Introduction
According to the Capital Gains Tax Act (Chapter 23:01), (“CGT Act” or “the Act”), as updated, capital gains tax (“CGT”) is a tax levied on the capital gain arising from the disposal of a specified asset. The capital gain, if not exempt, is then taxed at the tax rate applicable at the time.
Specified asset
The term “specified asset” is defined in section 2 of the CGT Act. It means the following:
- immovable property or
- any marketable security.
- With effect from 1 January 2017 any right or title to property whether tangible or intangible that is registered or required to be registered in terms of:
(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 Neighbouring 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].
Capital Gain
This is the gain that is taxable to arrive at the CGT liability. According to section 8(1)(c) of the Act it means the amount remaining, after deducting from the capital amount of any person all the amounts allowed to be deducted from a capital amount under this Act.
In other words, Capital Gain equals Gross Capital Amount less Exemptions less Allowable Deductions.
Capital Amount
This is defined in section 8(1)(b) to mean the amount remaining of the gross capital amount of any person, after deducting therefrom any amounts exempt from capital gains tax.
Gross capital amount
According to section 8(1)(a) “gross capital amount” means the total amount received by or accrued to or in favour of a person or deemed to have been received by or to have 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 specified assets excluding any amount so received or accrued which is proved by the taxpayer to constitute “gross income” as defined in subsection (1) of section 8 of the Taxes Act and includes any amount allowed to be deducted in terms of subsection (2) of section eleven which has been recovered or recouped.
Based on section 8(2) the following are some of the amounts included in gross capital amount:
- Foreign receipt adjusted for exchange losses or gains.
- Where a person disposes of a specified asset otherwise than by way of sale such disposal shall be deemed to be a sale.
- Where a specified asset is expropriated and compensation is paid.
- Where a specified asset is sold in execution of the order of a court, the amount for which it was sold shall be deemed to have accrued to the person on whose behalf it was sold.
- Where an amount accrues to a person by reason of the maturity or redemption of a specified asset.
- Where a person transfers to another person his rights under a deed of sale in respect of the passing of ownership of the specified asset which is the subject of the deed of sale, he shall be deemed to have sold the specified asset to that other person for an amount equal to the whole amount received by or accruing to him as a result of the transfer.
- Where a person transfers to another person 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 equal to the whole amount received by or accruing to him or her as a result of the transfer.
Exemptions from capital gains tax
The following are some of the amounts exempt from CGT according to the Act:
Section 16 (2) of the CGT Act
- Where the ownership of any specified asset is transferred from a person to his or her spouse
- Where a person transfers the ownership of a specified asset which is his principal private residence to his former spouse in compliance with an order of a court providing for the maintenance of the former spouse or dividing, apportioning or distributing the assets of the former spouses on or after the dissolution of their marriage.
Section 10 of the CGT Act
- Amounts received or accrued on the realization or distribution by the executor of a deceased estate of a specified asset forming part of such estate.
- Amounts received or accrued on the sale of any marketable security being any bond or stock in respect of any loan to—
(i) the State or any company all the shares of which are owned by the State;
(ii) a local authority;
(iii) a statutory corporation.
- Amounts received by or accruing to an employee from the sale or disposal of his shares or interest in an approved employee share ownership trust where such sale or disposal is to the trust.
- Disposal of a principal private residence by an individual who is of or over age of 55 years.
- Donation of housing units to a local authority.
Section 15(1)(b) of the CGT Act
- The transfer is effected from one company to another under the same control, in the course of or in furtherance of a scheme of reconstruction of a group of companies or a merger or other business operation which, in the opinion of the Commissioner, is of a similar nature;
Section 17 of the CGT Act
- Section 17 of the CGT Act – transfer of business property used for the purpose of trade by an individual to a company under his / her control where such company will continue to use the property for the purpose of trade.
Deductions from Capital Amount
These are covered under section 11 of the CGT Act and will be covered in future.
Conclusion
Capital Gains Tax is encountered in many situations especially on the sale of immovable properties with or without title deeds and also on the disposal of shares. Tax payers and practitioners should comply.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
