TAX LAW & PRACTICE(CUAC

212)

PROG: BSCAC
LEVEL: 2.2
YEAR : 2020
 CHAPTER 12: CAPITAL GAINS TAX
Administered through the Capital Gains Tax Act[Chapter
23:01].
12.1 Introduction
Charged on the sale of specified assets from a source
within or deemed to be Zimbabwe.
Immovable property and marketible securities.
 CHAPTER 12: CAPITAL GAINS TAX
Definition of a specified asset
Land, buildings, fencing, durawall, dams, boreholes.
Bonds,debentures,shares or stocks.
 CHAPTER 12: CAPITAL GAINS TAX
Rate of CGT
Rate is 20% on capital gain.
However, if the specified asset sold was acquired before
1 February 2009,
The rate is 5% on sales proceeds.
 CHAPTER 12: CAPITAL GAINS TAX
Framework for the determination of CGT
Is similar to that of determination of taxable income.
 CHAPTER 12: CAPITAL GAINS TAX
DETERMINATION OF CAPITAL GAINS (LOSS) FOR THE YEAR ENDED……….
•Total Sales proceeds xxx
•Less: Recoupment (sect. 8 ITA) (xxx)
•Gross Capital Amount(sect.8 CGTA) xxx
•Less Exemptions (sect. 10 CGTA) xxx
•Capital Amount xxx
 CHAPTER 12: CAPITAL GAINS TAX
DETERMINATION OF CAPITAL GAINS (LOSS) FOR THE YEAR ENDED……….
Capital Amount xxx
•Less: Deductions
•Section 11(2)(a)-CGTA(Cost) xxx
•Section 11 (2)(b)-CGTA(Improvements) xxx
xxx
•Less Capital Allowances (s15 (2)(c) & 7th Sch, para 2 *ITA) (xxx)
xxx
Inflationary Allowance s11(2)(c )
•2.5% x no# years asset held x cost i.e. s11(2)(a) & (b) xxx
•Selling expenses s 11(2)(d) xxx (xxx)
•Capital gain(loss) xxx
 CHAPTER 12: CAPITAL GAINS TAX
12.3.3 Deemed Sales [Sect.8 (2)]
Certain transactions are deemed to be sales;
Notwithstanding the fact that no actual consideration
has been exchanged:
 CHAPTER 12: CAPITAL GAINS TAX
12.3.3 Deemed Sales [Sect.8 (2)]
•Section 8(2) (b) Donations
•Section 8(2) (c) Expropriation of assets
•Section 8(2)(d) Assets sold in execution of court order
•Section 8(2) (e) Maturity or Redemption of stock
•Section 8(2) (f) Transfer of rights
 CHAPTER 12: CAPITAL GAINS TAX
12.3.4 Exemptions (Section 10)
Some Government and public organisations.
Distributions in deceased estate.
Disposal by life insurance business.
 CHAPTER 12: CAPITAL GAINS TAX
12.3.4 Exemptions (Section 10)
Disposal by licensed investor and industrial park
developer.
Sale of shares from an approved share ownership
scheme by an employee to a trust.
Sale of Principal Private Residence(PPR) by an elderly
person.
 CHAPTER 12: CAPITAL GAINS TAX
12.3.4 Exemptions (Section 10)
US$1,800 ($14,400ZWL) from the sale of marketible
securities by an elderly person( 55yrs and above).
Sale of listed marketible securities.
Subject to 1% CG withholding tax.
Sale of shares under indigenisation schemes.
Sale between petroleum operators.
 CHAPTER 12: CAPITAL GAINS TAX
Example
•Nimrod purchased an industrial building on 1 September
2009 for $300 000, and transfer duty of $12 500 was
incurred when the property was purchased. The property
was sold on 1 June 2012 for $800 000. Prior to the sale
the taxpayer had incurred $ 30 000 on rates to date of
sale. Given that allowances previously granted and now
recouped amounted to $ 41 875.
•Calculate any capital gain payable
 CHAPTER 12: CAPITAL GAINS TAX
Calculation of Capital Gains Tax as at 1 June 2012
$ $
Sales proceeds 800,000
Less Recoupment (41,875)
Gross Capital Amount 758,125
Less Deductions
Initial Cost (300 000 +12 500) 312,500
Less Capital Allowances (41,875)
270,625
Add Inflation Allowance (312,500 X2.5%X 4) 31,250 (301,875)
Capital Gain 456,250
Tax @ 20% (20% X 456, 250) 91,250
 CHAPTER 12: CAPITAL GAINS TAX
12.4 Damage or destruction of an asset (Section 13)
Compensation is deemed to be the selling price.
Only if, the compensation is greater than the; cost +
cost of additions.
 CHAPTER 12: CAPITAL GAINS TAX
12.4 Damage or destruction of an asset (Section 13)
If the taxpayer uses all the compensation to acquire a
similar asset in replacement, before the end of the
following year, no CGT is calculated
Where part of the compensation is not utilised;
CGT is calculated based on the amount not utilised.
 CHAPTER 12: CAPITAL GAINS TAX
12.4 Damage or destruction of an asset (Section 13)
Example
•Mr Adamant Mike who is 50 years old purchased a commercial
building in July 2009 at a cost of $200 000. In August 2011 he
constructed a garage on that property at a cost of $27 000. The
main building was gutted by fire on 1 September 2014 and was
granted insurance compensation of $2.4 million.
Calculate Capital gains tax payable, if any. Assume no capital
allowances were granted previously on the commercial
building.
 CHAPTER 12: CAPITAL GAINS TAX
12.4 Damage or destruction of an asset (Section 13)

Determining if CGT is payable $

Initial Cost 200,000

Improvement (Garage) 27,000

Cost + Cost of Additions 227,000 (a)

$2.4
Compensation million (b)
Since (b) is greater than (a), CGT is calculated , taking the compensation as the sales
proceeds
 CHAPTER 12: CAPITAL GAINS TAX
Adamant Mike
Calculation of Capital Gains Tax as at 1 September 2014
$ $
Sales proceeds 2,400,000
Less Recoupment -
Gross Capital Amount 2,400,000
Less Deductions
Initial Cost (2009) 200,000
Improvements (2011) 27,000
227,000
Less Capital Allowances -
227,000
Add Inflation Allowance
Initial Cost ( 200,000 X2.5% X 6) 30,000
Improvements (27,000 X2.5% X 4) 2,700 259,700
Capital Gain 2,140,300
Tax @ 20% (20% X 2,140,300) 428,060
 CHAPTER 12: CAPITAL GAINS TAX
12.4 Damage or destruction of an asset (Section 13)
12.4.1(b) Sect 13 (2)
Where compensation is less than the cost and cost of
additions;
CGT is not calculated.
The compensation is used to reduce the cost and cost of
additions of the specified asset damaged/destroyed.
 CHAPTER 12: CAPITAL GAINS TAX
Example
•Lima Garufu purchased land and buildings in April 2009
at a cost of $130 000. The building was destroyed by fire
and he was awarded insurance compensation of $110 000
in February 2016. He uses the compensation to
reconstruct the building at a cost of $110 600 in
November 2016. In January 2017 he sells the property for
$450 000 and incurs $7 250, worth of selling costs.
•What is the position regarding capital gains tax?
 CHAPTER 12: CAPITAL GAINS TAX
Determining if CGT is payable in February
2016 $

Initial Cost 130,000

Cost + Cost of Additions 130,000 (a)

Compensation 110,000 (b)

Since (b) is less than (a), CGT is not
calculated
However, when the new specified asset is sold, this compensation is used to
reduce its cost.
 CHAPTER 12: CAPITAL GAINS TAX
Lima Garufu
Calculation of Capital Gains Tax as at 31 January 2017
$ $
Sales proceeds 450,000
Less Recoupment -
Gross Capital Amount 450,000
Less Deductions
Initial Cost (2016) 110,600
Less compensation received on old asset (110,000)
Reduced Cost 600
Less Capital Allowances -
600
Add Inflation Allowance
Reduced Cost (600 X2.5% X2) 30 (630)
Capital Gain 449,370
Tax @ 20% (20% X 449,370) 89,874
 CHAPTER 12: CAPITAL GAINS TAX
12.5 Capital gains tax reliefs
Sections 15,16,17,18,19, 21 and 22 can be used by the
taxpayer in;
Reducing tax liability or;
Postponing payment of capital gains tax.
 CHAPTER 12: CAPITAL GAINS TAX
12.5 Transfer of assets at values equal allowable
deductions
Under the circumstances below,
The transferor and the transferee may chose to transfer
the specified assets;
At values equal to the allowable deductions;
Notwithstanding the actual selling price;
No CGT is payable.
 CHAPTER 12: CAPITAL GAINS TAX
12.5 Transfer of assets at values equal allowable
deductions
However CGT is payable if the specified assets are later
on disposed off to a third party.
 CHAPTER 12: CAPITAL GAINS TAX
12.5 Transfer of assets at values equal allowable
deductions
Section 15: Transfer of specified assets between
companies under the same control,
Section 16: Transfer of assets between spouses,
Section 17: Transfer of business property by
individual to a company under his control.
 CHAPTER 12: CAPITAL GAINS TAX
12.5.4 Section 18 &19 Suspensive sale allowance
Hire Purchase sales and credit sales
A suspensive sale allowance shall be granted as a
deduction against the capital gain arising from the sale.
The suspensive sale allowance is calculated as follows:
•A/D x (B-C)
•A: Amount not yet due and payable at the end of the
year.
 CHAPTER 12: CAPITAL GAINS TAX
12.5.4 Section 18 &19 Suspensive sale allowance
Hire Purchase sales and credit sales
•(B-C)=Capital gain arising from sale.
•D: Total Sales proceeds.
The suspensive sale allowance granted shall form part
of the capital amount in the following year.
 CHAPTER 12: CAPITAL GAINS TAX
12.5.4 Section 18 &19 Suspensive sale allowance
•Example
•Mr Numeri Mabasa sold his property during on 30 July 2015 for $120 000, the property
was built at a cost of 80 000 in May 2012. The property was sold with the following
conditions:
•a) 50% deposit was to be paid on the date of sale.
•b) 25% of the selling price to be paid on 30 July 2016
•c) The final 25% of the selling price to be paid on 30 July 2017
•c) The transfer of the property to the buyer will only occur upon full payment of the
purchase price.
•Calculate the capital gains tax for Mr Numeri Mabasa for the years 2015, 2016 and
2017.
 CHAPTER 12: CAPITAL GAINS TAX
Numeri Mabasa
Calculation of Capital Gains Tax as at 30 July 2015
$ $
Sales proceeds 120,000
Less Recoupment -
Gross Capital Amount 120,000
Less Deductions
Initial Cost (2012) 80,000
Less Capital Allowances -
80,000
Add Inflation Allowance (80,000 X2.5%X 4) 8,000 (88,000)
Potential Capital Gain 32,000
Less Suspensive sale allowance (60,000/120,000X32000) (16,000)
Taxable Gain 16,000
Tax @ 20% (20% X 16,000) 3,200

2,016
Suspensive Sale allowance blfwd 16,000

Less Suspensive sale allowance clfwd (30,000/120,000X32,000) (8,000)

Taxable Gain 8,000
Tax @ 20% 1,600

2017
Suspensive Sale allowance blfwd 8,000
Less Suspensive sale allowance clfwd (0/120,000X32,000) -
Taxable Gain 8,000
Tax @ 20% 1,600
 CHAPTER 12: CAPITAL GAINS TAX
Roll-over relief (Sect.21 & 22)
An allowance known as a roll-over relief is allowed to
be deducted from capital gain under the following
circumstances;
Sale of a PPR and use of the proceeds to acquire
another,
Sale of a business asset and use of the proceeds to
acquire/construct another asset.
The new asset must be constructed before the end of
the following year.
 CHAPTER 12: CAPITAL GAINS TAX
Roll-over relief (Sect.21 & 22)
The roll-over relief is calculated based on the amount
expended(used) using the following formula;
•(A/B)XC
•A: The expended(used) amount
•B: Selling price
•C: Capital Gain on sale of property
Taxable gain=Total Capital gain less Roll-over relief
 CHAPTER 12: CAPITAL GAINS TAX
Example
•Murima inherited a principal private residence from his
late father’s estate where it was valued at $34 000 in
2009. In 2010 he made improvements of $3 000. He sold
the house in 2014 for $580 000 and incurred selling
expenses of $23 000.Two months later he purchased a
new bigger residence for $800 000 and incurred transfer
fees of $170 000.
Calculate CGT if the taxpayer made the elections
 CHAPTER 12: CAPITAL GAINS TAX
Example
Murima
Calculation of Capital Gains Tax as at 31 December 2014
$ $
Sales proceeds 580,000
Less Recoupment -
Gross Capital Amount 580,000
Less Deductions
Value in estate (2009) 34,000
Improvements (2010) 3,000
Less Capital Allowances -
37,000
Inflation Allowance
Cost (34,000 X2.5% X 6) 5,100
Improvements (3,000 X2.5%X 5) 375 (42,475)
Potential Capital Gain 537,525
Less Roll over relief ( 580,000/580,000 X537,525) (537,525)
Taxable Gain NIL
Tax @ 20% NIL
 CHAPTER 12: CAPITAL GAINS TAX
Example
12.5.7 Partial roll over relief
•Suppose the cost of the new PPR was $400 000.
Calculate CGT if the taxpayer made the relevant
elections
 CHAPTER 12: CAPITAL GAINS TAX
Murima
Calculation of Capital Gains Tax as at 31 December 2014
$ $
Sales proceeds 580,000
Less Recoupment -
Gross Capital Amount 580,000
Less Deductions
Value in estate (2009) 34,000
Improvements (2010) 3,000
Less Capital Allowances -
37,000
Inflation Allowance
Cost (34,000 X2.5% X 6) 5,100
Improvements (3,000 X2.5%X 5) 375 (42,475)
Potential Capital Gain 537,525
Less Roll over relief ( 400,000/580,000 X537,525) (370,707)
Taxable Gain 166,818
Tax @ 20% 33,364
 CHAPTER 12: CAPITAL GAINS TAX
12.6 Section 22: Withholding tax on Capital Gains
Tax deducted at source on the disposal of specified
assets.
12.6.2 Who should withhold the Capital Gains
Withholding Tax?
A depositary.
 CHAPTER 12: CAPITAL GAINS TAX
12.6 Section 22: Withholding tax on Capital Gains
Depositary includes:
Conveyancer, legal practitioner, estate agent, building
societies, Sheriff or Master of the High Court,
stockbroker or financial institution who;
Holds the whole or part of the price paid or payable to
the seller in respect of the specified asset.
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12.6.3 Rates of Withholding Tax
These are tabulated as follows:

Description of Specified Asset Period Rate of tax

Sale of listed securities From 1 August 2009 1% of sale price

Sale of non-listed securities From 1 October 2010 5% of sale price

Sale of immovable property 1st February 2009 and 5% of the sale price (this tax
purchased prior to 1st February prior years becomes the final tax for
2009 Capital Gains Tax purposes)

Sale of immovable property 1st February 2009 and 15% of the sale price.
purchased and subsequent years
sold after 1st February 2009