Capital Gains Tax and Capital Gains Withholding Tax
What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax levied on the capital gain arising from the disposal of a specified asset. Specified asset means immovable property (e.g. land and buildings) and any marketable security (e.g. debentures, shares, unit trusts, bonds and stock). With effect from February 1, 2009, where a specified asset is sold in foreign currency, Capital Gains Tax payable, if any, shall be in foreign currency
Who is liable to remit it?
• Seller; or
• Depositary; or
• Agent
Depositary includes:
A conveyancer, legal practitioner, estate agent, building society, Sheriff or Master of the High Court, stockbroker or financial institution.
Documents required when applying for a CGT Clearance Certificate
• Completed CGT 1 form
• Agreement of sale for the property in question.
• Agreement of sale for the new property where partial or full roll-over is claimed.
• Deed of transfer/title deeds for the specified property.
• Receipts as proof of expenditure incurred on additions, alterations and improvements to the specified asset.
• Letter of undertaking to pay withholding tax where client is represented by a depositary.
• Receipt for payment of CGT/Withholding Tax.
• Copy of marriage certificate where the transfer is between spouses.
• where the transfer is between companies under the same control: special board resolution signed by the Company Secretary or Chairman; agreements of the proposed mergers or reconstruction; organogram for the organisation; and share register of the company; and CR 14
• where the transfer is from an individual to a company under his control: CR 14 and share register of the company.
What is the rate of tax?
• In terms of the Finance (No.2) Act of 2009, the Capital Gains Tax shall be calculated at a rate of 20% of the capital gain determined in accordance with the CGT Act, with effect from 1 February 2009.
• Where a specified asset that was acquired prior to 1 February 2009 is disposed of after that date, CGT shall be calculated at a rate of 5% of the selling price.
• In the case of a sale of an unlisted marketable security, the rate shall be 10%.
The rates of Capital Gains Withholding Tax (CGWT) are as follows:
• in the case of a sale of immovable property, 15% of the price at which the property was sold.
• in the case of a sale of a listed marketable security (e.g. listed shares), the rate of Capital Gains Withholding Tax shall be 1% of the price at which the security was sold. This is with effect from 1 August 2009.
Provision for sales of principal private residence (PPR)
• No Capital Gains Tax is chargeable where one elects for roll-over by spending all the proceeds from the sale of the old principal private residence (PPR) on the purchase/construction of a new PPR. This also applies where a residential stand which qualifies as a principal private residence is disposed of and a new residential stand is acquired.
• Where part of the proceeds is expended on the acquisition of the new PPR, CGT is chargeable on the remaining portion.
• Where the property is sold by a person aged 55 years or above, no tax is chargeable on the gain.
Instances where CGT is not payable
• Transfers of specified assets between spouses.
• Transfers in a scheme of reconstruction/merger or the like that is approved by the Commissioner General of ZIMRA.
• Transfer of business property used for the purposes of trade by an individual to a company under his control where such company will continue to use the property for the purposes of trade.
• CGT is not chargeable on amounts received by or accruing to a person on the sale of any marketable security which was subjected to Capital Gains Withholding Tax. This is with effect from 1 February 2009.
Deemed Sales
• Donations or disposal other than by way of sales - (deemed at market price).
• Expropriations – (deemed at expropriation/compensation).
• Sold in execution of Court Order – (deemed at selling price).
• Maturity/redemption of specified assets – (deemed at maturity amount/redemption value).
• Transfer under deed of sale - (deemed at market price).
Allowable deductions
These include:
• Cost of acquisition of specified asset which has been sold.
• Cost of additions/alterations/improvements of specified assets
• Inflationary allowance: this is now calculated at 2,5% of the purchase price.
• Selling expenses.