EXCEL PROFESSIONAL INSTITUTE TAXATION AND FISCAL POLICY LECTURE 6 WINFRED

EXCEL PROFESSIONAL INSTITUTE TAXATION AND FISCAL POLICY LECTURE 6 WINFRED

ASSIGNMENTS 5

Joe Moore has been in employment since 2010 on a consolidated salary of GHC24, 600 per annum with Consolidated Gold Ltd. In the year 2017, his consolidated salary was GHC36, 000 from which he contributed 5.5% to the Social Security and National Insurance Trust. In the same year he remitted an amount of GHC1,800 (in cedi terms of his UK Pounds Sterling) being his net share of partnership profits in UK, into Ghana, after tax of GHC 600 had been deducted in the UK. Joe Moore is married with three children two of whom are in Christ the King Junior High School in Accra and one in Konongo Odumasi Senior High School (Great KOSS). a) Determine the Tax Credit Relief to be granted to Joe Moore for 2017 year of assessment, on the basis that a double taxation agreement exists between Ghana and the United Kingdom (UK) and that Joe Moore has provided evidence of payment of foreign tax on the amount remitted. (14½ marks) (b) What is Joe Moore s net tax liability in Ghana? (8 marks) (c) Mention five (5) countries with which Ghana has a Double Taxation Treaty

This is a standardized deductible allowance granted in lieu of Financial Accounting depreciation. It is granted in respect of depreciable assets owned and used by a person in business for the production of income Depreciable Assets Depreciable asset means an asset to the extent to which it is used in the production of income from a business and which is likely to lose value because of wear and tear, obsolescence or the passage of time. Depreciable assets exclude goodwill and interest in land, a membership interest in an entity and trading stock. No capital allowance is granted on the cost incurred in acquiring these exclusions

1. Capital Allowance is granted on Depreciable Assets. Must be of capital nature and must have been purchased 2. The Depreciable Assets must be owned by the person. 3. The Depreciable Assets must be used in production of income 4. The Depreciable Assets must be owned at the end of a basis period of the person ending within the year of assessment. This is applicable to class 4 & 5 depreciable assets 5. Capital Allowance granted in respect of a particular year of assessment shall not be deferred by a person entitled to that Capital Allowance as provided in section 14 (3) of the Act.

a. The depreciable asset is acquired by the person for the purpose of a business which the person intends to carry on and subsequently, the asset is first used by the person in that business; b. The asset has been used in the business but is in temporary not in use c. The person leases the asset on an operating lease to another person who uses it in carrying on a business

Depreciable assets are reclassified into 5 classes i. class one ii. class two iii. class three iv. Class 4 v. Class 5 Class one to three are POOLED and REDUCING BALANCE Method is used to calculation of Capital Allowance Class 4 and Five not Pooled and uses Straight line method

(i) Depreciable assets of the same class are put together for the purpose of capital allowance. (ii) The identity of the asset is lost the moment it is placed in the pool. (iii) The cumulative written down value of the pool forms the basis for the depreciation. (iv) Consideration received from the disposal of depreciable asset is credited to the written down value (v) The consideration to be credited should not more than the written down value of the pool. Excess is added to assessable income from business and taxed accordingly (vi) Additional capital allowance is granted if all the assets in the pool are realized and consideration received is less than written down of the pool (vii)additional capital allowance is granted if written down value at end of the basis period is less than GHC 500.00 (vi) The cost base of old vehicle other than commercial vehicle is restricted to GHC75,000

CLASS DEPRECIABLE ASSETS RATE 1 Computers and data handling equipment together with peripheral devices. 2 (i) Automobiles, buses and minibuses, goods vehicles; construction and earth-moving equipment, heavy general purpose or specialised trucks, trailers and trailer-mounted containers; plant and machinery used in manufacturing. (ii) Assets resulting from expenses incurred by a person in the production of income of that person; a) in respect of planting vegetation from which timber, rubber, oil palm or other crops are derived; and b) where the business is a timber concern or a large scale rubber, oil palm or other long term crop plantation. (Note: such expense shall be treated as if the expense was incurred in securing the acquisition of a depreciable asset used by the person in the production of income). 40 Percent 30 Percent

3 Railroad cars, locomotives and equipment; vessels, barges, tugs and similar water transportation equipment; aircraft; specialised public utility plant, equipment and machinery; office furniture, fixtures and equipment; any depreciable asset not included in another class. 20 Percent 4 Buildings, structures and similar works of a permanent nature 10 Percent 5 Intangible assets 1 divided by the useful life of the asset in the

(1) The depreciation basis of a pool of depreciable assets at the end of a basis period in respect of a Class 1, 2 or 3 asset is: (i) The depreciation basis of the pool at the end of the previous basis period (after deducting depreciation for that previous basis period); (ii) Plus additions to the cost of assets in or added to that pool (iii) Minus consideration received for the assets in that pool or that has been in the pool during the basis period (Note: The depreciation basis after deducting the consideration received must not be less than zero.

Depreciation Allowance is calculated using the formula: A x B x C/365 where A is the depreciation basis of the pool of depreciable asset at the end of the basis period. B is the depreciation rate applicable to the pool of depreciable assets; and C is the number of days in the basis period of the person

1. Commencement date 2. Change of accounting date 3. Cessation Realization of class Depreciable asset and 5 A-B/ B-A where A is the lesser of cost or sale value of asset B. is the written value of the asset at the end of basis period

KFC Limited started business on 1st March 2016 preparing accounts to 31st December each year. The company bought 5 computers on 1st January, 2016 valued at GHS20,000.00 The company purchased an additional computer on 20th November, 2017 at the cost of GHS4,000.00 Required: Compute Capital Allowance for KFC Limited for 2016 and 2017 years of assessment. If a. 2 computers were sold on 15th December of the same year for a consideration of GHS3,000.00 b. If all the computers were sold for GHC17,500 on 27 th December 2017

a. ABC Company Limited purchased a Toyota Prado valued at GHS250,000.00 on 1st June 2017 for use in its business. Compute the depreciation allowance for 2017 year of assessment for XY Limited. b. The written down value of class 2 depreciable assets of ANC limited brought forward from 2016 year of assessment is GHS 620.00. Compute the depreciation allowance for 2017 year of assessment

Pharma De Ltd, a trading company has the following extracts from its financial records: It bought a 4 X 4 Vehicle for an amount of GH 125,000.00 in the year 2016. It also put up a building at a cost of GH 250,000.00 in the same year. The cost of the land was GH 50,000 and GH 250,000 was the cost of the building. The Company accordingly, informed the Commissioner-General about putting the assets into use and in the generation of its income in 2016 year of assessment. In the year 2017, it exchanged the vehicle for 5 plots of land. The value of the plots of land agreed with the land owners was GH 120,000.00. The exchange was deemed satisfactory to both parties and documentations were carried through. Required: Calculate the amount of capital allowance claimable for if any for 2016, and 2017 year of assessment Pharma De tradin. Support your answer with explanation

RICKUS commenced business 1 st March 2015 dealing in the manufacturing of mobile phones. The assets schedule of the company is as presented below. Date of Acquisition Original Cost GHS Buildings 1/1/2014 120,000.00 Furniture &fittings 1/1/2014 248,000.00 Motor Vehicles 1/7/2014 98,500.00 Computers 1/6/2015 79,500.00 Office Equipment 1/10/2015 32,900.00 New assets purchased during the year are indicated below: Computers 19/2/2016 167,000.00 Toyota Land Cruiser 1/3/2016 150,000.00 Furniture & fittings 9/6/2017 275,000.00 Land & Buildings 25/3/2018 840,000.00 Earth moving equipment 29/4/2018 400,000.00 A motor vehicle costing GHS 70, 000.00 was sold for GHS 95,000.00 on 10th May 2017. Included in the land and building purchased is an amount of GHC 90,000.00 in respect o the land upon which the Building was constructed. The company also incurred an additional cost of GHS 45,500.00 in demolishing an old building on the site. An amount of GHS 18,500.00 was realized as salvage receipts on the demolition of the old building. These amounts were not recorded in the books of RICKUS Ltd. The useful life of the building is estimated to be 20 years. Kapoko Ltd presented the following to you as his activities for the relevant years. ProfitGHS Period to 31/12/2015 350,000.00

Capital allowance granted during the concessionary period After concessionary, capital allowance is determined on the written value of the depreciable assets

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