KWASI NYANTAKYI OWIREDU VRS. COMMISSIONER-GENERAL GHANA    REVENUE AUTHORITY)

Citation:  Unreported Judgment of the Supreme Court (Civil Suit No. CM/TAX/0142/2019) dated 20th December 2019.

Digital Citation:  

Brief Facts:

This was an appeal to the High Court by a mortgagor (Kwasi Nyantakyi Owiredu) who has a mortgage with the Ghana Home Loans Ltd with monthly interest payment. The appellant proposed for his employers to deduct this monthly interest payment upfront. However, the employers requested for an authorization from the Commissioner General of the Ghana Revenue Authority. The appellant subsequently wrote to the Commissioner General twice on 25th August 2017 and 1st November 2018 for this authorization. The Commissioner General however responded that Ghana’s tax laws did not permit the upfront monthly deductions of mortgage incurred in respect of an acquisition of an individual’s place of residence and such a claim would be available after the appellant had filed his annual tax returns.

The appellant thus appealed seeking a quashing of the decisions of the Commissioner General on 25th August 2017 and 1st November 2018, and for an order that allows the appellant to have his mortgage deductions made upfront on a monthly basis rather than annually. This appeal was brough under section 44 of the Revenue Administration Act 2016 (Act 915).

Ground of Appeal:

Both the appellant and the tax authority agree that the interest paid on the mortgage is deductible from the assessable income of the appellant in order to determine the chargeable income under sections 8 and 9 of the Income Tax Act, 2015 (Act 896). However, the appellant claims that section 8 does not apply and that mortgage interest paid can be deducted on a monthly basis whiles the Commissioner General claims that this can only be allowed after a person has filed his annual returns.

Issues:

The central issue is whether mortgage interest can be deducted upfront monthly under

Ghana’s tax laws for an employee paying mortgage interest on their residential premises. The determination is whether it is permissible under the tax laws of Ghana for an employee who pays mortgage interest on his only residential premises on monthly basis to claim or deduct the mortgage interest paid in determining his monthly chargeable income.

The deductibility of the mortgage interest in general was not in issue as stated by the court. The issue was to do wit the timing or whether it could be done monthly or at the end of the year after annual returns have been filed.

Issue

Whether or not it is permissible under Ghana’s tax laws for an employee who pays mortgage interest on his only residential property on monthly basis to claim or deduct the mortgage interest paid in determining his monthly chargeable income?

Areas of Tax Law Considered

  1. Mortgage Interest Payment
  2. Personal Income Tax

Arguments

Appellant (Taxpayer)

  1. Mortgage interest is paid monthly according to section 19 (2) Act 896 and for cash basis accounting, a person incurs an expense when that expense is paid for.
  2. To the extent that the monthly mortgage interest is paid monthly, the said interest must be allowed to be deducted once this can be proven every month.

Respondent (Ghana Revenue Authority)

  1. The income of an individual from an employment, business or investment for a year of assessment can only be ascertained by the end of the year when tax returns are filed. Thus, it is at the filing that a mortgage interest incurred during the year can be claimed.

Respondent (GHANA REVENUE AUTHORITY):

  1. The income of an individual from an employment, business or investment for a year of assessment can only be ascertained by the end of the year when tax returns are filed. Thus, it is at the filing that a mortgage interest incurred during the year can be claimed.
  2. The Commissioner General stated that “the tax laws do not permit the upfront monthly deductions of mortgage interest incurred in respect of an acquisition of an individual’s place of residence”. 
  3. Consequently, the claim for the deduction of the mortgage interest incurred during the year in respect of an acquisition of your place of residence will be available to you after you have filed your annual tax returns for the year.

Ruling:

The High Court held that the deduction of mortgage interest is not premised on the annual income of the employee but rather on the fact that the mortgage interest has been duly paid in accordance with section 19 (2) and 20 (b) of Act 896.

The Appeal succeeded and the Court declared that the appellant is entitled under law to have an upfront deduction of a mortgage interest payed by him at anytime that the employer makes a qualifying cash payment to him being weekly, monthly or yearly.

Reasoning of the Court:

Reasoning of Court

  1. Mortgage interest is not a tax relief, but a concession granted on a temporary basis to allow an employee to acquire for himself one house during his lifetime. Once the employee has completed the payment of this mortgage, this concession expires and the employee subsequently cannot deduct mortgage payment in accordance with section 134 and the sixth schedule of the Act.
  2. Regulation 4 (2), (3),(4) of Income Tax Regulation 2016 (LI2244) enjoins employers to make on a monthly basis, estimates of the tax liabilities of employees for the year of assessment.
  3. An employer is enjoined under paragraph 4 (3) of the sixth schedule of Act 896 to make deduction in favour of an employee who can prove the cash payment of a mortgage interest.
  4. The argument of the Commissioner General is not wholly correct. He should have considered the provisions of Regulation 4 of LI 2244.
  5. The appellant does not need to wait till the end of the year for mortgage interest payment to be made in his favour after the filing of a tax return.
  6. The Commissioner General did not take the effect of Regulation 4(2) (3) (4) of the Income Tax Regulation, 2016, LI 2244 into consideration and that in so far as an employee has made cash payment for interest on mortgage and once he is able to furnish proof of such payment to his employer, the employee is at liberty to have such mortgage interest deducted in his favour within the meaning of paragraph 4(3) of the sixth schedule to the Income Tax Act, 2015, Act 896.

Principles for Tax Practitioners:

An employee is entitled to an upfront deduction of mortgage interest paid any time their employer makes a qualifying cash payment, provided they can prove the mortgage interest payment. This is in accordance with Regulation 4(2)(3)(4) of the Income Tax Regulation,

2016, LI 2244 and paragraph 4(3) of the sixth schedule to the Income Tax Act, 2015, Act 896.

LAW REFERENCES:

Statutory references

  • section 19 (2) and 20 (b) of Act 896
  • Regulation 4 (2), (3), (4) of Income Tax Regulation 2016 (LI2244)
  • Section 44 of the Revenue Administration Act, 2016, Act 915.
  • Section 8 and 9 of Act 986.
  • Paragraph 4(3) of the sixth schedule to the Income Tax Act, 2015, Act 896.
  • Section 134 and the sixth schedule to the Act.