How To Lower Tax Liability Arising From Property Sale

Property owners are always concerned about their potential tax liability arising from the sale of a residential or commercial property and how they can lower their liability or avoid paying tax altogether. This paper will explain with practical illustrations, how an owner of land can sell property and pay little or no tax.

This is known as "tax avoidance". Section 34 of the Income Tax Act, 2015 (Act 896) defines tax avoidance schemes to include "an arrangement, the main purpose of which is to avoid or reduce tax liability."

Tax avoidance is possible if it is done within the ambit of the law, and it is not fictitious or misleading. An arrangement is fictitious or misleading if it does not have a substantial economic effect or its form does not reflect its substance. For instance, a person who attempts to split income with another person to reduce his tax liability is engaged in a fictitious or misleading transaction, and the Commissioner-General of the Ghana Revenue Authority (the "Commissioner-General") may re-characterize or disregard the transaction.

There are two main taxes applicable to the sale of immovable property which can be reduced or avoided. These taxes are:

Capital gains tax under the Income Tax Act, 2015 (Act 896) (the "Income Tax Act"); and Stamp Duty under the Stamp Duty Act, 2005 (Act 689); 1. Tax on Capital Gains

Capital gains tax is a tax paid on gains made from the sale of an asset. Under the Income Tax Act, capital gains tax as we used to know it under the Internal Revenue Act, 2000 (Act 592) is abolished and gains made from the sale of assets are subsumed under sections 5 and 6 of the Act on income from business and income from investment respectively, and it is computed and taxed at 25%.

Under the Income Tax Act, capital gain rates are just as high as corporate tax rates. Therefore it is worth exploring possible strategies to keep it at a minimum or avoid it altogether.

i. Flat rate of income tax for individuals.

The rate of tax for resident individuals who make gains from the sale of property is at a graduated rate from nil to 25% depending on the chargeable income of the resident individual and 20% for a non-resident individual. The individual who falls under a higher tax rate could choose to lower his tax liability by electing to pay a flat rate of 15% under the Income Tax Act.

The procedure to follow in lowering one's tax liability under section 124 of the Income Tax Act is as follows:

the individual must pick up...