Capital Gains Tax

Introduction

• Capital Gains Tax (CGT) is calculated in terms

of the Capital Gains Tax Act. This is a totally
different tax head from income tax. The rules
are therefore also different. Students should
master the format of calculation for this tax
head.
 Assets Chargeable

• CGT is chargeable on the sale or disposal of specified assets. A

specified asset is immoveable property or a marketable security.

• MARKETABLE SECURITIES
• Bonds tradable on the stock market
• Debenture
• Share or stock
• Shares in private business corporations (PBC)
• Unit trusts
•  
 Assets Chargeable

• CGT is chargeable on the sale or disposal of specified assets. A specified asset

is immoveable property or a marketable security.

• IMMOVABLE PROPERTY
• Commercial buildings
• Industrial buildings
• Principal private residence
• Other residence or residential property
• Dams
• Land
• Roads
• Mining claims
• Farm improvements
 The Source of Capital Gains Tax

• All immovable property that is in Zimbabwe is

regarded for CGT purposes to be from a
source within Zimbabwe. The residence status
of the taxpayer does not matter.
• Capital gains from marketable securities is
from a source within Zimbabwe as long as the
sale is of securities are of company which is a
Zimbabwean resident.
 Example 10:1 Mr Selefoni Mbewe

During the 2015 year of assessment, Mr Selefoni

Mbewe, a Malawian resident, sold the house he
owned in Malawi when he decided to emigrate to
Australia. He also sold a warehouse that owned in
Zimbabwe. The details of the disposals were as follow:

PRICE DATE ACQUIRED

House in Malawi $ 45 000 May 1994

Warehouse in Zimbabwe $ 350 000 March 2012
 Example 10:1 Mr Selefoni Mbewe

• Calculate the capital amount arising in

Zimbabwe as a result of the disposals.
 Computation of Capital Gains Tax

• No capital gain is calculated on assets acquired before 1

February 2009, unless it is a specified asset. For specified
assets acquired before this date, a CGT of 5% is calculated, but
if it is a listed security, then 1% withholding tax is calculated.
• Capital gains are subject to a flat rate of capital gains tax of
20%, which applies to all taxpayers. If a withholding tax has
been withheld, then the amount of capital gains tax payable is
reduced by the amount of withholding tax as follows:
• Tax on capital gain @ 20% xxxx
• Less withheld tax (xxx)
• Capital gain (payable) / refundable xxxx
 Computation of Capital Gains Tax

• No capital gain is calculated on assets acquired before 1

February 2009, unless it is a specified asset. For specified
assets acquired before this date, a CGT of 5% is calculated, but
if it is a listed security, then 1% withholding tax is calculated.
• Capital gains are subject to a flat rate of capital gains tax of
20%, which applies to all taxpayers. If a withholding tax has
been withheld, then the amount of capital gains tax payable is
reduced by the amount of withholding tax as follows:
• Tax on capital gain @ 20% xxxx
• Less withheld tax (xxx)
• Capital gain (payable) / refundable xxxx
 Gross Capital Amount

• The total amount received by or accrued to or in favour of a

person or deemed to have been received by or accrued to or in
favour of a person in any year of assessment from a source
within Zimbabwe from the sale on or after the 1st August 1981,
of any specified assets excluding any amount so received or
accrued which is proved by the taxpayer to constitute gross
income (recoupment), but including capital allowances.
• The terms “total amount” and “received by or accrued to”, have
the same meaning as in income tax. Receipts of a revenue
nature to not attract capital gains. The definitions and case law
of capital nature discussed under income tax still apply.
 Adjustment for Double Taxation

• To avoid double taxation, amounts taxable under the Income Tax Act,
which are of a capital nature, because they are specifically included in
income will have to be excluded from CGT. Any example of such is a
recoupment.

• Example 10:2
• Mrs Heshitegi Patsanza sold a commercial building which she had bought
for $100 000, and had owned for three years. The selling price was $150
000. The building was used 100 percent for the purposes of trade.
• Calculate Mrs Patsanza’s capital amount.
 Deemed Disposals

CASE VALUATION BASIS

Donation or disposal An amount which is in the opinion of the
otherwise by way of Commissioner, is equal to the fair market
sale price of the asset at the time of disposal.
Expropriation An amount paid by way of compensation for
the expropriation of such asset.
Sale in execution of An amount for which it was sold
court order
Maturity or An amount received or accrued on
redemption of a redemption or maturity.
specified asset
Deed of sale The full amount specified on the deed of
sale agreement
 Exemptions from Capital Gains Tax

• Disposals by any person who is 55 years or

above is exempt from capital gains tax on
disposal of his principal private residence and
on the first $1 800 on disposal of unlisted
marketable securities.
 Base Cost of Asset

• The base cost is deducted from the capital

amount. This has the effect of reducing the
capital gains tax. The base cost is made up of
the original cost of the asset, that is the cost
of acquiring or construction. Any
enhancement to the asset, such as an
improvement also increases the base cost of
the asset. However any costs allowed as
deduction under the Income Tax Act will be
allowed to increase the base cost of any asset.
 Base Cost of Asset

The following costs make up the base cost:

• Cost of acquisition.
• Cost of creating an asset.
• Interest on bond used to purchase asset.
• Cost of obtaining valuation for CGT purposes.
• Surveyor, valuer, auctioneer, accountant and legal fees.
• Stamp duty, transfer duty or any other duty of a similar
nature.
• Advertising costs associated with buying or selling an asset
• VAT paid, as long as it has not been claimed or refunded
• Cost of defending legal title to the asset.
• Foreign exchange losses are also allowed to be deducted.
 Prohibited Deductions

• However there are some prohibited

deductions, as follows:
• Expenditure incurred for a specified asset
outside Zimbabwe;
• Expenditure incurred for a specified asset
exempt from CGT;
• Expenditure not related to the capital asset
disposed;
• Double deduction of expenditure under both
the CGT Act and the Income Tax Act;