Sie sind auf Seite 1von 92

CAPITAL GAINS TAX

(Chapter 23.01)

`
INTRODUCTION
 Introduced on 1 August 1981.
 A tax levied on the gain realised on the
disposal of a specified asset.
 Levied on non-traders, who sell their
specified assets.
 i.e On TPs who are not dealers in the
specified asset, i.e those who wd have
acquired the specified asset for investment
purposes.
 Levied on assets acquired after 1/2/09.
INTRODUCTION CONT’D
 Payable in the tax year in whc the disposal
takes place ( unless an election to defer the
liability is made per the provisions of the
Act).
 CGT is levied on CG >/= $50.

 For CG of $50 & below, the CGT is


considered to be nil.
 An assessed loss of </=$100 is also
considered as nil.
AUTHORITY TO LEVY CGT
Section 6 authorises the CG to charge,
levy and collect CGT in respect of capital
gains accruing to any person during any
year of assessment.
CALCULATION OF CGT

In calculating CGT, for any person who


sells a ‘Specified asset’, Section 7
instructs us to:
1. first determine the capital gain for the
tax year and then
2. apply the appropriate rates of tax as
given in Section 38 of the charging
Act.
CALCULATION OF CGT:
1] SPECIFIED ASSET ACQD AFTER DOLLARISATION:
Total receipts/accruals fm disposal of asset X
Less Amts taxed under the main Act (Recoupment) (X)
GROSS CAPITAL AMT [s8] X
Less Exemptions [S10] (X)
CAPITAL AMT X
Less Deductions [S11]
e.g Cost of asset X
Less capital all (X)
(X)
CAPITAL GAIN/(ASSESSED CAPITAL LOSS) X
CALCULATION OF CGT CONTD:
CGT [20% on the CG above] X
less CGWT (X)
CGT Payable/(Refundable) X
CALCULATION OF CGT CONT’D:
2] SPECIFIED ASSET ACQD BE4 DOLLARISATION

• Not subject to CGT; but CGWT.

• Can be said in an alternative way:


1. The Gross K amt (i.e the S.P.) = The Capital Gain

2. No dedns & exemptions are allowable on such


assets.

3. CGT rate is 5% of SP.


DEFINITIONS
1. It is important to mention that, in terms of
Section 2(2) of the CGT Act, any term defined in
the ITA, retains the same meaning if not defined
in this Act.
i.e The ITA takes precedence over the CGT Act.

2. The definition of ‘Gross Income’ under the ITA


specifically excludes accruals which the
taxpayer proves to be of a ‘Capital nature’.

3. If the ‘Capital receipts’ are from the sale of a


‘Specified asset’, then the proceeds will be
taxed under the CGT Act.
IMPORTANT TERMS
1. Specified asset
2. Immovable Property
3. Marketable security
4. Gross capital amount
5. Capital amount
6. Assessed Capital Loss
7. Year of assessment
8. Principal Private Residence
1] SPECIFIED ASSET
 An immovable property or a marketable security;
situated in Zim.
1.1 Immovable Property
 Any permanent structure e.g Land, bldg, dam, road or
mineral rights.
 Includes an IB & a CB.
 Excludes a mining claim purchased for resale (s9 of
ITA).
1.2 Marketable Security
 Any share in either a publicly listed co or pvt co; bond
tradable on a stock exchange, debenture or right in a
unit trust.
 Excludes options
 N.B Includes shares in pvt cos.
2] GROSS CAPITAL AMOUNT [S8(1)A
1. The total amt rcd/accrued from the disposal
of a specified asset;
2. Situated in Zim; [i.e Source is Zbwe-Actual.
(Never deemed)].
3. Excluding amts included in GI. [e.g
Recoupment, which is taxed under the ITA
i.t.o s8(1)(j)].
4. N.B. Accruals- can be Actual or deemed.
5. No same amt can be taxed twice e.g under
both the ITA & CGTA.
6. In short, this is the Sale proceeds of a
specified asset.
7. Gross K amt can also arise on the sale of
vacant land coz land is an imm. property.
3] PRINCIPAL PRIVATE RESIDENCE
 An ind’s sole or main dwelling, throughout the
period he owned it ; or was regarded as his sole or
main residence even though he could not stay in
it.
 Includes ‘any land owned by TP which surrounds
such dwelling and is used, together with the
dwelling thereon, for private or domestic purposes
Such surrounding land is restricted to 2 hectares.
 Includes a garage, storeroom, swimming pool &
other outbldgs owned by him.
PPR DEFN CONTD
 Also includes a residential stand, owned by the TP
(title deeds) & on which TP intends to build a PPR.
 TP rqd to satisfactorily prove intention to build to
the CG.
 ‘Dwelling’: a building or part of a building which
is used wholly or mainly for the purposes of
residential accommodation.
 A piece of land or outbldg sold separately from
the main dwelling shall not be regarded as a
disposal of a PPR.
4. RESIDENCE OF A CO
• A co is resident in Zim if its place of central mgt
& control is Zim; or
• If the co carries his investing (trading) activities
in Zim [ITC 1395, 1985]
CGT RATE
1. CGT is 20% on the CG [for immovable property &
unlisted securities acqd after 1/2/9].
2. N.B. Listed securities acqd after 1/2/9 are
exempted from CGT.
3. For specified assets which were acquired before
1/2/9; they are exempted from CGT
N.B. CGWT of 5% is withheld at source.
SUMMARY OF CGT RATES
Rate Levied on:

1. Immovable property &


unlisted securities 20% CG
(acquired after 1/2/9)
2. Listed securities (acquired - Exempt
after 1/2/9)
3. Specified Assets (acquired
before 1/2/9):
• Immovable property - Exempt
• Listed securities
• Unlisted securities
CGWT [CAPITAL GAINS WITHHOLDING TAX]
CGWT RATE CGT RATE
[% of SP] [% of CG]
1. All specified assets Final tax
[acqd before 1/2/9] 5% [exempt]
2. Listed securities 1% Final tax
[acqd after 1/2/9] [exempt]
sold aftr 1/8/09
3. Unlisted securities 5% 20%
[acqd after 1/2/9]
4. Immovable Property 15% 20%
CGWT CONT’D
1. The CGWT is calculated on the gross SP.
2. The primary responsibility to w/hold the tax lies
primarily wt the depository, who is mandated to
w/hold these amts & pass them on to ZIMRA
within 3 working days of the disposal of the
asset.
3. The residual responsibility is the seller’s.
4. Depositary- A stockbroker, estate agent, bld soc,
bank Conveyance, Lawyer, Master of the HC etc.
EXEMPTIONS [SECTION 10]
1. Gains on shares listed on the ZSE.
2. Sale of a PPR by a TP above 55 yrs on the dd of
sale.
3. Disposal or distribution by executor of a specified
asset forming part of a deceased estate.
4. Disposal of assets by persons & orgns referred to in
paragraph 1, 2 and 3 of the 3rd Schedule to the ITA.
Exception: This, however, excludes the ff orgns, whc
are taxed:
a) institutions not operating for gain (the private
benefit of the members) [para 2a]
b) Building societies [para 2b]
c) Employees’ savings schemes approved by the
CG [para 2f]
EXEMPTIONS CONT’D
5. Sale of any bond or stock in the state
(gvt), local authority or statutory
corporation e.g IDC, ZMDC.
6. Sale of specified assets by a ‘licensed
investor’.
7. Disposal of marketable securities by a
life insurance co (a person carrying on
insurance business whose proceeds
are taxable under the ITA, trader in
shares).
EXEMPTIONS CONT’D
8. The first $1,800 accruing from the sale of
unlisted marketable security by a person who
is above 55 on dd of sale.
9. Sale of specified assets whc are part of an
Industrial park by an ‘industrial park
developer.
10. Disposal of immovable property by one
petroleum operator to another for cont’d use
in petroleum business.
11. Disposal of units in a unit trust by a fund mgr.
12. Gains from the sale to the trust , by an
employee, of his share/interest, in an
approved share ownership trust/scheme.
DEDUCTIONS [S11]
 These are expenses allowed in determining the capital
gain.
 The exp are deducted from the sale proceeds (gross
capital amt) to arrive at the capital gain:
1. Cost of acquiring/constructing the asset: s11(2)a
 Cost of acquiring & costs incidental to acquiring asset:
 Cost include architect fees, bond raising fees, transfer
fees, interest on bond used to purchase the specified
asset i.e mortgage interest, etc.
 Excludes costs deductible under the ITA e.g SIA + W&T,
rates, repairs,insurance, Farmer outright all ito s15(2)z.
 Where the asset was donated, its cost is the ITV in the
hands of the donor i.e amt tht was included either in the
gross K amt or GI of the donor.
 Where asset was inherited, the cost is the estate
valuation i.e the value in the estate of the deceased.
DEDUCTIONS CONT’D
 Where the asset was acquired without payment
of any purchase consideration the cost shall be
determined as follows:
a) For inherited assets, the cost shall not exceed
its value as given in the Final Liquidation &
Distribution Account of the deceased estate.
b) For donations made on or after 1st Feb 2009,
the deemed cost shall be the gross capital
amount in the hands of the donor if he was
taxed under the CGT Act &
c) the gross income in the hands of the donor if
he was taxed under the ITA.
DEDNS CONTD
2. Improvement Costs: s11(2)b
 Costs incurred on improvements of
specified asset.
 Includes addns, alterations e.g durawall,
hse extension, swimming pool, garage,
storeroom, Burglar Bars etc.
 Cost includes architect fees, bond raising
fees, bond interest etc.
 Excludes dedns allowable under ITA e.g
repairs, repainting,rates, insurance on
bldg etc.
IMPROVEMENT COSTS CONTD
• If a company which owns immovable property, is
selling shares;
• the cost of impvts on immovable ppty shall be
deducted when calculating the CG arising from
the share disposal.
• This proviso allows a person selling shares to
claim dedn of inprovements on immovable ppty.

1. The co shall be regarded as having made


additions to the shares
2. when it improved the immovable property.
DEDNS CONTD
3. Lease Improvements: s11(5)
a. Lessors who have been taxed on lease
impvts i.t.o s8(1)e shall be deemed to ve
incurred a cost equal to such amts as ve
been taxed in each tax year.
b. Such a cost is deductible against any
Capital Gain.
c. Inf all wl be calculated on the lease impvts
taxed in each year, fm the year lessor is
taxed on the lease impvts to the date (yr) of
sale of the property.
DEDNS CONTD
4. Inflation allowance: s11(2)c
• An infl all. is granted on GROSS cost of :
i. Acqn
ii. Impvmts
iii. Lease Impvmts (if taxed in the hands of
the lessor ito ITA s8(1)e
 Gross Cost is original cost before netting off K
All.
 Infl all. is not apportioned even if asset is used
for less than 1 yr i.e it is granted in full on the
cost incurred for each yr or part thereof during
the specified asset’s holding period.
 The holding period is inclusive of the yr of
purchase & the yr of disposal.
 Inflation allowance = 2.5% x
Holding period (yrs).
 s39A 9(b) of Finance Act no.
3 of 2009 replaced s11(2)c
w.e.f. 01.02.09.
 Not granted on immovable
property acqd before 1/2/9.
DEDNS CONTD
5. Disposal (Selling) Costs : s11(2)d
 Any direct selling costs.
 Costs incidental to the sale of the asset e.g
advertising cost, estate agents comm,
lawyers’conveyance's fees etc.
 Do not consider repainting as it is a repair.
DEDNS CONTD
6. Capital Loss b/f:s11(3)
 If a K loss is realised, then no CGT is charged.
 A capital loss arises where the total dedns allowable
exceed the K amt.
 The TP is allowed to deduct any K loss b/f i.e any K
loss i.r.o. prior tax yrs.
 A K loss can be c/f & offset against future K gains.
 There is no time limit for c/f the K loss.
 The K loss is c/f indefinitely until the TP sells
another specified asset & realises a CG.
 K losses (K) cannot be mixed wt assessed losses(R).
DEDNS CONTD
Exception
However, a K loss can not be c/f where:
a. There is a change is s/holding & it is established tht
the change in ownership was effected mainly to take
advantage of the K loss.
N.B. If shares are transferred in a company wt a K loss,
the onus lies wt the TP who acquires the shares to
prove tht the transaction was not motivated by the
need to take adv of the K loss.
b. Where the TP becomes insolvent, any K loss be4 dd
of insolvency is cancelled.
c. Where TP’s estate has been assigned for the benefit
of creditors (does not apply to a company under
liquidation).
DEDNS CONTD
7. Legal costs [s11(2)f HC exp & s11(2)g SC exp]
 HC & SC costs , where appeal by TP against CG was
fully or substantially successful.
 Legal costs on successful appeals to the courts on
an objection.
7. Non-taxable gains (CG =/< $50) [s11(2)h]
 Where the CG is $50 or less, a dedn equal to tht CG
shall be granted.
 i.e such CG shall not be taxed nor c/f to any future
period.
8. Deed of sale [s11(6)]
 Once there is a transfer of property, there is a
deemed acqn by the buyer, even though buyer wd
not have paid the full purchase price yet.
DEDNS CONTD
9. Bad debts s11(2)e

 Fm previous disposals on credit.

Conditions : per s15(2)g of ITA


a. Debts must be due & payable (belong) to TP.

b. Debts must ve been included in TP’s Gross K


amt, either in the current yr or in prior tax yrs.
c. Debt must be proved, to the satisfaction of the
CG, to be irrecoverable.
10. Inherited asset s11(2)ai

 The deemed cost of acqn is the valuation in the


deceased estate.
CHOICE OF PROVISION FOR DEDN [S11(4)
 In terms of Section 11(4), if a deduction is
allowable under two or more sections the
taxpayer shall elect under which section he
wants the deduction allowed.
 i.e A TP cannot claim a dedn iro the same
amt twice.
PROHIBITED DEDUCTIONS [S12]
 No deduction shall be allowed in respect of:
• Expenses on specified assets whose
disposal proceeds are exempt from CGT.
 e.g Cost of gvt stock.
DETERMINATION OF FAIR MKT PRICE [S14]
 The CG has power to vary the SP or Purchase
price of a specified asset where he is of the
opinion that:
a) A TP sold the asset at less than the fair mkt price
(understated the price); or
b) A TP purchased the asset at a price in excess of
the fair mkt price (overstated the price).
 In so doing the CG will be trying to determine the
fair market price.
EXAMPLE 1
 Paida sold a hse in UK, CZA, for $35 000 in
June 2014.
 The cost of selling the hse was $4 000.

 The hse was bought in March 2010 for $5


600.
 She added extensions costing $3 200 in July
2010.
 Required: Calculate her CGT liability.
SOLUTION
1. Hse was acqd in March 2010 i.e after 1/2/09.
2. Gross capital amt 35 000
Less deductible exp:
 Cost of acqn 5 600
 Cost of impvmts 3 200
 Inf all on acqn cost =2.5%x5 600x4yrs 560
 Inf all on impvmts=2.5%x3 200x4yrs 320
 Selling costs 4 000 (13 680)
Capital gain 21 320

CGT = 20% X 21 320 = $4 264.


DEEMED DISPOSALS [S8(2) & S13
The ff are assumed sales inspite of the fact tht no
sale took place:
1. S8(2)b-Donation of a specified asset: The FMV of
tht asset is gross capital amt (GCA) in the hands
of the donor.
2. S8(2)c-Expropriation of a Specified Asset: Amt of
compensation rcd is GCA.
3. S8(2)d-Sale of a specified asset thru an
Execution of a Court Order:The price at whc asset
was sold shall be deemed to be due to the
person on whose be1/2 asset was sold, despite
there being no proceeds whc may be rcd by the
owner or accrue to him.
DEEMED DISPOSALS CONTD
4. S8(2)e-Maturity/Redemption of an asset: Asset
is deemed to have been sold by the investor on
the maturity dd & for the maturity proceed value.
e.g redemption of P.S by a co is a disposal in the
hands of the s/holders; value is cash amt or
value of equity PS are exchanged for.
5. S8(2)f-Transfer of rights under a deed of sale:
The amt rcvable on transfer of the property into
th name of the buyer is a GCA in the hands of a
seller. This is the selling price per the agmt of
sale & includes instalments not yet due and
payable.
6. S13-Compensation rcd for a damaged asset:
DEEMED SALE TYPE DEEMED GCA
1. Donated asset Fair market price

2. Sale by expropriation Compensation


received
3. Sold in Execution of a S.P.
Court Order
4. Maturity/redemption of Maturity proceeds
a specified asset
5. Deed of sale The full S.P. as per
sale agreement
6. Compensation rcd for a Compensation rcd;
damaged asset. varies.
NIL CAPITAL GAINS TAX CASES
1. Section 15(1) – Transfer of a specified asset
between companies under the same control.; in the
course of a grp reconstruction or merger.
2. Section 15(2) –Share swap between companies
under the same control.; in the course of a grp
reconstruction or merger.
3. Section 16 – Transfer of assets between spouses.
4. Section 17 – Transfer of business property by
individual to a company under his control.
In all these cases the property will be taken as if it
has always been owned by the transferee from the
time it was first owned by the transferor.
TRANSFER OF ASSET BTN COS UNDER SAME CONTROL
1. Section 15(1)- Where a buz combination is appvd by
the CG (e.g a reconstruction, a merger or takeover
scheme); an election is available to transfer assets
@ their base cost (dedns available on the asset
under s11 of the CGTA); notwithstanding the amt
actually pd for the assets.
2. Thus, no CGT arises at the time of transfer tht is
triggered by the buz combination.
3. CGT will only arise when the asset is subsequently
sold to 3rd party i.e o/s th grp.
4. The CGT will be calculated as if asset has always
been owned by the transferee, (i.e as if it is the
transferor who is selling).
5. Recoupment is taxed in the hands of the transferee.
BASE COST
• The dedns available on the asset under s11 of the
CGTA in the hands of the transferor; for instance
the sum of the ff; if available on the particular
asset tht was disposed:
1. Acqn cost

2. Impvt cost

3. Inflation all

4. Disposal cost; etc.

• When an asset is transferred @ its base cost, the


transferor makes no CG nor K loss.
ITV
• Given an ITV & the original cost of an asset, one
can calculate the K all granted & the recoupment
on the same.
SHARE SWAP BTN COS UNDER SAME CONTROL
• Section 15(2)- Where shares are exchanged for no
cash consideration:
1. Btwn cos under the same control in a
reconstruction or merger scheme or
2. When a Zim subsidiary of a foreign co converts to
a local co:
• No CGT liability shall arise.

• Election to transfer the shares at their base cost.

3. CGT will only arise when the asset is


subsequently sold to 3rd party i.e o/s th grp.
TRANSFER OF ASSETS BTWN SPOUSES
 Section 16 –Where any specified asset
(including shares) is transferred between
spouses or
 a PPR is transferred to a former spouse
through a court order for maintenance;
• the 2 may elect that the price be deemed to
be equal to the dedns allowable to the
transferor i.e @ base cost.
• Thus, No liability arises until assets are sold
to a 3rd party; @ whc point the transferee
spouse will be taxed.
TRANSFER OF ASSETS BTWN SPOUSES CONTD
• The CGT will be calculated in the hands of
the transferee, as if:
1. asset has always been owned by the
transferee,
2. i.e as asset has at all times remained in
the hands of the transferor
3. i.e as if it is the transferor who is selling.

4. i.e Transferee is deemed to ve acquired


asset at the same dd as the original owner
(transferor).
TRSFR OF IMMO BUZ PROPTY BY AN IND TO A CO UNDER HIS CONTROL

Section 17
1. The property must be used for purposes of his
trade.
2. TP is deemed to ve control if he has more than
50% shareholding.
3. No liability arises on transfer.

4. CGT will only arise when the asset is resold by


the TP’s co to a 3rd party.
ROLL - OVER
 Capital gain roll-over simply refers to a deferment
or postponement of tax liability on that part of the
capital gain which is attributable to amount spent
on a new (replacement) specified asset.
R/O RELIEF ON SALE OF A PPR [S21]
1. This is an option to postpone the payment of CGT.
2. No CG arises where the full proceeds r used to
acquire or to construct another PPR, in Zbwe, on
land owned by the TP, in the tax yr of disposal or in
the tax yr ff the yr of disposal.
3. This is called a Full R/O.
4. Where only a part of the proceeds r used to
purchase or construct a new PPR, the CG on sale of
the old PPR is apportioned & partially taxed i.e
a) There is partial CG relief on the expended portion of
the proceeds.
b) CGT arises on the unexpended portion of the
proceeds.
R/O RELIEF ON SALE OF A PPR CONT’D
i. The partial R/O Relief = A x C
B
Where:
A=amt used to purchase/construct the new PPR.
B=Proceeds fm sale of old PPR.
C=Potential CG on the old PPR.
ii. Caln of CG on the Unexpended portion of the
proceeds:
 Potential CG (full CG on sale of old PPR) X
 Less Partial R/O relief in (i) above (X)
 Thus taxable CG X
• This CG is taxed @ the appropriate CGT rate; 20%.
R/O RELIEF ON SALE OF A PPR CONT’D
5. The CG tht is r/o (whether fully or partially),
effectively reduces the cost of the new PPR, when
calculating CG; in the future.
6. However, infl all on the new PPR is calculated on the
original cost, be4 reducing the cost wt the R/O.
7. Where land, storeroom or any other structure, whc
was used together wt the PPR is sold separately,
R/O provisions do not apply coz this is not a
disposal of a PPR.
8. Where the TP has to top up the sale proceeds of the
old PPR in order to acquire a new PPR; then:
a) There is a full R/O.
b) The extra amt spent by the TP is considered an
improvement when the new PPR is eventually sold.
R/O RELIEF ON SALE OF A PPR CONT’D
9. Land in rural areas does not have title deeds &
thus can not be “owned” by the TP. Such land is
state land.
10. N.B. CG roll-over simply refers to a deferment or
postponement of tax liability on that part of the
CG which is attributable to an amt spent on a
new PPR acquired.
11. Remember the purchase price includes stamp
duty, transfer fees, bond raising fees etc. It will
be incorrect to consider only the purchase price
as shown on the agreement of sale
FOR ROLL-OVER TO APPLY
 The taxpayer must satisfy the CG that:
a) before the end of the tax year following that
of sale, he will purchase or construct (using
proceeds from the old PPR)
b) another PPR

c) on land owned by him (i.e. where title deeds


are obtainable)
d) in Zimbabwe
EXAMPLE 2
 If Paida (in example 1) used $28 000 of the
proceeds from the Unit B hse to purchase a stand
in Westgate, on which she intends to build her
new residence, calculate the applicable CGT, if
she uses the provisions of section 21 of the CGTA.
SOLN 2
Potential CG 21 320
Less Partial R/O relief
28 000/35000 x21 320 (17 056)

Taxable CG 4 264

Thus CGT = 20% X4 264 = $853.


SUBSTITUTION OF IMM BUZ PROPERTY (REINVESTMENT RELIEF)
Section 22
1. Where a TP sells buz property in order to buy or
construct another buz prop, any CG on the
disposal is deferred to the extent tht the
proceeds are used to purchase/ construct the
new buz prop.
2. The new asset must be constructed/ purchased
by the end of the tax yr ff tht of sale, on land
owned by the TP in Zim.
3. Where the proceeds of the old asset r nt fully
reinvested on the new asset, CG is recognised
iro the Unexpended Proceeds.
SUBSTITUTION OF BUZ PROPERTY (REINVESTMENT RELIEF)
4. The partial Reinvestment Relief = A x C
.B
Where:
A=amt used to purchase/construct a new buz propty.
B=Proceeds fm sale of old buz propty.
C=Potential CG on the old buz propty.
5. Caln of CG on the Unexpended portion of the
proceeds:
 Potential CG (full CG on sale of old PPR) X
 Less Partial R/O relief in (i) above (X)
 Thus taxable CG X
• This CG is taxed @ the appropriate CGT rate; 20%.
R/O RELIEF ON SALE OF A PPR CONT’D
6. The CG tht is r/o (whether fully or partially),
effectively reduces the cost of the new asset, when
calculating CG; in the future when asset is
eventually sold.
7. However, infl all on the new asset is calculated on
the original cost, be4 reducing the cost wt the R/O
(the CG not subjected to tax).
8. Where the TP has to top up the sale proceeds of the
old asser in order to acquire a new asset; then:
a) There is a full Reinvestment Relief.
b) The extra amt spent by the TP is considered an
improvement when the new asset is eventually sold.
R/O RELIEF ON SALE OF A PPR CONT’D
9. Unlike s13, the new buz ppty must not
necessarily be used in the same trade as the
old ppty.
10. N.B. Unlike under s13, inflation allow on the
new asset after any R/O, is calculated only on
just the reduced cost; which is also the “cost of
acqn” for dedn purposes when new asset is
eventually sold.
SALE OF IMM PRPTY UNDER SUSPENSIVE CONDITIONS (S 18 19 )

1. Whilst the ownership of an asset passes


upon payment of the full purchase price, for
tax purposes the full purchase price is
deemed to accrue on the date of contract.
2. As a concession, the TP will be taxable only
on that part of the sale price which accrues
to him in terms of the sale agmt
3. This is effected by giving the TP, a s18
allowance, a dedn on amts nt yet due @ yr
end.
SALE OF IMM PRPTY UNDER SUSPENSIVE CONDITIONS CONTD

4. s18 Suspensive sale allowance is determined by


the formula:
A x C where
B
• A = Portion of proceeds not yet due, at yr end
i.t.o. the sale agmt.
• B = Total sale proceeds.
• C = Total CG accrued on the sale.

5. S18 allo in one yr is recouped in the ff yr as


income i.e CG relating to amts nt yet due @ yr
end is allowed as a dedn, bt added bek the ff yr
& a fresh s18 clan made.
SALE OF IMM PRPTY UNDER SUSPENSIVE CONDITIONS
6. The effect of the provision is to spread the full
CG over the period tht the installments are rcd.
7. S18 allow is also available on shares sold on
terms stretching over more than one tax yr.
8. Where the agmt is cancelled, tax all amts rcd tht
ve not been taxed yet, in the yr of cancellation.
9. N.B. s17 of Income Tax Act, applies to a trader
e.g a land developer, & not s18 of the CGT.
JOINT OWNERSHIP
1. Calculate the Capital Gain on the asset.
2. Then apportion the CG to the spouses in the
ratio of their interests in tht asset.
SHARES
1. We only assess unlisted shares for CG.
2. It is also not important to distinguish a bonus
issue from a Right issue for listed security, coz
both are s.t. a 1% CGWT. (i.e. The taxation of a
bonus & rights issue for a listed security is the
same).
BONUS ISSUE
1. A bonus is an addition @ no cost.
2. The full sale consideration rcd on the disposal of
the bonus shares will be CG.
3. CGT is only triggered by the disposal of the bonus
shares.
4. Effectively, a bonus issue results in the dilution of
the base cost of the total shares and hence we
calculate new cost per share, when there is a
bonus issue.
5. The new cost per share is used to calculate the
“original cost” of the shares disposed (if a portion of
the shares are sold).
6. Inflation all is from date the original shares were
issued.
RIGHTS ISSUE
1. Rights shares are issued at a cost. Therefore
they are an impvt.
2. Inflation all is granted backdated to date original
shares were acquired.
EXAMPLE 3: BONUS SHARES
• Kuzivakwashe bought 4 500 shares for $1 each
in a company listed on the ZSE in 2009.
• In 2010, the company issued a bonus issue of 2
shares for every 3 held.
• Kuzivakwashe sold all his shares in this co on 20
Oct 2014 for $1.50 each.

Required:
Calculate Kuzivakwashe’s tax liability/refund.
SOLN 3
• 2009: Shares purchased 4 500
• 2010: Bonus 2/3 x 4 500 3 000
• 2014: Total # of shares sold 7 500
• Price per share $1.50
• Gross Capital Amt 11 250

• Thus GCWT =1% X 11 250 = $112.50


• The CGWT is held at source, so no liability.
EXAMPLE 4
• On 30 June 2014, Michael sold 20 000 of his
shares in Tit-4-Tat (Pvt) Ltd for $24 000. He had
purchased 30 000 shares in Tit-4-Tat (Pvt) Ltd on
1 May 2009 for $15 000.
• In 2009, Tit-4-Tat (Pvt) Ltd made a rights issue of
1 share for 2 held.
• Michael exercised his rights in full & paid 60 cents
for each share.
Required:
a) Calculate the base cost of the shares at date of
disposal.
b) Calculate Michael’s CGT liability or refund.
SOLN 4:WORKINGS
1. Additional shares on Rights issue=1/2 x 30 000
=15 000 share

2. Total # of shares = 30 000 + 15 000


= 45 000

3. Cost of rights issue = 15 000 x .60


= $9 000

4. Total cost of the 45 000 shares =15 000 +9 000


= $24 000
SOLN 4: WORKINGS CONTD
5. Cost of shares sold=20 000/45 000 x 24 000

= $10 667

6. Inflation All = 2.5% x 10 667 x 6yrs


= $1 600

a) Base Cost
Cost of share sold 10 667
Inflation all on cost of shares sold 1 600
Base cost 12 267
SOLN 4 CONTD
b) Gross Capital Amt 24 000
Less base cost (12 267)
CG 11 733

CGT = 20% X 11 733 2 347


Less CGWT (1 200)
CGT Payable 1 147
S.13 DAMAGE OF A SPECIFIED ASSET
1. When a specified asset is destroyed or damaged, it
is deemed sold 4 a value of the compensation rcd;
provided the compensation is greater than the base
cost (allowable dedn) of tht asset.
2. Where the compensation does not exceed the base
cost of the destroyed asset, there shall be no sale.
3. Where the TP can satisfy the CG that he will use the
whole or part of the “proceeds” (tht exceed the base
cost) on the purchase or construction of another
specified asset or replacement of the damaged
asset, within 2 tax years from the date such asset
was damaged or destroyed then; such proceeds
shall not be deemed proceeds of sale.
DAMAGED ASSET CONTD
5. Thus No CGT arises on such amts; to the
extent to whc the compensation is
expended.
6. However, a CGT liability arises on any unused
portion of the compensation.
7. The cost of replacement/repairs effected
as a result of the damages or destructions
would not be allowed as a deduction when
the asset is finally sold. This is so because
the taxpayer did not incur the cost of
repairs.
DAMAGED ASSET CONTD
8. i.t.o s13(2); If the amt recovered fm an insu co does
not cover the base cost (allo dedns), then:
a) The asset shall not be deemed to have been sold,
thus No CGT arises.
b) In tht case, the compensation wd be used to reduce
the base cost of the replaced asset.
c) Inf Allo shall be calculated on such reduced cost of
the replaced asset, from the time the asset was
damaged.
9. Where no compensation is rcd for a damaged asset,
the restoration costs are allowable dedns in the caln
of CGT when the replaced asset is eventually sold.
ACTIVITY 7:
CAPITAL GAINS TAX COMPUTATION FOR THE Y/E 31/12/2010
Sale Price 120,000
Less: Allowable Deductions
Cost 40,000
Less: Roll over from previous sale 20,000
20,000
Swimming Pool 5,000
Garage 10,000
Driveway
5,000

Inflation allowance on cost:


Initial cost (40,000x2.5%x2 years) 2,000
Swimming Pool (5,000x2.5%x2years) 250
CONTINUED:
Garage (10,000x2.5%x 1year) 250
Driveway (5000x2.5%x1 year) 125
Selling costs 1,000 43,625

Capital Gain for the year 76,375

Capital Gains @20% 15,275

Less:Withholding tax (15%x120,000) 18,000

Tax refundable 2,725


S.13 DAMAGE OF A SPECIFIED ASSET
• The portion of the compensation rcd for a
damaged asset that is not used to repair or
replace the damaged asset;
• within 2 tax of dd off damage of asset
• is a deemed disposal, unless:
• The utilised portion is < original cost of
asset.
1] S.13(3)II ARW S13(2): UNUTILISED COMPENSATION < COST

1. Where the unutilised compensation < base cost:


a) There is no deemed sale.
b) Reduce cost of asset by amt rcd.
c) When the replaced asset is eventually sold, the
Reduced cost, will be the “acqn cost” under
dedns (& not the original cost).
d) Inflation All will then be calculated in 2 phases:
i. On original cost – From acqn dd to dd
compensation was rcd.
ii. On reduced cost – From dd compensation was
rcd to dd asset was sold.
2] S.13(3)II ARW S13(1): UNUTILISED COMPENSATION > COST
• Where the unexpended compensation rcd >
cost of asset:
a. There is a deemed sale and you are to
raise a CGT assessment in the yr the
compensation is rcd.
b. The amt of the unexpended compensation
is the Gross capital amt.
a) In the yr the replaced asset is eventually
sold, raise CGT assessment with the cost of
the replaced asset being the amt of the
unexpended compensation.
3] S.13(1) ARW S13(4): COMPENSATION WHOLLY UTILISED
• Where the full amt of the compensation is
used (Unexpended amt is nil):
a. There is no deemed sale.
b. Disregard the compensation rcd i.e Do not
raise a CGT assessment in yr
compensation is rcd.
c. Raise CGT assessment in yr replaced asset
is eventually sold in the normal way i.e
ignoring the compensation.
d. No reduction in original cost on eventual
sale of asset.
Costing $2,000

Compensation amounting
To $6,000 is received

Expended Expended $5,500 Expended $6,000


$2,000

Unexpended amount Unexpended amount Unexpended amount


($4,000) is > cost ($500) is less than cost (Nil) - [Section 13(3)(i)
[Section 13(3)(ii) & 13(1) [Section 13(3)(ii) & (2)] & (4)]
 No sale
 Deemed sale of $4,000  No sale
 No reduction in cost
 Raise CGT assessment  Reduce cost of $2,000
by amount not  Disregard the
 Raise CGT assessment expended. The result is compensation
in the year of eventual the cost on eventual  Raise CGT
sale cost being $4,000 sale. assessment on
eventual sale in the
normal way
CGT RELIEFS
 CGT Reliefs are options to defer/postpone
the payment of CGT on the sale or transfer
of a specified asset.
 The CGTA allows for the transfer of specified
assets without imposing tax on the seller in
a no. of circumstances.
 In some of these cases, the TP will do a nil
tax return.
THE CGT RELIEFS
1. Transfer of assets btwn grp members (s15).
2. Transfer of assets btwn Spouses (s16).
3. R/O Relief on disposal of a PPR (s21).
4. Reinvestment Relief (s22).
5. Incorporation Relief (s17).
6. Installment Relief (s18).
7. Relief on Damaged or Destroyed asset
(s13).
8. Relief (Exemptions)to elderly persons
SCOPE OF CGTA
• Scope ascertained by answering 3 qns in tht
order:

1. Is the asset (tht was disposed) a specified


asset?

2. Is the TP a non-trader in specified assets?

3. Was asset acquired after dollarisation?


EXCLUSION FROM CGT
• Any asset whc is not a specified asset; e.g:

1. All movable assets: Vehicles, Machinery,


Furniture etc
2. All intangible assets

3. Loans & overdrafts assets (banks)