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Trusts & Exempt Organizations
Home Level 3 3.3 Advanced Taxation Archive by Category "Trusts & Exempt Organizations"

Category: Trusts & Exempt Organizations

3.3 Advanced TaxationLevel 3Trusts & Exempt Organizations

May 2020 Q5 d.

Kankoka is registered with the Registrar General Department of Ghana as a Non-Governmental Organisation (NGO) and had income amounting to GH¢30,000,000 in 2018 year of assessment.

A detailed analysis reveals the following composition of the income:
Support from Benefactor based in Germany                  GH¢10,000,000
Transport business                                                          GH¢10,000,000
Government afforestation project disbursement            GH¢10,000,000

Required:
Determine the tax payable if any by Kankoka and comment on your answer and state any relevant assumption.     (5 marks)

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  • Introduction
    An NGO is a charitable organization that is exempt from tax on its NGO activities. When an exempt entity engages in business activities, that business activities shall be subject to tax.
  • Income from Benefactor of GH¢ 10,000,000
    Following from the above, the support from the Benefactor based in Ghana is not a business activity after all NGOs run their activities based on funds from Benefactors and like-minded persons.
  • Transport business income of GH¢ 10,000,000
    Transport business is income from business for which Kankoka shall be subject to tax. Therefore, the income of GH¢10,000,000 from the transport business shall be subject to tax using the marginal tax rate of 25%.
  • Income from Government Afforestation
    The funds from Government on afforestation is income that is meant for a dedicated purpose. This income is therefore exempt from tax in the hands of Kankoka.
  • Tax computation:
                                                                               GH¢
    Income from Transport business                10,000,000
    Tax charged @ 25%                                    2,500,000
    The assumption is that the income of GH¢10,000,000 has taken into account all cost associated with the transport business
    (5 points for 5 marks)

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3.3 Advanced TaxationLevel 3Trusts & Exempt Organizations

Nov 2019 Q4 a&b

a) Bubandushe is a Non-Governmental Organisation (NGO) located in Accra with operational area in the Northern Regions of Ghana. The NGO buys rice from a super market in Accra and transports it to Northern Regions for distribution to widows and orphans.
Its main source of funding is from a benefactor based in the Netherlands, who has been supporting the project since its inception.

In support of its operations, it engaged Chartered Accountants from the Institute of Chartered Accountants (Ghana) as employees. Their role is basically to organize training programmes for Government Institutions on budget preparation using advanced financial models for a fee. This additional source of income equally supports the operations of this NGO.

Ghana Revenue Authority (GRA) has written to this NGO to regularize its operations with it for tax purposes. The Management of the NGO has argued that it is exempt from tax on its income. The management has written to you to offer professional help on the matter.
Required:
i) Determine whether the NGO is required under the tax laws to pay tax and if yes what type of taxes.                           (6 marks)

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NGOs are treated as charitable organization subject to approval by the Commissioner-General. The Commissioner-General shall, before approving it as such shall ensure that the entity operates as a charitable institution which is of a public nature or as a religious institution of a public nature or a body of persons formed for the purpose of promoting social activities or sporting activities.
It should not engage in the following activities:

  • Party political activity, supporting a political party or using its platform to engage in party politics.
  • Conferring a private benefit on the promoters.

Issues

  • The NGO buys rice and transports it to the Northern Regions for distributions to widows and orphans.
  • It engaged chartered accountants to run training programmes on budget using financial models for fees from which the NGO is run.

Conclusions

  • Under section 97(4), the income of a charitable organization, which in this case is Bubandushe is exempt from tax but its business income is taxable under section 97(5).
  • The NGO is exempt from tax on its core activities. However, the purchase of rice for distribution if it is above two thousand Ghana cedis (GH¢2,000.00) shall be subject to withholding tax at the rate of 3% on the gross value on payment to the suppliers.
  • Additionally, the training programme for which fee is charged shall be subject to tax at the corporate tax rate of 25% on the income from the training after cost associated with the business income is deducted.

The types of taxes are:
*Corporate tax on its business income
*Withholding taxes on payment to third parties                                      (Any 6 points for 6 marks)

ii) On what basis are NGOs liable to tax or exempt?                                                                                                          (2 marks)

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The income accruing to or derived by a charitable organization is exempt from tax but when the same organization engages in business activities and makes business income, it shall be subject to tax.

b) Askona is run as a Trust for Maame Kukua, a Ghanaian based in the USA. Askona is based in the USA and represents a lot of people in trust arrangements. Under the arrangement, Maame Kukua who is currently living in the USA has acquired a transporter vehicle for Askona to use it for the benefit of her two children -Yaaya Mensah and Nana Yaw Mensah who are both resident in Ghana.
In January 2019, Askona made a distribution to Yaaya Mensah and Nana Yaw Mensah in Ghana via Western Union Money Transfer. Maame Kukua has asked you, a young Tax Expert in Ghana to advise on the taxability or otherwise of the above transaction in Ghana.
Required:
Advise on whether a distribution by a non-resident trust such as Askona is taxable and how?                                         (4 marks)

View Solution

  • Under section 56 of Act 896, a Trust is taxed separately from the beneficiaries. When a trust makes a distribution, the following shall be considered before it is considered taxable or otherwise.
  • A distribution by a resident trust to its resident beneficiaries is exempt from tax. On the other hand, when the distribution is done by a non-resident trust to its resident beneficiaries, the said distribution shall be subject to tax in Ghana. On the basis of the above, the distribution by Askona is taxable in the hands of Yaaya Mensah and Nana Yaw Mensah.

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