Topic: Minerals and mining

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AT – Nov 2018 – L3 – Q5c – Tax administration, Minerals and mining

Explanation of how revenue from a shared processing facility is accounted for tax purposes in mining operations.

Question

A mining company with two contracts operating in the Western and Ashanti Regions of Ghana has one processing facility for its mining operations from both contracts. This has engaged the attention of the Ghana Revenue Authority for some time now regarding how to handle its activities for tax purposes.

Required:
As a final-level tax candidate, how will revenue received from a shared processing facility by a mining company be accounted for tax purposes?

Answer

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Tags: Mineral Operations, Mining Taxation, Revenue Allocation, Shared Processing
Level: Level 3

Topic: Minerals and mining, Tax administration in Ghana
Series: NOV 2018

AT – May 2021 – L3 – Q4 – Minerals and mining

Compute the capital allowance and chargeable income for Kanawu Mine Resources Ltd for 2020.

Question

Kanawu Mine Resources Limited was incorporated on 1 January 2017 to mine gold and diamonds at Prestea in the Western region of Ghana. Various reconnaissance and prospecting activities took place from 2017 to 2019. Actual production started on 1 January 2020.

The following were the cost and revenue relative to reconnaissance and prospecting activities and costs from 2017 to 2019:

Activities	2017 (GH¢)	2018 (GH¢)	2019 (GH¢)
Analyzing historical exploration data	250,000	–	–
Purchase of motor vehicles	1,000,000	–	–
Exploratory drilling and sampling	–	2,500,000	–
Purchase of surveying infrastructure	500,000	–	–
Construction of office building	–	3,700,000	–
Conducting market and finance studies	–	–	300,000
Renting of office space	400,000	–	–
Sinking shafts and underground drifts	–	–	5,400,000
Purchase of land	–	460,000	–
Permanent excavations	–	400,000	3,000,000
Constructing roads and tunnels	–	2,200,000	1,100,000
Purchase of drilling machines	–	700,000	900,000
Purchase of office equipment	50,000	550,000	120,000
Legal fees for acquisition of lease	–	130,000	–
Purchase of software	–	230,000	–
Removal of overburden and waste rock	–	–	470,000
Acquisition of rights to explore	300,000	–	–
Protocols to chiefs of Prestea	10,000	5,000	23,000
Topographical and geophysical studies	25,000	56,000	–
Geological and geochemical studies	35,000	300,000	–
Sale of surveying software	–	–	(130,000)
Trenching and sampling expenses	–	400,000	100,000
Sale of drilling equipment	–	–	(50,000)
Revenue from pre-production gold	–	–	(500,000)

The following transactions took place from 1 January 2020 to 31 December 2020:

The company received compensation of GH¢3,500,000 from their insurers for destruction of some gold mined.
Mining and processing cost, including wages and salaries incurred during the year, was GH¢120,345,000.
Sales of gold and diamonds: GH¢378,532,900.
Ground rent paid to the Administrator of Stool Lands: GH¢321,500.
Further research and development studies at the cost of GH¢374,300.
Royalties paid to the government: GH¢11,355,987.
Acquisition of a new mineral right: GH¢5,000,000.
Bonus payment for the new mineral right: GH¢300,000.
Legal and other professional fees for the acquisition of the new mineral right: GH¢121,800.
Stope preparation and development cost: GH¢1,021,700.
Business operating permits: GH¢5,563,200 (includes GH¢400,000 provision for 2021).
General and administrative expenses: GH¢190,467,100 (includes GH¢421,600 for a new iron gate).
Selling and distribution costs: GH¢172,554,700.
Finance charge, including interest on loans and bank charges: GH¢211,500,000.

Required:
a) Compute the capital allowance claimable in 2020.
b) Compute the chargeable income and tax payable for the 2020 year of assessment.
c) Comment on the tax treatment of royalty payments and the acquisition of new mineral rights.

Answer

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Tags: Capital Allowance, chargeable income, Corporate Tax, Mining operations
Level: Level 3

Topic: Minerals and mining
Series: MAY 2021

AT – Nov 2021 – L3 – Q4 – Business income – Corporate income tax | Minerals and mining

Compute the chargeable income and tax payable for Akwatia Gold Mines for 2020 and identify tax optimization opportunities.

Question

Akwatia Gold Mines was established ten years ago. For the year ended 31 December 2020, the following income statement was prepared and submitted to the Ghana Revenue Authority as part of its financial statement.

Akwatia Gold Mines
Income Statement for the Year Ended 31/12/2020

The capital allowance agreed for the period was GH¢24,320,500.

Required:
a) Compute the chargeable income of the company and the tax payable. (15 marks)

b) Advise Akwatia Gold Mines on how to identify opportunities within the tax laws to optimise tax payable for the year ended 31 December 2020. (5 marks)

Answer

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Tags: Business income, chargeable income, Corporate Tax, Financial Statement, Minerals and mining, Tax computation, tax optimization
Level: Level 3

Topic: Business income - Corporate income tax, Minerals and mining
Series: NOV 2021

AT – May 2020 – L3 – Q5b – Minerals and mining

Calculate the royalty payable for A Ltd, a Mining Company, based on production volume and revenue data for 2018.

Question

Compute the royalty payable on the following data of A Ltd, a Mining Company for 2018 year of assessment:

Production of resource (Volumes) – 1,000,000
Revenue from sale – GH¢10,000,500
Note: the revenue above contains proceeds from sale of scraps amounting to GH¢10,500
Required:
Compute the royalty payable.

Answer

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Tags: Mining royalty, Resource taxation, Revenue calculation
Level: Level 3

Topic: Minerals and mining
Series: MAY 2020

AT – Nov 2020 – L3 – Q4c – Minerals and mining

Why mining companies enter into development agreements in Ghana and the conditions that must be met before the agreement is granted.

Question

Mining companies enter into several agreements. Why do mining companies enter into development agreements in Ghana and what are the conditions to meet before the agreement is granted?

Answer

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Tags: Development agreement, Investment incentives, Mining operations, Parliament ratification
Level: Level 3

Topic: Minerals and mining
Series: NOV 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 – March 2023 – L3 – Q4 – Minerals and mining

Compute the taxes payable by Crystal Mining Ltd and advise on tax payment timelines and consequences of non-compliance.

Question

Crystal Mining Ltd is a resident mining company operating in two mining areas in the Eastern and Western parts of Ghana under the name Alpha Ltd and Beta Ltd respectively. Crystal Mining Ltd has a shared processing facility for the two mining areas.

As part of efforts to increase its market share in the sector, it acquired a 40% stake in the operation of Omega Ltd, also a mining company in the Western part of Ghana.

Omega Ltd’s operations are in their early years, hoping to start production in the next three years. Crystal Mining Ltd commenced commercial operations in 2021.

The operational activity of Crystal Mining Ltd for the 2021 year of assessment is as follows:

Description	GH¢
Gross Revenue	1,000,000,000
Cost of Operation	(300,000,000)
Gross Operating Margin	700,000,000
Operating and Other Costs	(340,000,000)
Net Margin	360,000,000
Add: Interest (net of taxes) on current account	1,000,000

Additional Information:

Gross Revenue included the sale of an asset worth GH¢2,000,000, whose cost of acquisition was GH¢1,287,000.
Gross dividend of GH¢400,000 was received from Axum Ltd, a company resident in Ghana, in which Crystal Mining Ltd holds 40% voting power. Axum Ltd engages in commerce. The dividend was added to the gross revenue above.
Revenue from tailings amounting to GH¢1,000,000 was added to the cost of operation.
Included in the cost of operation is the excess of financial cost from derivative of GH¢2,000,000 over financial gain from hedged arrangement of GH¢890,000.
For the acquisition of a 40% stake in Omega Ltd, Crystal Mining Ltd paid GH¢4,000,000. The amount was added to the cost of operation.
Research and development cost amounting to GH¢1,000,000 has been included in operational cost.
Depreciation, depletion, and amortization of GH¢6,000,000 were included in the operational cost above.
Overburdening stripping and shaft sinking cost of GH¢3,000,000 was added to Gross Revenue as a way of tax planning, according to the accountant. This cost was incurred prior to access to the resource in 2021.
Further information:
- Reconnaissance and prospecting cost up to 2020 in respect of Alpha Ltd amounted to GH¢80,000,000 and was added to the cost of operation.
- Reconnaissance and prospecting cost up to 2020 in respect of Beta Ltd amounted to GH¢78,000,000 and was added to the cost of operation.
- Apart from Pay As You Earn (PAYE) from the staff, Crystal Mining Ltd has never paid taxes to the Ghana Government. This is a big concern to the Ministry of Lands and Natural Resources.

Required:
a) Compute the taxes payable by Crystal Mining Ltd and state any assumptions if any. (16 marks)
b) Advise the management of the company on when it must pay its taxes to the Ghana Revenue Authority. (2 marks)
c) What are the sanctions for non-adherence to the obligation of payment of taxes? (2 marks)

Answer

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Tags: Capital Allowance, Corporate Tax, Mining operations, Tax computation
Level: Level 3

Topic: Minerals and mining
Series: MAR 2023

AT – Nov 2023 – L3 – Q5a – Minerals and mining

Advise on what constitutes the cost of an asset at the commencement of commercial production in mineral operations.

Question

ACM Mining Ltd has commenced mining operations in Ghana. It procured heavy-duty machinery and equipment for use in its operations.

Required:
Advise ACM Mining Ltd on what constitutes the cost of an asset at the commencement of commercial production in respect of mineral operations. (5 marks)

Answer

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Tags: Capital Allowance, Cost of Asset, Mineral Operations, Mining, Taxation
Level: Level 3

Topic: Minerals and mining
Series: NOV 2023

AT – Nov 2019 – L3 – Q4d – Minerals and mining

Explain the purpose and benefits of stability agreements for mining companies in Ghana.

Question

Mining companies are given some benefits in their operations in many countries to help them create benefits for their host governments and shareholders. One of the benefits of the mineral operation is the stability agreement that mining companies sign with host governments the world over.

Required: What does stability agreement seek to achieve for mining companies in Ghana? (6 marks)

Answer

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Tags: Fiscal Policy, Mining benefits, Stability agreements
Level: Level 3

Topic: Minerals and mining
Series: NOV 2019

AT – Nov 2019 – L3 – Q4c – Minerals and mining

Calculate the royalty payable for a mining company based on given production and revenue data

Question

The following data relates to Nyametsew Mining Company for 2018 year of assessment. Production – 2,000,000 Ounces Revenue – GH¢10,000,000 Cost of Production – GH¢4,000,000

Required: Compute the Royalty Payable.

Answer

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Tags: Mineral taxation, Minerals and mining, Revenue-based royalty
Level: Level 3

Topic: Minerals and mining
Series: NOV 2019

AT – Nov 2018 – L3 – Q5c – Tax administration, Minerals and mining

Explanation of how revenue from a shared processing facility is accounted for tax purposes in mining operations.

Question

Required:
As a final-level tax candidate, how will revenue received from a shared processing facility by a mining company be accounted for tax purposes?

Answer

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Tags: Mineral Operations, Mining Taxation, Revenue Allocation, Shared Processing
Level: Level 3

Topic: Minerals and mining, Tax administration in Ghana
Series: NOV 2018

AT – May 2021 – L3 – Q4 – Minerals and mining

Compute the capital allowance and chargeable income for Kanawu Mine Resources Ltd for 2020.

Question

The following were the cost and revenue relative to reconnaissance and prospecting activities and costs from 2017 to 2019:

Activities	2017 (GH¢)	2018 (GH¢)	2019 (GH¢)
Analyzing historical exploration data	250,000	–	–
Purchase of motor vehicles	1,000,000	–	–
Exploratory drilling and sampling	–	2,500,000	–
Purchase of surveying infrastructure	500,000	–	–
Construction of office building	–	3,700,000	–
Conducting market and finance studies	–	–	300,000
Renting of office space	400,000	–	–
Sinking shafts and underground drifts	–	–	5,400,000
Purchase of land	–	460,000	–
Permanent excavations	–	400,000	3,000,000
Constructing roads and tunnels	–	2,200,000	1,100,000
Purchase of drilling machines	–	700,000	900,000
Purchase of office equipment	50,000	550,000	120,000
Legal fees for acquisition of lease	–	130,000	–
Purchase of software	–	230,000	–
Removal of overburden and waste rock	–	–	470,000
Acquisition of rights to explore	300,000	–	–
Protocols to chiefs of Prestea	10,000	5,000	23,000
Topographical and geophysical studies	25,000	56,000	–
Geological and geochemical studies	35,000	300,000	–
Sale of surveying software	–	–	(130,000)
Trenching and sampling expenses	–	400,000	100,000
Sale of drilling equipment	–	–	(50,000)
Revenue from pre-production gold	–	–	(500,000)

The following transactions took place from 1 January 2020 to 31 December 2020:

The company received compensation of GH¢3,500,000 from their insurers for destruction of some gold mined.
Mining and processing cost, including wages and salaries incurred during the year, was GH¢120,345,000.
Sales of gold and diamonds: GH¢378,532,900.
Ground rent paid to the Administrator of Stool Lands: GH¢321,500.
Further research and development studies at the cost of GH¢374,300.
Royalties paid to the government: GH¢11,355,987.
Acquisition of a new mineral right: GH¢5,000,000.
Bonus payment for the new mineral right: GH¢300,000.
Legal and other professional fees for the acquisition of the new mineral right: GH¢121,800.
Stope preparation and development cost: GH¢1,021,700.
Business operating permits: GH¢5,563,200 (includes GH¢400,000 provision for 2021).
General and administrative expenses: GH¢190,467,100 (includes GH¢421,600 for a new iron gate).
Selling and distribution costs: GH¢172,554,700.
Finance charge, including interest on loans and bank charges: GH¢211,500,000.

Answer

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Tags: Capital Allowance, chargeable income, Corporate Tax, Mining operations
Level: Level 3

Topic: Minerals and mining
Series: MAY 2021

AT – Nov 2021 – L3 – Q4 – Business income – Corporate income tax | Minerals and mining

Compute the chargeable income and tax payable for Akwatia Gold Mines for 2020 and identify tax optimization opportunities.

Question

Akwatia Gold Mines
Income Statement for the Year Ended 31/12/2020

The capital allowance agreed for the period was GH¢24,320,500.

Required:
a) Compute the chargeable income of the company and the tax payable. (15 marks)

b) Advise Akwatia Gold Mines on how to identify opportunities within the tax laws to optimise tax payable for the year ended 31 December 2020. (5 marks)

Answer

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Tags: Business income, chargeable income, Corporate Tax, Financial Statement, Minerals and mining, Tax computation, tax optimization
Level: Level 3

Topic: Business income - Corporate income tax, Minerals and mining
Series: NOV 2021

AT – May 2020 – L3 – Q5b – Minerals and mining

Calculate the royalty payable for A Ltd, a Mining Company, based on production volume and revenue data for 2018.

Question

Compute the royalty payable on the following data of A Ltd, a Mining Company for 2018 year of assessment:

Answer

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Tags: Mining royalty, Resource taxation, Revenue calculation
Level: Level 3

Topic: Minerals and mining
Series: MAY 2020

AT – Nov 2020 – L3 – Q4c – Minerals and mining

Why mining companies enter into development agreements in Ghana and the conditions that must be met before the agreement is granted.

Question

Mining companies enter into several agreements. Why do mining companies enter into development agreements in Ghana and what are the conditions to meet before the agreement is granted?

Answer

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Tags: Development agreement, Investment incentives, Mining operations, Parliament ratification
Level: Level 3

Topic: Minerals and mining
Series: NOV 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 – March 2023 – L3 – Q4 – Minerals and mining

Compute the taxes payable by Crystal Mining Ltd and advise on tax payment timelines and consequences of non-compliance.

Question

As part of efforts to increase its market share in the sector, it acquired a 40% stake in the operation of Omega Ltd, also a mining company in the Western part of Ghana.

Omega Ltd’s operations are in their early years, hoping to start production in the next three years. Crystal Mining Ltd commenced commercial operations in 2021.

The operational activity of Crystal Mining Ltd for the 2021 year of assessment is as follows:

Description	GH¢
Gross Revenue	1,000,000,000
Cost of Operation	(300,000,000)
Gross Operating Margin	700,000,000
Operating and Other Costs	(340,000,000)
Net Margin	360,000,000
Add: Interest (net of taxes) on current account	1,000,000

Additional Information:

Gross Revenue included the sale of an asset worth GH¢2,000,000, whose cost of acquisition was GH¢1,287,000.
Gross dividend of GH¢400,000 was received from Axum Ltd, a company resident in Ghana, in which Crystal Mining Ltd holds 40% voting power. Axum Ltd engages in commerce. The dividend was added to the gross revenue above.
Revenue from tailings amounting to GH¢1,000,000 was added to the cost of operation.
Included in the cost of operation is the excess of financial cost from derivative of GH¢2,000,000 over financial gain from hedged arrangement of GH¢890,000.
For the acquisition of a 40% stake in Omega Ltd, Crystal Mining Ltd paid GH¢4,000,000. The amount was added to the cost of operation.
Research and development cost amounting to GH¢1,000,000 has been included in operational cost.
Depreciation, depletion, and amortization of GH¢6,000,000 were included in the operational cost above.
Overburdening stripping and shaft sinking cost of GH¢3,000,000 was added to Gross Revenue as a way of tax planning, according to the accountant. This cost was incurred prior to access to the resource in 2021.
Further information:
- Reconnaissance and prospecting cost up to 2020 in respect of Alpha Ltd amounted to GH¢80,000,000 and was added to the cost of operation.
- Reconnaissance and prospecting cost up to 2020 in respect of Beta Ltd amounted to GH¢78,000,000 and was added to the cost of operation.
- Apart from Pay As You Earn (PAYE) from the staff, Crystal Mining Ltd has never paid taxes to the Ghana Government. This is a big concern to the Ministry of Lands and Natural Resources.

Answer

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Tags: Capital Allowance, Corporate Tax, Mining operations, Tax computation
Level: Level 3

Topic: Minerals and mining
Series: MAR 2023

AT – Nov 2023 – L3 – Q5a – Minerals and mining

Advise on what constitutes the cost of an asset at the commencement of commercial production in mineral operations.

Question

ACM Mining Ltd has commenced mining operations in Ghana. It procured heavy-duty machinery and equipment for use in its operations.

Required:
Advise ACM Mining Ltd on what constitutes the cost of an asset at the commencement of commercial production in respect of mineral operations. (5 marks)

Answer

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Tags: Capital Allowance, Cost of Asset, Mineral Operations, Mining, Taxation
Level: Level 3

Topic: Minerals and mining
Series: NOV 2023

AT – Nov 2019 – L3 – Q4d – Minerals and mining

Explain the purpose and benefits of stability agreements for mining companies in Ghana.

Question

Required: What does stability agreement seek to achieve for mining companies in Ghana? (6 marks)

Answer

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Tags: Fiscal Policy, Mining benefits, Stability agreements
Level: Level 3

Topic: Minerals and mining
Series: NOV 2019

AT – Nov 2019 – L3 – Q4c – Minerals and mining

Calculate the royalty payable for a mining company based on given production and revenue data

Question

The following data relates to Nyametsew Mining Company for 2018 year of assessment. Production – 2,000,000 Ounces Revenue – GH¢10,000,000 Cost of Production – GH¢4,000,000

Required: Compute the Royalty Payable.

Answer

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Tags: Mineral taxation, Minerals and mining, Revenue-based royalty
Level: Level 3