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 1 January 2017, the definition of specified assets now includes the following any right or title to tangible or intangible property registered or required to be registered in terms of

1. Mines and Minerals Act
2. Patents Act
3. Trade Marks Act
4. Industrial Designs Act
5. Copyright and Neighbouring Rights Act
6. Geographical Indications Act
7. Integrated Circuit Layout Designs Act

It should be noted that from 1 January 2014, disposal of property for which the seller does not hold title deeds (cessions) is also liable to Capital Gains Tax.

Who is liable to pay or remit Capital Gains Tax?

• The seller
• Depositary (A conveyancer, legal practitioner, estate agent, building society, Sheriff or Master of the High Court, stockbroker or financial institution)

With effect from 1 January 2017, the definition of depository now includes the registrars or other registering officials responsible for registering rights, titles, transfers, or amendments in any of the Acts mentioned above. 

These officials are now required to withhold capital gains withholding tax where they hold any monies regarding the disposals.

What are the rates of Capital Gains Tax?

• Where the specified asset being disposed of/sold was acquired after the 1st of February 2009, Capital Gains Tax is chargeable at 20% of the capital gain.
• Where the specified asset being disposed of/sold was acquired before 1st February 2009, Capital Gains Tax is chargeable at 5% of the gross capital amount realized from the sale.

These rates will also apply to the disposal of these additional assets.

 Disposals Where Capital Gains are not payable

• Transfers of any specified assets between spouses.
• Transfer of principal private residence between former spouses in pursuit of a divorce order
• Transfer/disposal of a specified asset by a deceased estate
• Transfer/disposal of a principal private residence by an individual who is of or above the age of 55 as of the date of sale/transfer.
• Disposal of a principal private residence by an individual where all the sale proceeds are used to acquire/construct a new principal private residence.
• Transfer of business property used for trade by an individual to a company under his/her control where such company will continue to use the property for trade.
• Donation of housing units to a local authority, approved employee share ownership trust or community share ownership trust or scheme.

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 that 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.

 Valuation of Assets for Capital Gains Tax Purposes

Ordinarily, the practice is to accept values of properties as declared by clients for Capital Gains Tax purposes. However, in certain circumstances, if in the opinion of the Commissioner, the value declared falls short of and is outside of fair/open market values for similar properties, then the Commissioner may invoke his power under Section 14 of the Capital Gains Tax Act to either uplift the value or call for a valuation report from a property valuer registered with the Valuers Council of Zimbabwe. Such circumstances may include, but are not limited to:

• Sale/transfer of property between related parties where the relationship affects the agreed price of the property.
• Deliberately under-declaring the value of a property to evade payment of full Capital Gains Tax.
• Sale of property in settlement of a debt by private treaty where the seller may deliberately under-declare the value of the property to “free” funds to cover a debt.

Application for Capital Gains Tax Clearance Certificate.

Both the buyer and seller, or their authorized representatives will be required for separate interviews with ZIMRA as part of the process towards assessment of the Capital Gains Tax due or conclusion of the transaction whether or not Capital Gains Tax is payable.

For Disposal of Property (Land or Building) Under Cession

For the Capital Gains Tax Certificate to be processed our valued clients are required to produce, depending on the circumstances of the sale, some or all of the following documents:

• Cession letter/ Letter from Council (authorizing disposal)
• Cession Agreement
• Letter of undertaking by a conveyancer (where purchase amount is held in trust)
• Certified copies of national identity cards for both the seller and the buyer
• Proof of payment in the form of a bank statement for the seller showing the deposited amount for the property disposed of.
• Completed ZIMRA registration form (REV1)
• Capital Gains Tax return (CGT1)
• Valuation Report for the property (in the case of commercial property or on request by ZIMRA)

For Disposal of Property with Deeds

The following documents are required for processing of a Capital Gains Tax clearance certificate.

• Fully completed Capital Gains Tax form (CGT1)
• Completed ZIMRA registration form (REV1)
• Agreement of sale (copy & original)
• Deed of transfer/share certificate (copy & original)
• Copy of proof of payment
• National identification for the seller and the buyer (copy & original)
• Copies of two different utility bills if the seller is claiming rollover/exemption
• Power of attorney sealed by a notary public if the buyer/seller is out of the country and is being represented (copy & original)

A Capital Gains Tax clearance certificate will be issued once any amounts due have been paid and the transaction has been finalized by ZIMRA. This clearance certificate will be used to facilitate the transfer of the property to the new owner. (Source: ZIMRA www.zimra.co.zw)