Capital gains Tax

Capital Gains Tax (CGT) is calculated in terms of the Capital Gains Tax Act
(Chapter 23:01).
This is a totally different tax head from income tax. The rules are therefore
also different. It is necessary to master the format of calculation for this tax
head.
Power to Charge Capital Gain Tax
Section 6
gives the Commissioner authority to charge, levy and collect CGT in respect of
capital gains accruing to any person during any year of assessment other than
a capital gain accruing to a person before 1st August 1981.
What is Capital Gains Tax?
It is tax on Capital gain (Tax Chargeable)

Calculation Of Capital Gains Tax

Section 7 states that CGT shall be calculated by:
a) Determining the capital gain of the person for the year of assessment
and;
b) Applying the appropriate rates of tax fixed, from time to time, by the
Finance Act.
Note: There is no mention of tax credits. No aids levy is chargeable under this
Section 38 , 39 of the finance Act
Rates of CGT-38
Date of acquisition of specified asset rate applicable
immovable property acquired before 22 feb 2019, sold after 5%
immovable property acquired after 22 feb 2019 sold after 20%
Rates of withholding taxes -39
Immovable property 15%
Unlisted marketable securities 5%
Listed marketable securities acquired after 1 feb 2019 1%
Amendment of section 39A(10) of Cap. 23:04- Finance Act No 2 of 2019
For the purposes of determining the capital gain received by or accrued to or
in favour of any person in respect of a specified asset acquired on after the Ist
February, 2009, but before the 22 February, 2019, and disposed of after no
deduction shall be allowed in terms of Section 11 of the Capital Gains Tax Act.
Determination of CGT
How is capital gain established
GROSS CAPITAL AMOUNT
LESS :EXEMPTIONS
= CAPITAL AMOUNT
LESS:ALLOWABLE DEDUCTIONS
=CAPITAL GAIN/ASSESSED/CAPITAL LOSS

For assets acquired before 1 February 2009 the gross capital amount is the
capital gain. No deductions are allowed. It is thus important to establish the
date of acquisition
Assets chargeable to CGT
CGT is chargeable on the sale or disposal of specified assets. A specified
asset is immoveable property or a marketable security. These include -
1.IMMOVABLE PROPERTY
Commercial buildings, Industrial buildings, Principal private residence, Other
residence or residential property, Dams, Land, Roads, Mining-claims, Farm
improvements
2.MARKETABLE SECURITIES
Bonds tradable on the stock market, Debenture Share or stock, Shares in
private business corporations (PBC),Unit trusts
3.INTELLECTUAL PROPERTY
Any right or title to property whether tangible or intangible that is registered
or required to be registered –which include
Specified assets examples
(i) the Mines and Minerals Act [Chapter 21:05]; or
(ii) the Patents Act [Chapter 26:03]; or
(iii) the Trade Marks Act [Chapter 26:04]; or
(iv) the Industrial Designs Act [Chapter 26:02]; or
(v) the Copyright and Neighboring Rights [Chapter 26:05]; or
(vi) the Brands Act [Chapter 19:05]; or
(vii) the Geographical Indications Act [Chapter 26:06]; or
(viii)the Integrated Circuit Layout-Designs Act [Chapter 26:07] Act (No. 18 of
2001);
Act No3 of 2017
Source of CGT
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 a company which is a Zimbabwean
resident.
Sales of any rights is from a source within Zimbabwe as long as such right is
registered through ZIPO or relevant statute
Example 1: Mr S Mbewe
During the 2019 year of assessment, Mr S Mbewe, a Malawian resident, sold
the house he owned in Malawi when he decided to emigrate to Australia. He
also sold a warehouse that he owned in Zimbabwe. The details of the
disposals were as follow:
House In Malawi $45000.00 acquired may 1995
Warehouse in Zimbabwe $350,000.00 march 2013
Calculate the capital amount arising in Zimbabwe as a result of the disposals
Solution
The Malawian house is not from a source within Zimbabwe by virtue of its
location, therefore no capital amount arises.
The Warehouse is from a sources within Zimbabwe by virtue of its location. It
does not matter that the taxpayer is not a resident. The amount realized from
sale of US$350 000 is therefore the capital amount.
Computation of GCT
As mentioned before for assets acquired prior to 1 February 2009, the sale
proceeds(gross capital amounts is the capital gain. 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 = capital gain X rate of CGT
Where withholding tax has been deducted then the tax is reduced by the
amount withheld.
Determination of CGT
Gross capital amount
XXX
Less recoupment (XX)
Less exemption (XXX)
Capital amount XXXX
Less deduction
Cost of specified asset XXXX
Improvements, additions or alterations XXXX
Less capital allowances XXXX

Inflation allowance
Original cost 2.5% X number of years assets has been owned XXX
Improvements, additions or alterations X number of years asset owned XXX
Selling cost (XXX)
Capital gain/(loss) before relief XXXX
Less reliefs (XXX)
Less assessed loss before brought forward (XXX)
Capital gain/(loss) XXXXX
Adjustment for income tax items
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. An example of such is a recoupment.
Example
Mrs V Salt 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.
Required
Calculate Mrs. Salt capital amount
solution
Gross capital amount = 150 000.00
Less recoupment = 7500
Less exemptions = 0.00
Capital amount = 142,500.00
Deemed disposals s8
Valuation of deemed disposals
CASE VALUATION BASIS

Donation or disposal otherwise by An amount which is in the opinion of the

way of sale Commissioner, is equal to the fair market 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 redemption of a Ab amount received or accrued on redemption or maturity

specified asset

Deed of sale The full amount specified on the deed of sale agreement
S8 Deemed disposals
Deemed Sales
Section 8(2)(c) : Sale by expropriation – The gross capital amount shall be the
compensation so received.

Section 8(2)(b): Other disposals e.g. donations, deceased estate distributions etc. –
The gross capital amount shall be the market price. Provided that this paragraph does
not apply to the donation by a company or group of companies of immovable property
to an approved employee housing trust fund

Section 8(2)(d) : Sold in execution of a court order – The gross capital amount shall be
the amount realized from the sale.
Section 8(2)(e) : Maturity or redemption of a specified asset – The sale price shall be
the gross capital amount.
Section 8(2)(f) : Deed of sale – The gross capital amount shall be the whole amount
accruing as a result of the sale including instalments not yet due and payable in terms
of their agreement.
S8 Deemed disposals
Section 8(2)(g): Transfer of a stand – transfers to another person of his or her
rights in a residential, commercial or industrial stand, whether or not the
stand is serviced and whether or not his or her title to the stand is registered
under the Deeds Registries Act [Chapter 20:05], he or she shall be deemed to
have sold a specified asset to that other person for an amount to equal to the
whole amount received by or accruing to him or her as a result of the transfer

Section 8(2)(h): relinquishing of one’s interest in a condominium – where a

person relinquishes a membership interest in a condominium in favour of
another person, he or she shall be deemed to have sold a specified asset to
that other person for an amount equal to the whole amount received by or
accruing to him or her as a result of the relinquishment.
[Paras (g) and (h) inserted by Act 1/2015 w.e.f 1st January 2015.
S10 Exemptions from capital gains tax
NB S10 (a) to (r) –read to identify the exemptions in section 10 of CGT act .
Of interest is s10m which relates to persons who have attained the age of 55
as below…….
S(10)mDisposals 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
$144,000.00(2021), 234,000(2022) usd 1800.00 on disposal of unlisted
marketable securities.
S 11Cost of the assets
This section deals with the deductions applicable to the capital amount.
This has the effect of reducing the capital gains tax. The 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
cost of the asset. However any costs allowed as deduction under the Income
Tax Act will be allowed to increase the cost of any asset
Costs of assets
The following costs make up the cost:
Cost of acquisition.
Cost of creating an asset.
Improvements, inflation allowances, legal expenses
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( Inicidental costs
of disposal).
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.
Inflation Allowance
Always remember to deduct inflation allowance at 2.5% per year when you
make your allowable deductions from the Gross Capital Amount (GCA).
The 2.5% will apply from assets from the year they were acquired, up to the
year of disposal, as long as the assets where acquired after 1 February 2009.
The inflation allowance applies for every full year or part of a full year of
assessment during which the asset has been held.
It is not apportioned over part of a full year.
Example 3
In January 2017, John bought a house in Nkulumane for $28 000.
He constructed a wall around the house in September 2018 for $3 800.
He sold it in June 2019 for $42 000, after advertising it in a local newspaper
for $300.
Required
Compute John’s capital gains tax.
solution
Computation of john capital gain
Gross capital amount 42000
Less allowable deductions
Costs of the asset 28000
Improvements 3800
Inflation allowance
cost of asset(28000*.025*3 2100
Improvement of asset(3800*.025*2) 190
Selling costs(advert) 300 34390
Capital gain 7610
Capital gains tax @20% 1522
Example
In example 2 above, we first met Mrs. H Patsanza who 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.
Required
Calculate Mrs Patsanza’s capital gain or loss for the period.
Solution
Gross capital amount 150.000
Less recoupment (7500)
Less exemption (0.00)
Capital amount 142500

Less deductions
Cost of specified asset 100 000
Improvements , additions or alternations 0
Less capital allowances (7500)
92500
Inflation allowance(100000*0.025*3) 7500 100,000
Capital gain 42500
Less reliefs 0
Less assessed loss b/f 0
Capital gain 42500
Rollover Relief
Rollover relief is a deferment of capital gains tax payment which is available
for certain taxpayers on certain types of assets or as follows:
Individuals who are selling their principal private residence (PPR) (Section 21).
With effect from 2007, a residential stand now also qualifies for rollover relief
as if it was a PPR.
Companies disposing their immovable assets (Section 22)
For rollover relief to apply:
the taxpayer must qualify,
the asset disposed off must qualify, and
the taxpayer must elect it.
For examination purposes, always assume that the taxpayer will elect it, if
both the taxpayer and the asset qualify, unless you are told otherwise.
Rollover relief
The principal private residence must be the taxpayer’s only residence, or the
residence to which he reside in if the taxpayer owns more than one
residential property, for it to qualify.
Rollover only applies when the taxpayer uses the proceeds of the sell of one
PPR to buy another PPR not later than the year of assessment following after
the year in which the PPR is sold.
This means that if the taxpayer sells a PPR, then they must purchase another
PPR this year or in the following year of assessment. If the new PPR is bought
after a period long than this, the rollover relief is lost
Computation of rollover relief
The following rules apply:
If the new PPR that is bought is exactly the same cost as the selling price of
the disposed PPR, then the whole capital gain is rolled over and no capital
gains tax is paid.
If the new PPR that is bought costs more than the selling price of the disposed
PPR, then the whole capital gain is rolled over and no capital gains tax is paid.
However, the additional expenditure on the new PPR qualifies as if it was an
improvement to the original PPR.
If the new PPR that is bought costs less than the selling price of the disposed
PPR, then only part of the capital gain is rolled over using the following
formula
Computation of rollover relief
A X B)/C
Where:
A is the amount used to purchase or construct a new PPR or residential stand
B is the potential capital gain on the old PPR or residential stand
C is the proceeds accruing on the sale of the old PPR or old residential stand
example
In January 2017, John bought a house in Nkulumane for $28 000, which was
his principal private residence.
He constructed a wall around the house in September 2018 for $3 800.
He sold it in June 2019 for $42 000, after advertising it in a local newspaper
for $300.
He used the proceeds to purchase another house in Newton for $90 000,
which became his new PPR.
Required
Compute John’s capital gains tax
Solution
Since John used more than the proceeds of the sale of the old PPR to
purchase a new PPR, the whole proceeds is rolled over to the new PPR and no
capital gain arises in this current year of assessment.
However, when he finally sales the new PPR, it is the cost of the old PPR that
is taken into account, and the additional expenditure on the new PPR is
considered as an improvement.
Example
In January 2017, John bought a house in Nkulumane for $28 000, which was
his principal private residence.
He constructed a wall around the house in September 2018 for $3 800.
He sold it in June 2019 for $42 000, after advertising it in a local newspaper
for $300.
He used the proceeds to purchase another house in Nketa for $21 000, which
became his new PPR.
Required
Compute John’s capital gains tax.
Solution
Gross capital amount 42000
Less deductions
Cost 28000
Improvements 3800
Inflation allowance cost(28000*3*.0025) 2100
improvements(3800*2*.0025) 190
Selling costs 300 34390
Capital gain before rollover relief 7610.00
Less rollover relief(21000*7610)/42000 (3805)
Capital again after relief 3805
Capital gains tax @20% 761
Practice Question 1
Which of the following is not a specified asset in terms of the Capital Gains
Tax Act?
a) Principal private residence
b) Other residence or residential property
c) Commercial building
d) Land
e) None of the above
Practice Question 2
A taxpayer purchased 1000 XYZ Ltd Share in December 2007 for Z$12 million
each. The shares were and are still listed on the Zimbabwe Stock Exchange.
On 31 August 2018 she sold all the shares for US$35 each. Determine the
capital gains tax implication of the sale.
a) No capital gains tax applies.
b) A Capital gains withholding tax of US$350 is applicable.
c) A capital Gains Tax of US$1 750 is payable.
d) All of the above answers are correct.
e) None of the above answers are correct.
Practice Question 3
A taxpayer sold an industrial building which he used 100% for the purposes of
trade for $150 000. He had bought the building for $100 000, and had owned
it for three years. Calculate his capital amount.
a) 150000
b) 142500
c) 100000
d) 75000
e) None of the above