The Capital Gain Tax

 The taxation of the increase in the capital value of an

asset between the date of acquisition and the date of
disposal
 Section 35 of the Income Tax Act, 2015 (Act 896) define a
capital gain as a gain made by a person from the
realisation of an asset or liability. This definition means
that capital gain is made from the realisation of all assets,
irrespective of whether they are chargeable or otherwise
 Taxpayers are required to report any capital gain and pay
any tax arising therefrom within thirty days of realization
of an asset
 The capital gain received by a person in a year of
assessment, therefore, consists of all gains accruing
to or derived by the person from the realisation of
chargeable assets owned by that person in that
year of assessment.
 Capital gains are derived when the asset is realised,
not while it is still held by the owner
 The capital gains assess from realisation of asset is
added to the business income and tax at
appropriate rate
Ascertaining Capital Gains and Losses in Ghana

Section 35 of the Income Tax Act 2015 (Act 896)

prescribe that the capital gains accruing to or derived
by a person from the realisation of an asset is the
amount by which:
 The sum of the consideration received for the asset
exceeds the cost of the asset at the time of
realisation
 The sum of the consideration offered for the
liability is less than the amount outstanding at the
time of realisation
 Ascertaining Capital Gains and Losses in Ghana
Cont’
 Similarly, a loss of a person from the
realisation of an asset or liability is the amount
by which
 The cost of the asset exceeds the sum of the
consideration received for the asset at the time of
realisation
 The sum of consideration offered for the liability is
greater than the amount outstanding at the time
of realisation
 Cost of an Asset

 The cost of an asset owned by a person, as in

section 36(1&2) of Act 896, is the sum of:
 Expenditure incurred by the person in the
acquisition of an asset and include where
relevant, expenditure of construction,
manufacture or production of the asset
 Expenditure incurred by a person in altering,
improving, maintaining or repairing the asset
 Incidental expenditure incurred by the person in
acquiring and realising the asset
The incidental expenditure include:
 Advertising expenditure, transfer taxes, duties and
other expenditure incurred as a result of a transfer
of the asset
 Expenditure incurred in establishing, preserving or
defending ownership of the asset and
 Remuneration for the services of an accountant,
agent, auctioneer, broker, consultant, legal advisor,
surveyor or valuer in relation to the expenditure
above
 Exclusion from the Cost of Asset
Section 36(3) of the Income Tax Act 2015, Act 896
excludes the following expenditures from the cost of
an asset:
 Consumption expenditure incurred by the owner of
the asset
 Excluded expenditure and any other expenditure that
is directly deducted from the income of the owner of
the asset
 Expenditure included in the cost of another asset
Realization of Asset (Section 38) of Income
Tax Act 2015, Act 896
An asset is treated as realized when a person who owns
the asset
 Parts with ownership of that asset, including when
that asset is sold, exchange, transferred, distributed,
redeemed, destroyed, lost, expired or surrendered
 Ceases to exist including by reason of death
 In the case of an assets other trading stock or a
depreciable asset, if the sum of consideration
received by that person from the sale of the asset
exceeds the cost of that asset
 Part Disposal
Where part of the asset owned by a person is
realised, the cost base of the asset is
apportioned between the part of the asset
retained and the part realised in accordance
with their respective market values at the time
of realisation but the costs incurred in
realisation shall not be so apportioned.
Realisation of an asset with replacement asset

 Where a person realise an asset and that person

acquires an asset of the same type, to replace the
asset to be realised and the acquisition was done
within six months before the date of realisation or the
person acquires an asset of the same type to replace
the asset realised within one year after the realisation
of the asset, the person will be treated:
 As deriving an amount equal to the net cost of the asset
immediately before the realisation
 Incurring an expenditure equal to the cost of the
replacement asset
 The interpretation of realisation of an asset with a
replacement asset, as in section 46 of the Act 896
means that an amount of roll-over relief is granted to
a person who realises an asset with replacement

 Read on realisation of asset through transfer to

spouse or former spouse, transfer on death, transfer
of asset for no consideration
 Computation of Capital Gains to be
included in business income
Consideration Received XXX
Less cost base of asset realised:
Cost of acquiring ownership xx
Cost of improvement xx
Cost incurred in realising the asset xx XXX
Capital gains to assessable income xxx
 Question 1
Anim company limited bought a plot of land along the
CSB road costing GHS20,000.00 in 2017. The company in
2019 decided to sell the land and thus paid fees to a
lawyer in drafting the documents covering the land, for
which the company pays GHS1,000.00. A valuer was
contracted to value the land to enable the sales value to
be determined and he was paid GHS5,500.00. Labourers
were contracted to clear the land of weeds to enable the
valuer and the purchaser survey the land, and this cost
the company GHS500.00. The company sold the land for
GHS60,000.00
Required: Compute the capital gains tax payable if any
 Solution to 1: Computation of capital gains
for the 2019 year of assessment
GHS GHS
Consideration Received 60,000
Less Cost Base:
Cost of acquisition 20,000
Cost incurred in realising the asset:
Legal fees for drafting documents 1,000
Valuer’s fees 5,500
Payment to labourers 500 27,000
Capital gains to be added to business income 33,000
 Question 2
Efo contracted a building at a cost of GHS300,000 for use in his
business on 1st April, 2016 at Konta. In the year 2017, he undertook
repairs to the building which cost him GHS20,000. Efo has an
insurance policy with Excellent Insurance Company Limited to the
tune of GHS10,000 covering the house and all premiums have been
fully paid to that value. He decided to relocate from Konta to Airport
residential area and thus sold the house to Leela Construction
Company for GHS 390,000 on 2nd August 2018 through Mafia Estate
Agency who were paid 1% of the sale price as commission. You are
require to:
a. Calculate the capital gains to be included in the business income
of Efo, if any on the disposal of his building
b. If Efo used GHS360,000 out of the proceeds received from the
sale of his building to acquire a building at Airport Residential as
envisaged by him on 1st September 2018, what amount of capital
Computation of capital gains on disposal of asset
for 2018 year of assessment
GHS GHS
Consideration Received 390,000
Less cost base:
Cost of acquisition 300,000
Cost of repairs 20,000
Insurance cost 10,000
Cost of realisation(1% *CR) 3,900 333,900
Capital gains 56,100
Computation of capital gains on replacement of
asset for 2018 year of assessment
GHS GHS
Consideration Received 390,000
Less Cost Base
Cost of acquisition 300,000
Cost of repairs 20,000
Insurance cost 10,000
Cost of realisation(1%) 3,900 333,900
Capital gains assessable to tax 56,100
Less Roll-Over Relief
Cost of replacement 360,000
Less cost base up to date 333,900 26,100
Capital gains to be added to income 30,000
 Capital gains on stocks and shares
 Shares of the same class and belonging to the
same company should be pooled together for
the purpose of determining capital gains
 Since shares of the same company are bought
at different times and at different prices, they
are pooled together and the average price
determined
 The average price is then used to calculate the
cost base of the shares
 Bonus Issue and Right Issue of shares
 The issue of bonus shares is not accompanied by the
payment of real cash consideration.
 When there is a bonus issue the price of the share will fall
leading to the fall of the average price per share upon
which the cost of the realized shares is determine.
 The right issue is accompanied by the payment of
consideration
 It is a form of fresh issue except that the offer is given to
the existing members who may accept the offer or reject
it
 Question 3

Pacman had the following transaction in Absa Bank of

Ghana Ltd as follows:
 1/7/09 purchased 25,900 ordinary shares for
GHS98,000,000
 6/8/10 Purchased 17,500 ordinary shares at a price
of GHS5,250 per share
 6/4/14 Purchase 12,000 ordinary shares at a price of
GHS7,105 per share
 21/11/14 Received bonus of 1 for 4 shares held as at
31/12/10
 31/12/14 Sold 15,500 shares for 10,500 per share
including commission of 5%
 31/12/16 Accepted rights offer of 2 for 4 shares
held as at 31/12/15 at a price of GHS6,820 per
share. Pacman transferred 50% of his right to a
friend for GHS7,500 on 31/12/16
 31/12/16 Purchased 12,000 ordinary shares at a
price of GHS7,300 per share
 13/3/17 Sold 38,200 shares for 11,250 per share
incurring brokerage commission of 4.5%
You are required to calculate the capital gains if
any to be included in the business income
 Solution
Date Details Share Unit Price Amount
1/7/09 purchase 25,900 3,784 98,000,000
6/8/10 purchase 17,500 5,250 91,875,000
31/12/10 balance 43,400 4,375 189,875,000
6/4/14 purchase 12,000 7,105 85,260,000
Balance 55,400 4,966 275,135,000
21/11/14 bonus(1/4) 10,850 ----- -------------
Balance 66,250 4,153 275,135,000
31/12/14 sale (15,500) 4,153 (64,371,500)
31/12/15 balance 50,750 4,153 210,763,500
rights issue(2/4) 25,375 6,820 173,057,500
76,125 5,042 383,821,000
31/12/16 rights transfer (12,688) 7,500 ( 95,156,250)
balance 63,438 4,550 288,664,750
31/12/16 purchase 12,000 7,300 87,600,000
31/12/16 balance 75,438 4,988 376,264,750
13/3/17 sale 38,200 4,988 190,532,738
31/12/17 balance 37,238 4,988 185,732,012
 First Sale 31/12/14

Computation of Capital Gains

GHS GHS
Realisation 162,750,000
Less cost base of asset
Cost of shares 64,371,500
Realisation expenses(5%) 8,137,500 72,509,000
Capital Gains 9,024, 100
Tax@15% 1,353,615

Second Sale 13/03/17

GHS GHS
Realisation 429,750,000
Less cost base of asset
Cost of shares 190,532,738
Realisation expenses(4.5%) 19,338,750 209,871,488
Capital Gains 219,878,512
 Question 4
Kofi Nti, managing director of a Kenkey processing factory at Wa
acquired the following shares from EMS Limited, a private
company:
10,000shares in 1/2/16 for GHS40,000,000
5,000shares in 1/12/16 for GHS30,000,000
3,000shares in 1/6/17 for GHS20,000,000
In September 2018, he sold 8,000 shares for GHS60,000,000 and
used the proceeds to complete his private house. The market
price per share of EMS Limited as at September 2018 was GHS 8
000.00
REQUIRED:
a. Determine the cost of the shares sold
b. Compute the capital gains to be included in the business
income of Kofi Nti for the 2018 year of assessment
 Solution
CoR= Consideration received × cost of all assets
Consideration received +MV of unrealized part
Where CoR =Cost of Realisation and MV =Market Value
Cost of 8000 shares= 60,000,000 × 90,000,000
60,000,000+ ₵ 8,000 ×10,000 shares
= GHS 38,571,429
NB: This is where there is part disposal of an asset where the market
value of the unrealized part of that asset is known. But where the
market value of the unrealized part of the asset is not known, then
CoR= Consideration received × cost of the entire asset
Market value of the entire chargeable asset
 Computation of capital gains to be included in
business income for 2018 year of assessment
Basis period 1/1/18-31/12/18
GHS
Consideration received 60,000,000
Less cost base of asset realized
Cost of acquisition 38,571,429
capital gains to added to bus income 21,428,571
 Rent Income Taxation
The income of a person from investment for a year of assessment
is defined in section 6(1) of the Income Tax Act 2015 (Act 896) to
include interests, charges, annuities, royalties, rents, natural
resources payments or other income accruing to or derived by that
person from the investment
In section 133 of Act 896, rent is defined to include:
 A payment, including the payment of premium or a premium-
like amount for the use of or right to use property including
equipment of any kind; and
 A payment for the rendering of or the undertaking to render
assistance ancillary to the use or the right to use property
including equipment of any kind
Rent has a final withholding payment when it is paid in
any of the following as contained in section 119 of
Act896
 Rent paid to a resident individual under a lease of land
and building with or without associated fittings and
fixtures, situated in Ghana other than rent received by
an individual in conducting business of sale or letting
 Rent paid to person other than an individual under a
lease of land and building with or without associated
fittings and fixtures, situated in Ghana other than rent
received by person in conducting business of sale or
letting
 Sources of Rent Income

 The letting of property (houses, flats, apartments,

offices and farmlands)
 Easements (payments for the right to erect
advertising signs and communication transmitters)
 Certain premiums such as deemed premium
 Insurance recoveries under policies providing
cover against non-payment of rent
 Service charges in respect of services ancillary to
the occupation or use of property
 Taxation of Rent Income received by individuals in Ghana
under the Internal Revenue Act 2000 Act 592
Under the Act 592 the following expenses are allowed
deductions against the income of an individual who receives a
rent in respect of residential or commercial premises which is
included in ascertaining that individual’s income from
investment for a basis period. (Section 17 of Act, 2000 (Act 592)
 Rates paid to any metropolitan, municipal or district assembly
in respect of that premises
 Mortgage interest incurred on any borrowing employed in the
construction or acquisition of the premises
 A standard allowance of 30% of the gross rent in respect of
maintenance and repairs of the premises
 Any qualifying additional expense in excess of the 30%
standard allowance incurred on the maintenance and repairs
of the premises in that of year of assessment
 Question 1
Ofosu Williams obtained a Home Finance Company(HFC) loan of
GHS350,000 to put up a house, which was fully rented out to
tenants in the year 2013. He received gross rent from the building
amounting to GHS184,200 for the year 2013. The terms of the HFC
mortgage loan included an interest charge of 25% on the mortgage
loan for the year, which he has duly settled. On 15th March,2013,
the Kumasi Metropolitan Assembly served him with a property rate
bill for 2013 which stood at GHS15,000 for the year. He paid this
bill on 10th April, 2013. Heavy rains were recorded in the year 2013
and Ofosu building was affected, so he spent GHS78,500 as
maintenance and repairs expenses on the building during the year.
The documents covering this expenditure were tended by him at
the Suame District office of the Ghana Revenue Authority, where
he files his taxes.
Ofosu Williams has approached you to assist him file his returns for
2013 year of assessment. In view of this respect, compute any rent
 Solution
GHS GHS
Gross Rent Received 184,200
Deduct: Mortgage Interest
(25% * GHS350,000) 87,500
Property Rate 15,000
Standard allow(30%×184,200) 55,260
Excess exp (78,500-55,260) 23,240 181,000
Net taxable rent income 3,200
Tax thereon@2013 graduated tax rates 122
 Rent Income Tax per Income Tax Act, 2015 (Act
896)

Rent income is taxed as final tax under Act 896

As a final tax, the amount paid shall not be included
in ascertaining the income of the individual in the
year of assessment in which the tax was withheld.
Under Act 896, the rent income tax in Ghana is as follows:
Rent paid to an individual for residential property 8% final tax
Rent paid to an individual for non-residential property 15% final tax
Rent paid to person other than individual for residential 8% final tax
Rent paid to a person other than individual for non-residential 15% final tax
Rent paid to a company or trust that is connected to the business of the company or
trust: Tax@corporate rate of 25%
Rent paid to a non-resident individual for the use of a residential or commercial
 Question

Madam Quartey is a resident in Ghana and works as the Finance

Director of Ghana Housing Company. In 2016, she retired from
employment and she was given a pension pay of
GHS70,000,000, which was used to construct six apartments for
residential renting to Dombo University Staff. In the same year,
she took a loan of GHS50,000,000, using her six apartments as
security against the loan, and built five commercial offices which
were rented to Ghana Cement Limited. In the 2016 year of
assessment, she receives gross rent income of GHS40,000 and
GHS80,000 from the University and GHACEM Limited
respectively. Cost incurred on repairs and maintenance was
GHS15,000. she paid GHS12,000 to the Wa Municipal Assembly
as well as paying an interest of 25% on the loan collected.
Required: compute the tax payable by Madam Quartey on the
rent received from the two institutions for the 2016 year of
assessment
 Solution
A. Tax payable on rent received for the 2016 Y/A
GHS
Gross Rent received 40,000
Tax withheld thereon@8% ( 3,200)
Net rent received 36,800
B.
Gross rent received 80,000
Tax withheld thereon@15% ( 12,000)
Net rent received 68,000
 Provision of L.I 1675
Regulation 16 (LI 1675 as amended by LI 1698 and
LI 1829 empowers the commissioner of IRS to
calculate tax on rent income separately as follows:
Where an individual receives rent income from
any residential or commercial property, the
commissioner may calculate tax separately at a
flat rate of 10% on the gross rent income from
2001-2006 year of assessment. This was however
reduce to 8% from 2007-2013 year of assessment
 Entities/Institutions authorized to withhold the rent
income tax as contained in regulation 16(5) as
amended by L.I 1698 (schedule 4 of IRRs L.I1698)
 Companies
 Financial Institutions
 Partnerships
 Educational Institutions
 Medical establishments
 Public boards and corporations
 Ministeries, Departments and Agencies
 Co-operative societies
 Diplomatic missions
 Consular offices
 International organisations
 Non-government organisations
 Question for Discussion
Partee’s rental property is occupied by
University of Business and Integrated
Development Studies in 2016. Whiles making
payment, the management of the institution
decided to withhold 15% of the rent income as
final tax. This did not go well with Partee. Advise
him as to what to do.
 Exemption from payment of Rent Income
Tax
 Companies engaged in real estate businesses were
granted exemptions in section 11 of Act 592 as
amended by section 1 of the Internal Revenue
Amendment Act 2010 (Act 814) as follows:
 The income of a company from a business of
construction for sale or letting of low cost affordable
residential premises is exempted from tax for a
period of five (5) years of assessment commencing
from and including the year in which the operations
started.
 A company that engage in the business of
construction for sale or letting of low cost affordable
residential premises shall be issued with a certificate
certifying that it is engaged in the construction of
low cost affordable residential premises by the
ministries of works and housings and;
 The minister responsible for finance in consultation
with the minister responsible for works and housing
shall, by Legislative Instrument, make regulations for
the effective implementation of these provisions.