ICAG

BUSINESS INCOME
 BUSINESS INCOME
The income of a person from a
business for a year of assessment is
the gains and profits of that person
from that business for the year or a
part of the year.
 INCOME SUBJECT TO TAX
Income from trade, profession, vocation or isolated
arrangement with a business character.
Gains from realization of capital assets.
Excess on realization of depreciable assets.
Gifts received in respect of the business.
An amount derived as consideration for accepting a
restriction on the capacity of the person to conduct the
business.
 BADGES OF TRADE
• Subject – matter
• Period of ownership
• Frequency of transactions
• Supplementary work
• Circumstances of realization
• Motive
 BUSINESS EXAMINATION
WHY:
• Errors
• Suppression of income
• Overstatement of expenditure
• Misapplication of Accounting principles
• Misappropriation of assets
• Creative Accounting / Income smoothing
 OBJECTIVES OF ACCOUNTS EXAMINATION
• The Commissioner - General is therefore required to
ensure that accounts submitted reflects the whole
transactions of the business.

• The Commissioner – General is empowered to adjust the

net profit as per the accounts so as to bring it in line with
the tax laws.
The Commissioner – General takes cognizance of the following ;
• All non - allowable expenses charged to accounts must be added back to the net
profit.

• All taxable income credited to Asset or Reserve accounts are added to the net
profit.

• All allowable expenses not charged to the accounts are deducted from the net
profit.

• All non- taxable / non-business/ exempt income included in the revenue are
deducted from the net profit .
 GENERAL PRINCIPLE
• The Commissioner-General shall not allow a
deduction in respect of domestic or excluded
expenses incurred by a person.

• A specific deduction rule shall take precedence

where more than one deduction rule applies.
 RESIDUAL DEDUCTION RULE
• A person who is ascertaining the income of that person from business
conducted for a year of assessment or for a part of that year shall
deduct from the income, an expense to the extent that that expense
is wholly, exclusively and necessarily incurred by the person in the
production of the income from the investment or business during the
year.
• A deduction shall not be allowed for an expense that is of a capital
nature.

• Expense that is of a capital nature includes an expense that secures a

benefit that lasts for more than twelve months.
 SPECIFIC DEDUCTION RULE
• Research and development expenses

• Repairs and improvements

• Capital allowances

• Financial costs

• Thin capitalization

• Bad debt

• Donation

• Carry over loses

• Fresh graduate allowance

 DOMESTIC EXPENDITURE
Where an individual incurs expenditure in respect of that individual, the
expenditure is domestic expenditure to the extent that it is incurred
(a) in maintaining the individual, including the provision of shelter, meals,
refreshment, entertainment or other leisure activities;

(b) by the individual in commuting from home;

(c) in acquiring clothing for the individual, other than clothing that is not suitable
for wearing outside of work; or

(d) in educating the individual, other than education that is directly relevant to a
business conducted by the individual and that does not lead to a degree or
diploma.
 EXCLUDED EXPENDITURE
Excluded expenditure” means

(a) tax payable under the Act;

(b) bribes and expenditure incurred in corrupt practices;

(c) interest, penalties and fines paid or payable to a government or a political subdivision of a government
of any country for breach of any legislation;

(d) expenditure to the extent incurred by a person in deriving exempt amounts or final withholding
payments;

(e) retirement contributions, unless they are included in calculating the income of an employee; and

(f) dividends of a company.

INCOME TAX RATE
 QUESTION
Adongo is a self-employed who paid all his taxes raised on him
by the Ghana Revenue Authority without submitting any
accounts. Adongo applied for a tax clearance certificate in the
month of June, 2016 but the head of his Tax Office insisted
that before the certificate will be issued he should submit his
accounts for 2015 assessment year for proper assessment.
To this request, he obliged and had the following details from
his Auditors for the year ended 31 December 2015.
 Gh¢’000 Gh¢’000
Gross Profit 1,300,040
Expenses
Depreciation 18,000
Light and heat 12,000
Motor expenses 38,000
Rent & rates 11,200
Repair and renewals 15,280
Sundry expenses 17,000
Donations 45,280
Bad debts 56,000
Research and development 2,000
Advertisement 32,000
Staff salaries
(fresh graduate GHS 2,110,000) 68,000 314,760
Net profit
785,250
The following additional information were obtained from Mr. Adongo in
response to queries raised on him by the inspector handling his file.

1. Adongo and his wife live in flat that is situated above his shop, of the
expenditure included in the profit and loss for light and heat, rent and rates, 30%
relates to the flat.

2. During the year ended 31 December 2015 Adongo drove a total of 150,000 km
of which 80,000 km were for private journeys.

3. The figure for repairs and renewals includes Gh¢ 8,600,000 being cost of new
Air conditions for the shop during the year under review and Gh¢ 4,000,000 for
decorating the private flat during the same period.
4. Bad debt are as follows:
GH¢
Increase in general provision for Bad debts 35,000,000
Specific provision 6,000,000
Loan to Adongo’s father written off 15,000,000
56,000,000
5. Donation
Donations are made up as follows
Donation to Ghana Black Stars 23,000,000
Donation to Old Students Association 9,000,000
Donation to National Cathedral 13,280,000
45,280,000
6. Research and development: An amount of GH¢ 900,000 was spent on acquiring
equipment for the purpose of the business.

7. Staff salaries: The total workforce of Mr. Adongo is made up of twenty- five (25)
existing employees and five (5) employees who are fresh graduates from a tertiary
institution.

8. Advertisement: this is made-up as follows:

GH¢
Permanent Neon Sign 12,000,000
Newspaper advertisement 8,000,000
Advertisement Tax 12,000,000
32,000,000
9. During the year under review, Mr. Adongo took goods out of his shop for his personal
use without paying for them. The cost of these goods was Gh¢20,560,000 which was
recorded in the books and they had a selling price of Gh¢30,500,000.

10. Adongo received dividend of Gh¢45,800,000 (net) from his investment with
Consolidated Bank of Ghana. The amount was included in arriving at his Gross Profit.

11. The following assets were purchased during the year. (Prior to this, business had no
fixed assets)
Gh¢
Computer 200,000,000
Motor Vehicle 140,000,000
Fixture & Fitting 500,200,000
The computer and fitting qualify as depreciable assets
for capital allowance purposes. The motor vehicle is
used by Mr. Adongo for both office and private
purpose.
Required:
a.Calculate the chargeable income of Mr. Adongo for
the assessment year 31 December 2015
b.Assuming he has no other source of income,
compute his tax liability for 2015 assessment year.