- 10 Marks
AT – July 2023 – L3 – Q3a – Tax planning
Analyzing the tax implications of providing assets as equity or loan and determining the best option for tax purposes
Question
Kinky Ltd is a manufacturing entity resident in Ghana. Mr. Andre Camil, a citizen and resident of France, owns 90% of the company’s shares. Mrs. Claude Camil, a citizen and resident of France and wife of Mr. Andre Camil, also owns 5% of the shares of the company. Mr. Francois Camil, the son of Mr. Andre Camil, holds the remaining 5% of the shares in the company.
As at 1 June, 2021, 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. Andre Camil, the majority shareholder, has offered to finance the purchase of the plant for the company but his challenge is whether to provide the asset to the company as a loan or as equity.
Required:
Advise Mr. Andre Camil on:
- The income tax treatment of providing the asset to the company as equity contribution.
- The income tax treatment of providing the asset to the company as a loan.
- The preferable option for providing the asset to the company in order to derive the maximum tax benefits.
Find Related Questions by Tags, levels, etc.
- Tags: Capital structure, Equity contribution, Loan financing, Tax Benefits
- Level: Level 3
- Topic: Tax planning
- Series: JULY 2023