • 8 Marks

PT – Nov2019 – L2 – Q4b – Income Tax Liabilities

This question asks to identify items that constitute domestic and excluded expenditures for tax purposes.

b) ‘No deductions are allowed for domestic or excluded expenditure incurred by a person in the computation of assessable income.’

Required:
i) Identify FOUR (4) items that constitute domestic expenditure. (4 marks)
ii) Identify FOUR (4) items that constitute excluded expenditure. (4 marks)

i) Items that constitute domestic expenditure:

  • Expenditure incurred in maintaining the individual, including shelter, meals, refreshment, entertainment, or other leisure activities.
    Expenditure incurred by the individual in commuting from home to work.
  • Expenditure incurred in acquiring clothing for the individual, except clothing that is not suitable for wearing outside of work.
  • Expenditure incurred in educating the individual, except education that is directly relevant to a business conducted by the individual or related to professional development.

ii) Items that constitute excluded expenditure:

  • Taxes paid or payable under the Act and any other tax law.
  • Bribes or expenditure incurred in corrupt practices.
  • Interest, penalties, and fines paid or payable to a government or political subdivision of a government of any country for breach of any law or subsidiary legislation.
  • Expenditure incurred by a person in deriving exempt amounts or final withholding payments.

(One point for each correct item. Maximum of 4 marks per section = 8 marks in total)

  • 10 Marks

PT – Nov2019 – L2 – Q4a – Corporate Tax Liabilities

This question asks to compute the chargeable income of Valentine Ghana Limited for the 2018 tax year based on the provided financial statements and additional information.

Valentine Ghana Limited is a producer of love greeting cards, and the following was extracted from its financial statements for the year ended 31 December 2018.
a) Valentine Ghana Limited is a producer of love greeting cards and the following was
extracted from its financial statements for the year ended 31 December,2018.

Deduct:

Net Profit: GH¢346,110
Additional Information:
i) Capital allowances for the year were GH¢204,000, as agreed with the Ghana Revenue Authority (GRA).
ii) The figures for repairs and maintenance include an amount of GH¢33,150 for the cost of erecting a new gate to the factory.
iii) 50% of other income was the personal rental income of the Managing Director.
iv) One-third of vehicle running expenses was expended on the personal car of the Managing Director, used for the company’s operation based on company policy.

Required:
Calculate the chargeable income of Valentine Ghana Limited for 2018 Year of Assessment.
(8 marks)

Computation of Chargeable Income for 2018 Tax Year for Valentine Ghana Limited

(8 marks to be allocated using ticks)

  • 8 Marks

PT – May 2020 – L2 – Q4a – Capital Allowance and tax reliefs

Computation of capital allowance for Stella-VD Ltd for the 2017 and 2018 years of assessment.

Stella-VD Company Limited, manufacturers of fruit juice for local consumption, commenced business on 1/10/2017, with an accounting year-end at 31 December. The company submitted its accounts for 2017 and was assessed accordingly. The company submitted its tax returns for the 2018 year of assessment to the Ghana Revenue Authority on 30/04/2019. Below are the details:


iii) Staff Welfare

Staff Medical Bills: 3,700
Safety Wear for Staff: 10,500
Canteen Equipment purchased on 30/11/2018: 12,000
iv) Donation and Subscription

Goods given as Gratis to Customs Officials: 13,000
Donation of Goods to SOS Children Village: 10,000
Subscription to Association of Ghana Industries: 5,000
v) Wages and Salaries

Old Staff: 120,000
Fresh Graduates employed by Stella-VD Ltd: 26,000
Fresh Graduates constitute 0.9% of the total workforce
vi) Other Income

Compensation from a Customer for Cancellation of Sale Order: 8,000
Compensation for Loss of Trading Stock of the Company: 10,000
Compensation for Cancellation of Purchase Order by Supplier: 5,000
The Company’s assets include the following:

Type of Assets Date of Acquisition Cost (GH¢)
Factory Building 01/10/2017 300,000
Plant and Machinery 25/10/2017 171,000
Delivery Van 01/11/2017 50,000
Computers 01/10/2017 40,000
Furniture and Fittings 10/12/2017 150,000
Other Office Equipment 01/10/2017 200,000
Office Building 30/06/2018 500,000
Required:
a) Compute the appropriate capital allowance for the 2017 and 2018 years of assessment.
(8 marks)

a) Computation of capital allowance for 2017 and 2018


(8 marks evenly spread using ticks)

  • 5 Marks

PT – May 2020 – L2 – Q2e – Corporate Tax Liabilities

Determines the tax treatment for dividends received by a resident company holding significant voting power in another resident company.

Zealow Ltd, a car battery dealer, holds 26% voting power of Aboye Ltd, an energy and power distribution company. Both companies are resident in Ghana. Aboye Ltd declared a dividend, and the portion of the dividend that should be credited to the accounts of Zealow Ltd is GH¢78,900.

Required:
Determine the taxes payable, if any, and comment on the treatment of dividend to Zealow Ltd.
(5 marks)

Under section 59(3) of the Income Tax Act 2015 (Act 896), a dividend paid to a resident company by another resident company is exempt from tax where the recipient company controls, directly or indirectly, at least 25% of the voting power of the company that paid the dividend.

Since Zealow Ltd holds 26% voting power in Aboye Ltd, the dividend of GH¢78,900 credited to the accounts of Zealow Ltd is exempt from tax. The dividend is not taxable in the hands of either Zealow Ltd or Aboye Ltd.

(5 marks)

  • 12 Marks

PT – May 2020 – L2 – Q4b – Special considerations for taxation of gifts and capital allowances.

Calculation of the chargeable income for Stella-VD Ltd for the 2018 year of assessment.

The Company’s assets include the following:

Type of Assets Date of Acquisition Cost (GH¢)
Factory Building 01/10/2017 300,000
Plant and Machinery 25/10/2017 171,000
Delivery Van 01/11/2017 50,000
Computers 01/10/2017 40,000
Furniture and Fittings 10/12/2017 150,000
Other Office Equipment 01/10/2017 200,000
Office Building 30/06/2018 500,000
Required:
Required:
a) Compute the appropriate capital allowance for 2017 and 2018 year of assessment. (8 marks)
b) Calculate the chargeable income of the company for assessment year 2018.
(12 marks)

Computation of chargeable income for Stella-VD Ltd for the 2018 year of assessment:

(12 marks evenly spread using ticks)

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