What is Realisation, Realisation under Act 592 (Repealed), Realisation under Act 896, Determining Realisation, Events that Trigger Realisation

1. LAW OF TAXATION IN GHANA
REALISATION
PATRICK A.N. ABOKU
23.04.2019

2. OUTLINE
 Introduction
 Realization under the repealed Act 592
 Realization under Act 896
 Circumstance under realization is said to have happened
 Determining Gain

3. Introduction
 Realization is a trigger for calculating income taxation
 Realization is generally straightforward,
 but there are instances in which the moment of realization can be tricky
 The law on realization clarifies:
 when realization is said to be happened
 The rates to be used for determining/calculating realization
 Realization under Act 896 is determined differently from the repealed
Act 592

4. Realization
underAct592
(Repealed)
 Section 95 of Act 592 imposed a tax of 15% on gains made by a person
from the realization of chargeable assets
 Chargeable assets is defined in S.97 of Act 592 to include
 buildings of a permanent or temporary nature
 Business and business assets including goodwill
 Shares of a company
 Land and any part of or any right or interest in any of these assets
 Capital Gains is defined in s.98 as the difference between the amounts
received from realization and the cost base of the asset
 Capital gains made by a resident person from the realization of
chargeable assets situated outside Ghana was only subject to tax if the
gains were brought into or received in Ghana

5. Realization
underAct592
(Repealed)
 Realization Triggering Events under Act 592
1. When a person part with ownership of a chargeable asset. E.g. when the
asset is:
 Sold
 Exchanged
 Surrendered
 Distributed
 Redeemed
 Destroyed
 Lost
2. Use of chargeable asset in a way that the asset lost is character as a
chargeable asset
 Using a piece of land considered as chargeable asset for agricultural purposes
3. When a resident person becomes non-resident for tax purposes,
chargeable assets belonging to that person situated outside Ghana were
deemed to be realized

6. Realization
underAct896–
NewLaw
 S. 38 of Act 896
 Similarities to the old law
 Adopts first and third events under Act 592
 Ignored second event because it does not use the term chargeable assets
thus the situation of changing character of chargeable asset does not arise
 Differences
 Excludes second event under Act 592
 Does not use the term chargeable assets in determining realization

7. Realization
underAct896–
NewLaw
1. When a person part with ownership of a chargeable asset. E.g. when the
asset is:
 Sold, Exchanged, Surrendered, Distributed, Redeemed, Destroyed, Lost
2. When a resident person becomes non-resident for tax purposes,
chargeable assets belonging to that person situated outside Ghana were
deemed to be realized
3. Immediately before a person ceases to exist e.g.
1. Death
2. Liquidations
4. For non trading stock or depreciable assets, if the consideration received
from sale of assets exceed cost of asset
5. When stock and depreciable assets are used in a manner which changes
their original character
6. The owner of a debt claim writes off the debt as a bad debt after taking
reasonable fruitless steps to claim and strongly believes the claim will not
be satisfied
7. When the underlying ownership of an entity (s.133) changes by more than
50% at anytime within a 3 year period, the assets of that entity are deemed
to have been realized

8. Realization
underAct896–
NewLaw
 Exceptions to events triggering realization
 A company does not realize its realize its assets because of
 A merger
 Amalgamation
 Re-organization
 If at least 50% continuity in the underlying ownership of the asset

9. Realization
underAct896–
NewLaw
 Determination of Gain
 Unlike Act 592, tax on capital gains is not fixed at 15%
 Any gain from realization under Act 596 of assets is treated as either
 Income from business – s.5
 Income from investment – s.6
 Thus for individuals
 It will depend on the effective tax rate – Paragraph 1 First Schedule of Act 596
 i.e. the graduated income tax schedule
 The individual may elect to use 15% flat rate
 For other entities like the Corporate entities
 Corporate tax rate is used Paragraph - Paragraph 5&6 of First Schedule of Act 596
 NOTE:
 A person makes a gain from the realization of an asset if the consideration
received for the asset exceed the cost of the asset at the time realization

10. Definitions
 Consideration received
 Is the amount derived by the person for owning that asset, which includes an
amount derived from altering the value of that asset, in the nature of covenant
to repair that asset or otherwise and
 The amount that person derives or is entitled to derive in the future in respect
of realizing that asset – s.35
 Note that this definition of consideration received does not lend itself to easy
interpretation
 Cost
 Cost of an asset includes the sum of the expenditure incurred in acquiring
the asset, altering, improving, maintaining or repairing the asset and any
incidental expenditure in acquiring and realizing it – s.36
 Cost does not include the consumption expenditure incurred by the owner of
the asset