MSAF 606

TAXES & BUSINESS STRATEGY

Lesson 5 – Taxation of Business and
Investment Income

College of Humanities
University of Ghana Business School
Department of Accounting
 Session Overview

Lesson Objectives:
▪ By the end of this session you should be able to:
• Defined business income and badges to trade
• Compute carry forward losses
• Understand segmented business with various rates
• Compute taxation of investment income

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 Session Outline
▪ The key topics to be covered in this session are as follows:
• Business income defined and badges to trade
• Carry forward losses
• Segmented Business with various rates
• Taxation of investment income

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 Reading List
▪ Amidu, M. (2019), Principles and Practice of Taxation, First
Edition, Digibooks, Accra. Ghana Chapter 6, (pages 200-22)
& Chapter 7 ( 241-48)
▪ Ali-Nakyea A. (2016), Taxation in Ghana-Principles, Practice
& Planning, Black Mask Ltd., 3rd Edition. Chapter 6, (pages
153-175)
▪ Income Tax ACT, 2015 (ACT 896), Ghana Publishing
Company Limited, (Assembly Press), Accra, Ghana, Sections
5, and 6

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 Topic One

BUSINESS INCOME DEFINED

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Taxation of Business Income
Defined:

▪ Section 5(1) provides that, a person’s income from a business

is that person’s gains or profits from any business carried on
for whatever period of time by that person.
▪ In ascertaining a person’s income from business the following
should be included:
• Service fees
• Consideration received for trading inventory/stocks
• Gains from realization of capital assets and liabilities of the
business
• Consideration received on restrictions of capacity to operate the
business
• Gift received in respect of the business
• Gains on the realization of depreciable assets
• Amounts received that is effectively connected with the business
• Any other amount as a result of the business
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 Assessable Income from Business
(s. 5 of Act 896)
▪ The above inclusions notwithstanding, the assessable income from
business excludes:
• an amount specified in respect of an exemption under section 7;
• an amount specified in respect of a final withholding payment;
and
• an amount that is included in calculating the income of the
person from an employment.

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 Topic Two

BUSINESS INCOME
CARRY FORWARD OF LOSSES

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 Taxation of Business Income
Carry forward of Losses
▪ A “loss” of a person from a business or investment is defined in
section 17(5) of the Income Tax Act, 2015 (Act 896) as
▪ The excess of amounts deducted in calculating the income of
that person from the investment or business over amounts
included in calculating that income.
▪ An “unrelieved loss” is also defined in the same section to mean
the amount of a loss that has not been deducted in calculating
the income of the person under section 17 or section 23(5).
▪ A business may suffer losses when its revenues from the sale of
goods and services and financial income are insufficient to cover
its allowable expenses and appropriate depreciation of capital.

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Taxation of Business Income
Period of Carry forward of Losses

▪ Under section 17(1) of Act 896, a person is allowed to carry

forward a loss from a business or investment incurred in a year of
assessment to a subsequent year of assessment is allowed to deduct
an unrelieved loss of the person for any of the five (5) previous
years of assessment.
▪ It used to 5 years for only priority sector businesses and
▪ Three years for all other business

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 Taxation of Business Income
Treatment of Losses from B &I
▪ With reference to Section 17 (1)(a) of Act 896, the following shall
be considered priority areas for the purpose of carrying forward of
unrelieved losses for five years
• Minerals and Mining Operations
• Petroleum Operations
• Energy and Power business
• Manufacturing business
• Farming business
• Agro Processing business
• Tourism business
• Information and Communication Technology business
• This section has been amended to allowed all businesses to carry
over unrelieved losses for 5 years
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 Taxation of Business Income
Treatment of Losses from B &I
▪ “Tourism Business” means an operator of a tourism enterprise
registered and licensed by the Ghana Tourism Authority in
accordance with section 25 and 27 of the Tourism Act, 2011 (Act
817).
▪ “Information and Communication Technology Business” means
business that is engaged in software development.
▪ “Energy and Power” means the business of a person who is into
power generation.

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Taxation of Business Income
Treatment of Losses from B & I
Illustration 5.1
Congress Mining Company Limited started operations in 2017. In
its first year of operation it declared a loss of GHS800,000.00.
Determine the number of years Congress Mining Company may
carry forward its losses.

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Taxation of Business Income
Treatment of Losses from B & I
Solution 5.1
Congress Mining Company Limited is in the priority sector and
may deduct the unrelieved loss that occurred in 2017 from the
income of any of the subsequent five (5) years of assessment (i.e.
2018, 2019, 2020, 2021 and 2022 years of assessment).

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Taxation of Business Income
Treatment of Losses from B & I
Illustration 5.2
• Progress Company Limited is in the business of retailing
clothes in a boutique. In its first year of operation ending in
2019, the company declared a loss of GHS250,000.00.
• Determine the number of years Progress Company may carry
forward its losses.

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Taxation of Business Income
Treatment of Losses from B & I
Solution 5.2
Progress Company Limited is not in a priority sector hence may
deduct the unrelieved loss that was incurred in 2016 from the
income of any of the subsequent three (3) years of assessment
(i.e. 2020, 2021 and 2022 years of assessment).

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 Taxation of Business Income
Segmented business with different tax rates
▪ Where a person makes a loss and if the loss were a profit would
have attracted tax at a lower or reduced tax rate, the loss may only
be deducted in calculating income that is taxed at the same
reduced rate, a lower rate or exempt amount.
▪ Where a person’s business operations are segmented with
different tax rates, losses attributable to a segment with a
particular tax rate can be deducted only from incomes that will be
taxed at that same rate.
▪ Where the business is segmented but the incomes are not
segmented, there may be the need for apportionment of the
income of the business.
▪ The basis for apportionment of income is the contribution of each
business line to the total turnover of the business.
 Taxation of Business Income
Segmented business with different tax rates

Illustration 5.3
Enterprise Company Ltd deals in non-traditional exports as well as local sales. The company’s
operations for 2016 year of assessment is stated below
Turnover GHS
Export Sales 1,000,000.00
Local Sales 500,000.00
Losses on operations:
Loss from Non-Traditional Exports 200,000.00
Loss from local sales 80,000.00
Assessable Income declared by the company in 2017 year of assessment is as follows:
Non-Traditional Exports 600,000.00
Local Sales 100,000.00
Required: Determine how the unrelieved losses in 2016 will be dealt with in 2017 year of
assessment.
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 Taxation of Business Income
Segmented business with different tax rates

YOA NTE Local Sales

2016 GHS GHS

Unrelieved Losses c/f 200,000 80,000.

2017 GHS GHS

Income 600,000 100,000

Less unrelieved loss b/f 200,000 80,000

Chargeable Income 400,000 20,000

Tax Rate 8% 25%

Tax Thereon 32,000.00 5,000.00

 Taxation of Business Income
Deduction of Losses B & I

▪ An unrelieved loss from business may be deducted in calculating

income from investment.
▪ However, an unrelieved loss from investment shall be deducted only
in calculating income from investment.
▪ Thus, an unrelieved loss from an investment cannot be deducted in
calculating the income from business.

Slide 20
Taxation of Business Income
Deduction of Losses B & I
Illustration 5.4
From the declared profit (loss) as provided for in the table below
for Endurance Company Limited, determine how the unrelieved
losses will be treated

YOA Business Income/ Investment Income

(Loss) /(Loss)

2017 100,000.00 (50,000.00)

2018 (40,000.00) 120,000.00

Slide 21
Taxation of Business Income
Deduction of Losses B & I
Computation of Business Income 2017 2017
Business Income 100,000
Less Carryover losses -
Taxable Income 100,000

Computation of Investment Income 2018 2018

Investment Income 120,000
Less Carryover losses: Investment loss 2017 50,000
Business loss 2018 40,000 90,000
Taxable Income 30,000

Slide 22
Taxation of Business Income

Deduction of Losses Exempt Income

• Losses from activities that are exempt from tax or from

incomes that are taxed at reduced rates cannot be deducted
from the profits of other businesses.

Slide 23
Taxation of Business Income
Deduction of Losses Exempt Income

Illustration 5.5
Moshosho Company Limited declared a total loss of GHS430,000.00 in
the 2016 year of assessment. The loss was made up of:
▪ Transport operations of GH¢ 250,000.00
▪ Hotel operations of GH¢180,000.00.
The company declared profits from its operations for the 2017 year of
assessment as follows:
▪ Transport operations GH¢ 100,000.00
▪ Hotel operations GH¢ 750,000.00
Required
Determine how the losses of the two business operations will be
treated in the 2017 year of assessment.
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Taxation of Business Income
Deduction of Losses Exempt Income

Year of Assessment Transport Hotel Operation

Operations

GH¢ GH¢ GH¢ GH¢

Assessable income 100,000 750,000
Less unrelieved loss -2016 250,000 180,000

Loss utilised loss 100,000 180,000

Unrelieved Loss c/f 150,000
Taxable income nil 570,000
Tax thereon 25% nil 22% 125,400
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Taxation of Business Income
Deduction of Losses Exempt Income

Commentary
▪ Unrelieved loss from transport business carried forward to 2018 -
GHS150,000.00
▪ The unrelieved loss of GHS150,000.00 from the Transport business at
the end of 2017 year of assessment cannot be deducted from the
chargeable income of GHS570,000.00 of the Hotel operations.
(Please refer to section 17(2)(a), (2)(b) of Income Tax Act, 2015 (Act
896)).
Note:
▪ Paragraph 3(1) of the first Schedule of the Act states that the
chargeable income of a company other than a company principally
engaged in hotel industry would be taxed at the rate of 25%.
▪ Paragraph 3 of the first Schedule of the Act states that the chargeable
income of a company principally engaged in hotel industry would be
taxed at the rate of 22%.

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 Taxation of Business Income
Transitional Provision
▪ It is worthy of note that companies which were required to carry
forward losses under the repealed Internal Revenue Act, 2000
(Act 592) will continue with the dispensation up to the end of the
basis period in which the dispensation would have ended under
the provisions of Act 592.
▪ This is because laws cannot be passed with retrospective effect as
provided for under article 107(b) of the 1992 Constitution of the
Republic of Ghana.

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 Discussion Questions and Problems

See page 221 to 240 for more discussion and problem questions
and page 248 to 251
 Topic Two

INVESTMENT INCOME

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 Taxation of Investment Income
Defined
• The income of a person from an investment for a year of assessment
is the gains or profits of that person from conducting the investment
for the year or a part of the year.
• Income from an investment includes:
• dividends, interest, annuity, natural resource payment, rent, and royalty;
• a gain from the realisation of an investment asset as calculated under
Part IV (Assets and Liabilities)
• an amount derived as consideration for accepting a restriction on the
capacity of the individual to conduct the investment;
• Winnings from lottery; This has been amended
• a gift received by the person in respect of the investment; and
• any other amount required to be included under section 59(Taxation of
shareholders), Part II (Income Tax Base) or Part VI (Special Industries)
if the amount is derived from5/22/2023
the investment.
 Taxation of Investment Income
Defined
▪ The following are excluded from the determination of income from
an investment:
• an amount specified in respect of an exemption under section 7;
• a final withholding payment; and
• an amount that is included in calculating the income of the person from
an employment or business.

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 Discussion Questions and Problems

See page 221 to 240 for more discussion and problem questions
and page 248 to 251