- 6 Marks
AT – Mar 2024 – L3 – Q3a – Business income – Corporate income tax
Discussing the tax implications of providing an asset to a company as capital or loan contribution.
Question
Agogo Ghana Ltd is a manufacturing entity in Ghana. Mr. Konto, a citizen and resident of Malaysia, owns 80% of the company’s shares. Mrs. Konto, a citizen and resident of Malaysia and wife of Mr. Konto, also owns 15% of the shares of the company. Mr. Bawa, the son of Mr. Konto, holds the remaining 5% of the shares in the company. As of 1st June 2023, the company had a share capital of GH¢400,000. A report submitted by the management to the Board of Directors indicated that the company needs to acquire a plant valued at GH¢1,000,000 to enable the company to increase its production capacity. Mr. Konto, who is the majority shareholder, has offered to finance the purchase of the plant for the company but is unsure whether to provide the plant as a loan or as capital.
Required:
Advise Mr. Konto on the income tax treatment of providing the asset to the company as capital or loan contribution.
Find Related Questions by Tags, levels, etc.
- Tags: Capital financing, Dividend taxation, Loan financing, Thin Capitalization
- Level: Level 3
- Topic: Business income - Corporate income tax
- Series: MAR 2024