Question Tag: Allowable Deductions

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AT – Nov 2017 – L3 – Q4 – Capital Gains Tax (CGT)

Compute capital gains tax for equipment sale; define key CGT concepts.

Question

Mr. Afolabi, owner of Afolabi Mining Limited in Itakpe, bought a pulverizing equipment on hire purchase on January 1, 2013, making a deposit of ₦49,875,000 against a cash price of ₦78,750,000. The balance was payable in 20 monthly installments of ₦1,750,000 starting February 1, 2013.

As the Tax Consultant, you are required to:
a. Compute the Capital Gains Tax (CGT) payable for the relevant Years of Assessment, assuming the equipment was sold for:
i. ₦ 84,700,000 after installment payments on November 3, 2013.
ii. ₦ 86,800,000 after installment payments on August 5, 2014.

b. Outline the allowable and disallowable deductions in computing Capital Gains Tax.
c. Explain ‘Year of Assessment’ in the context of the Capital Gains Tax Act CAP C1 LFN 2004.
d. Explain the term ‘Connected Persons’.

Answer

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Tags: Allowable Deductions, Capital gains tax, Connected persons, Year of Assessment
Level: Level 3

Topic: Capital Gains Tax (CGT)
Series: NOV 2017

TAX – May 2023 – L2 – SA – Q1 – Personal Income Tax (PIT)

Compute partnership income and individual partner tax liabilities.

Question

Fadeke, Femi, Kola, and Gbenga have been in partnership as medical practitioners for eight years. The statement of profit or loss for the year ended December 31, 2021, is as follows:

Capital allowances agreed with the revenue: N980,000
Profits are to be shared equally among the partners.
Fadeke and Femi are married with three and two children, respectively.
Fadeke has a life assurance policy of N960,000 on which she pays N96,000 annually as a premium.
Fadeke maintains her aged father who is over 68 years.

Required:

a. Compute the income of the partnership. (5 Marks)
b. Compute the income tax liability of each of the partners. (25 Marks)
(Total: 30 Marks)

Answer

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Tags: Allowable Deductions, Computed Income, Income Tax, Partnership Income
Level: Level 2

Topic: Personal Income Tax
Series: MAY 2023

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.

Question

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)

Answer

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Tags: Allowable Deductions, Capital allowances, Corporate Tax, Tax computation

Topic: Corporate Tax Liabilities, Tax Computation for Companies
Series: APR 2022

PT – Nov2019 – L2 – Q4b – Income Tax Liabilities

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

Question

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)

Answer

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Tags: Allowable Deductions, Domestic expenditure, Excluded Expenditure, Non-Allowable Deductions
Level: Level 2

Topic: Corporate Tax Liabilities
Series: NOV 2019

PT – Mar 2024 – L2 – Q4b – Income Tax Liabilities

State the differences between capital expenditure and revenue expenditure with relevant examples.

Question

With relevant examples, state the differences between capital expenditure and revenue expenditure. (5 marks)

Answer

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Tags: Allowable Deductions, Capital Expenditure, Income Tax, Revenue Expenditure
Level: Level 2

Topic: Income Tax Liabilities
Series: MAR 2024

AT – May 2020 – L3 – Q4a – Business income – Corporate income tax

Compute the chargeable income for Mamavi, a retail business owner, for the year ended 31 December 2018 based on the provided profit and loss account.

Question

Mamavi is a retail business woman with a chain of shops in Ghana. She commenced business on 1 March 2011, with the business name of Unity Enterprise. She sells health foods, fruits, vegetables and juices.

The Enterprise’ profit or loss account for the year ended 31 December 2018 as prepared by the Accountant are reproduced below:

NOTES

A business loan was taken out to finance the cost of improvements to the store, in particular
the juice bars. The interest element included in the loan repayment amounted to GH¢1,750.
A mortgage loan was taken out by Mamavi to buy the family a house in Hlefi, Volta Region.
The interest element in the loan repayment for the mortgage was GH¢2,670.

This court case was as a result of a car hitting Mamavi when she was walking her dog out
at night. The car owner claimed Mamavi stepped out in front of him and therefore it was
her fault. Mamavi’s Lawyer told her to respond to the allegation because she needed five
sessions of physiotherapy to help heal her leg. Mamavi is suing the car owner for her costs.

GH¢700 of the painting cost related to the painting of Mamavi’s private house. The balance
related to painting her shop. GH¢1,200 lease charges relate to the leasing of a car for the
business
Required:
Compute Mamavi’s chargeable income for the year ended 31 December 2018

Answer

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Tags: Allowable Deductions, Business income, chargeable income, Disallowable expenses, Tax adjustments
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2020

AT – MAR 2024 – L3 – Q5a – Minerals and Mining

Discusses allowable deductions, rehabilitation fund treatment, and financial costs in the mining sector.

Question

You have been invited as a student of Taxation to speak at a stakeholder workshop on mining and mineral operations in the extractive industry. In the letter of invitation, the Organisers indicated that you are to submit a detailed write-up of your presentation on the following issues.

Required:
i) Allowable deduction peculiar to the extractive industry. (3 marks)
ii) Approved Rehabilitation Fund and the tax treatment of contributions into the fund and expenses incurred in respect of rehabilitation under the Income Tax Act, 2015 (Act 896). (3 marks)
iii) The tax treatment of relevant financial costs included in the costs incurred in respect of minerals and mining operations under the Income Tax Act, 2015 (Act 896). (4 marks)

Answer

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Tags: Allowable Deductions, Extractive Industry, Financial Costs, Mining Taxation, Rehabilitation Fund
Level: Level 3

Topic: Minerals and mining
Series: MAR 2024

AT – Nov 2023 – L3 – Q5c – Tax planning

Explain the residual deduction rule and state four conditions under which repairs and improvements are considered allowable deductions.

Question

Repairs and improvements are not mutually exclusive in tax administration because one leads to the other, and one cannot happen without the other. The Commissioner-General ensures that certain conditions are met before an amount of repairs and improvements is taken as an allowable deduction under the deductibility principles in tax administration.

You are the Tax Manager for Akwaaba and Associates, a firm of tax consultants. The Finance Manager of APC Ltd, a client of your firm, is contemplating how to treat major repair works being undertaken on their warehouse.

Required:
Write a memo to the Finance Manager of APC Ltd explaining what constitutes the residual deduction rule and state FOUR (4) conditions under which repairs and improvements are considered allowable deductions. (10 marks)

Answer

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Tags: Allowable Deductions, Capital Expenditure, Repairs and Improvements, Residual Deduction Rule, Tax Compliance
Level: Level 3

Topic: Tax planning
Series: NOV 2023

AT – Nov 2017 – L3 – Q4 – Capital Gains Tax (CGT)

Compute capital gains tax for equipment sale; define key CGT concepts.

Question

Answer

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Tags: Allowable Deductions, Capital gains tax, Connected persons, Year of Assessment
Level: Level 3

Topic: Capital Gains Tax (CGT)
Series: NOV 2017

TAX – May 2023 – L2 – SA – Q1 – Personal Income Tax (PIT)

Compute partnership income and individual partner tax liabilities.

Question

Fadeke, Femi, Kola, and Gbenga have been in partnership as medical practitioners for eight years. The statement of profit or loss for the year ended December 31, 2021, is as follows:

Capital allowances agreed with the revenue: N980,000
Profits are to be shared equally among the partners.
Fadeke and Femi are married with three and two children, respectively.
Fadeke has a life assurance policy of N960,000 on which she pays N96,000 annually as a premium.
Fadeke maintains her aged father who is over 68 years.

Required:

a. Compute the income of the partnership. (5 Marks)
b. Compute the income tax liability of each of the partners. (25 Marks)
(Total: 30 Marks)

Answer

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Tags: Allowable Deductions, Computed Income, Income Tax, Partnership Income
Level: Level 2

Topic: Personal Income Tax
Series: MAY 2023

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.

Question

Answer

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Tags: Allowable Deductions, Capital allowances, Corporate Tax, Tax computation

Topic: Corporate Tax Liabilities, Tax Computation for Companies
Series: APR 2022

PT – Nov2019 – L2 – Q4b – Income Tax Liabilities

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

Question

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)

Answer

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Tags: Allowable Deductions, Domestic expenditure, Excluded Expenditure, Non-Allowable Deductions
Level: Level 2

Topic: Corporate Tax Liabilities
Series: NOV 2019

PT – Mar 2024 – L2 – Q4b – Income Tax Liabilities

State the differences between capital expenditure and revenue expenditure with relevant examples.

Question

With relevant examples, state the differences between capital expenditure and revenue expenditure. (5 marks)

Answer

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Tags: Allowable Deductions, Capital Expenditure, Income Tax, Revenue Expenditure
Level: Level 2

Topic: Income Tax Liabilities
Series: MAR 2024

AT – May 2020 – L3 – Q4a – Business income – Corporate income tax

Compute the chargeable income for Mamavi, a retail business owner, for the year ended 31 December 2018 based on the provided profit and loss account.

Question

The Enterprise’ profit or loss account for the year ended 31 December 2018 as prepared by the Accountant are reproduced below:

Answer

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Tags: Allowable Deductions, Business income, chargeable income, Disallowable expenses, Tax adjustments
Level: Level 3

Topic: Business income - Corporate income tax
Series: MAY 2020

AT – MAR 2024 – L3 – Q5a – Minerals and Mining

Discusses allowable deductions, rehabilitation fund treatment, and financial costs in the mining sector.

Question

Answer

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Tags: Allowable Deductions, Extractive Industry, Financial Costs, Mining Taxation, Rehabilitation Fund
Level: Level 3

Topic: Minerals and mining
Series: MAR 2024

AT – Nov 2023 – L3 – Q5c – Tax planning

Explain the residual deduction rule and state four conditions under which repairs and improvements are considered allowable deductions.

Question

Answer

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Tags: Allowable Deductions, Capital Expenditure, Repairs and Improvements, Residual Deduction Rule, Tax Compliance
Level: Level 3

Topic: Tax planning
Series: NOV 2023

Question Tag: Allowable Deductions

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AT – Nov 2017 – L3 – Q4 – Capital Gains Tax (CGT)

Compute capital gains tax for equipment sale; define key CGT concepts.

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TAX – May 2023 – L2 – SA – Q1 – Personal Income Tax (PIT)

Compute partnership income and individual partner tax liabilities.

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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.

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PT – Nov2019 – L2 – Q4b – Income Tax Liabilities

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

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PT – Mar 2024 – L2 – Q4b – Income Tax Liabilities

State the differences between capital expenditure and revenue expenditure with relevant examples.

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AT – May 2020 – L3 – Q4a – Business income – Corporate income tax

Compute the chargeable income for Mamavi, a retail business owner, for the year ended 31 December 2018 based on the provided profit and loss account.

You're reporting an error for "AT – May 2020 – L3 – Q4a – Business income – Corporate income tax"

AT – MAR 2024 – L3 – Q5a – Minerals and Mining

Discusses allowable deductions, rehabilitation fund treatment, and financial costs in the mining sector.

You're reporting an error for "AT – MAR 2024 – L3 – Q5a – Minerals and Mining"

AT – Nov 2023 – L3 – Q5c – Tax planning

Explain the residual deduction rule and state four conditions under which repairs and improvements are considered allowable deductions.

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AT – Nov 2017 – L3 – Q4 – Capital Gains Tax (CGT)

Compute capital gains tax for equipment sale; define key CGT concepts.

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TAX – May 2023 – L2 – SA – Q1 – Personal Income Tax (PIT)

Compute partnership income and individual partner tax liabilities.

You're reporting an error for "TAX – May 2023 – L2 – SA – Q1 – Personal Income Tax (PIT)"

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.

You're reporting an error for "PT – April 2022 – L2 – Q4 – Corporate Tax Liabilities"

PT – Nov2019 – L2 – Q4b – Income Tax Liabilities

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

You're reporting an error for "PT – Nov2019 – L2 – Q4b – Income Tax Liabilities"

PT – Mar 2024 – L2 – Q4b – Income Tax Liabilities

State the differences between capital expenditure and revenue expenditure with relevant examples.

You're reporting an error for "PT – Mar 2024 – L2 – Q4b – Income Tax Liabilities"

AT – May 2020 – L3 – Q4a – Business income – Corporate income tax

Compute the chargeable income for Mamavi, a retail business owner, for the year ended 31 December 2018 based on the provided profit and loss account.

You're reporting an error for "AT – May 2020 – L3 – Q4a – Business income – Corporate income tax"

AT – MAR 2024 – L3 – Q5a – Minerals and Mining

Discusses allowable deductions, rehabilitation fund treatment, and financial costs in the mining sector.

You're reporting an error for "AT – MAR 2024 – L3 – Q5a – Minerals and Mining"

AT – Nov 2023 – L3 – Q5c – Tax planning

Explain the residual deduction rule and state four conditions under which repairs and improvements are considered allowable deductions.

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