Kofiga Kwame is 64 years old and has never worked as a salaried staff. He intends taking up an appointment with a Civil Society Organization called “We Care” because of his stance on anti-corruption. He approaches you to advise on his willingness to contribute towards Social Security and National Insurance Trust (SSNIT) of 5.5% and also 10% towards Voluntary Provident Fund (Tier 3) with an approved fund manager. It is hoped that his prospective employer would contribute 13% and 6.5% towards SSNIT and Tier 3 respectively to enhance his benefits when he retires from active employment at age 70.
Required:
Determine the tax implication on the impending contribution towards SSNIT and Voluntary Provident Fund by Kofiga Kwame and those of the prospective employer and the relief, if any, he stands to gain from the above. (4 marks)
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- Kofiga Kwame is sixty four (64) years of age which is above the 60 years retirement age and by law cannot contribute to social security and the tier three (3) pension funds as he proposes.
- Additionally, if the prospective employer pays the 13% and 6.5% contribution to SSNIT and Voluntary Provident Fund respectively on his behalf, they will be added to Kofiga Kwame’s employment income and assessed to tax accordingly.
- There is no tax benefit to him on account of his contribution to the SSNIT and Voluntary Provident Fund as an individual.
- Kofiga Kwame would, however, be given an old age relief of GH¢ 200.00 per annum as a benefit which will be used to reduce his tax burden and other reliefs such as marriage, children education, disability, old age dependency and mortgage as the case may be.
- The prospective employer after adding contributions to the SSNIT and Voluntary Provident Fund to Kofiga Kwame’s salary shall be allowed as a deduction of such if it were a tax paying entity.