Imposition of Income Tax Notes

Objectives

• Understand the Imposition of Income Tax in Ghana.
• Distinguish between Chargeable and Assessable Income.
• Recognize the differences between Income and Capital.
• Identify what qualifies as income from Business in Ghana.

Definition of Income

• Not explicitly defined in Statute.
• Tax base includes employee income, company profits, and capital asset sales.
• Year of Assessment is calendar year (January to December) for individuals/partnerships; accounting year for companies/trusts.
• Adams Smith's definition includes rent and profit as taxable income.

Imposition of Tax

• Section 1 of Act 896 states income tax is payable on:
  • Chargeable income or final withholding payments.
  • Calculated by applying relevant tax rates to chargeable income, deducting foreign tax credits.

Chargeable Income

• Defined as total income from business, employment, and investment, minus permissible deductions.

Assessable Income: Rules

• Residence Rule: Tax residents are taxed on worldwide income.
• Source Rule: Non-residents taxed on income generated from within Ghana.

Categories of Resident Persons

• Resident individuals, partnerships, trusts, and companies defined by presence, citizenship, or incorporation.

Source Rule

• Focuses on the origin of income; taxed if earned from Ghanaian sources regardless of residency.

Key Legal Cases

• Van Den Berghs Ltd. v. Clark [1953]: Capital receipts non-taxable.
• Kelsall Parsons & Co. v. IRC [1938]: Payments replacing future commissions taxable as income.

Exempt Amounts

• Exemptions include salaries and allowances for President, government income, and educational scholarships.

Methods of Accounting

• General principle follows GAAP.
• Cash Basis: Income recognized when received; Expenses when paid.
• Accrual Basis: Income recognized when receivable; Expenses when payable.

Mutual Trading

• Refers to groups contributing for mutual benefit. Must satisfy requirements of mutuality for tax exemption.