Determination of Capital Gain

Executive Summary. This lesson explains how to compute the capital gain when a specified asset is disposed. We clarify key terms like “gross capital amount” (the sale proceeds) and “capital amount” (net of exemptions) under s.8. We cover how to determine the selling price (considering receipts versus accruals, instalment and suspensive sales, foreign currency) and how to calculate the acquisition cost (purchase price plus allowable expenditures). We also discuss adjustments: capital improvements and additions (deductible per s.11), and the only inflation adjustment provided (indexation for property improvements under s.11(2)(c)). Throughout we cite the CGT Act [Chapter 23:01] and related sources. Worked examples illustrate the formulas, and a flowchart and checklist help practitioners gather evidence (deeds, receipts, trust deeds, etc.) to support each calculation.

Learning Objectives. After studying this lesson, students will be able to:

• Explain the statutory meaning of amounts received or accrued on sale of specified assets.
• Determine the selling price for CGT purposes, including treatment of installments, suspensive conditions, foreign currency and fair market substitutions.
• Identify which expenses form part of acquisition cost of an asset (and which do not), with statutory citations.
• Calculate capital improvements or additions that may be added to cost, and distinguish these from routine repairs or disallowed items.
• Understand any allowable inflation or indexation adjustments, and note where the Act is silent (e.g. for shares).
• Compute the capital gain using the formula: selling price – (allowable costs + improvements + selling costs). Use example computations for property and shares, including depositary withholding (Part IIIA).
• Compile documentation checklist (contracts, receipts, valuations, clearance certificates) to substantiate cost basis.

1. “Capital Amount Received or Accrued”

Statutory definition: Under s. 8(1)(a), the gross capital amount is “the total amount received by or accrued to or in favour of a person… from…the sale…of specified assets”. This includes any amount the seller actually gets or is entitled to (e.g. if sold on credit, the full price is accrued at sale date). Subsection 8(1)(b) defines capital amount as the gross amount minus any exempt receipts. Finally, capital gain (s.8(1)(c)) is the capital amount minus allowable deductions (discussed later).

“Received or accrued” concept: An amount received is cash or its equivalent actually paid. An amount accrued is earned or due, even if not yet paid. For example, on a sale with delayed payment terms, the full selling price accrues on the contract date. CGT treats that entire price as income in that year, subject to any statutory allowances (s.18–19). (This mirrors the Income Tax Act’s accrual basis: the CGT Act borrows some principles from the Income Tax [Chapter 23:06].)

Case Law: The High Court in Sabeta v CG ZIMRA (2012) confirmed that once tax on a disposal is paid, ZIMRA must issue a clearance certificate (ensuring the full amount was treated as accrued to the seller).

2. Determination of Selling Price

The selling price for CGT is generally the actual sale proceeds (gross capital amount). Key rules:

• Actual sale price vs FMV: If the sale is at arm’s length, use the contract price. If not (e.g. sweetheart deals), s.14 allows the Commissioner to substitute fair market value (FMV). Specifically, if someone buys above FMV or sells below FMV, the Commissioner may deem FMV as the price.

• Instalment/credit sales (s.19): If ownership passes immediately but payment is in installments, the entire price accrues at contract date. The Commissioner may allow an “instalment allowance” for amounts unpaid by year-end. Any such allowance is added back as income in a later year.

• Suspensive conditions (s.18): If ownership passes only after full payment, the whole price accrues when the agreement is made. A formula then spreads the gain and an allowance for unpaid portions; any unpaid balance is added to capital amount in following year.

• Foreign currency: Under s. 8(2)(a), amounts paid in foreign currency are converted to ZWL at the time received, and if receipt and accrual fall in different years, an exchange adjustment is made in the accrual year. For example, if USD 10,000 was contracted at USD/ZWL1:50 and paid later when rate is 1:100, the ZWL value adjusts.

• Depositary withholding: For property and share transfers, Part IIIA requires a depositary (conveyancer, transfer secretary, etc.) to withhold tax on the sale price and get clearance (s.30A). That withheld amount is a prepayment of CGT on the selling price.

Statutes: s. 8(2)(a)-(c), s. 18-19 (sale timing); s. 14 (FMV substitution).

Example: A home is sold for US$200,000. The conveyancer withholds 15% of $200k as CGT. Later the seller’s return will list $200k as capital amount (minus $30k withheld) to compute the gain. If the property was sold in installments, s.18 would have treated the full $200k as accrued on agreement date.

3. Determination of Acquisition Cost

Statutory basis (s.11): Allowed acquisition costs include the actual purchase price and certain related expenditures. Deductible costs (s.11(2)(a)) are expenditures “incurred on the acquisition or construction of the specified asset…sold” (except any already deducted in computing taxable income under the Income Tax Act). This includes documented purchase costs (deeds office fees, transfer taxes, agent/attorney fees) that are capitalised.

Inherited assets: If an asset is inherited, s.11(3)(a)(i) provides that its cost equals the value at which it was included in the deceased’s estate. This deemed cost ensures the heir’s base is the estate valuation.

Gifts or other transfers: If acquired otherwise than by purchase or inheritance, s.11(3)(a)(ii) applies. Before 1 Aug 1981, cost is FMV at acquisition; after, cost is the amount included in the transferor’s gross capital amount or income. In practice, for a gratuitous transfer after 1981 (e.g. a gift), the base cost equals the donor’s selling price or deemed sale price.

Documentation checklist: Taxpayers should keep evidence of all acquisition expenditures. Key documents include the signed sale agreement (showing purchase price), title deed registry records, tax clearance certificates (for property transfers), invoices and receipts for any capital expenditures (construction, installation, development costs) and valuation reports (if cost is deemed).

Case Law: In Old Mutual Zimbabwe Ltd v CG ZIMRA (employee share scheme case), the court implicitly accepted that the purchase price of shares determines acquisition cost, since the sale proceeds were fully liable to CGT.

4. Adjustments to Cost (Improvements, Additions, etc.)

Capital improvements: Expenditures that enhance or improve the asset (not ordinary repairs) can be added to cost under s.11(2)(b). For example, major renovations, extensions, machinery installations, or structural improvements fall here. These costs must be capitalised and supported by invoices or capital project accounts.

Sale-related costs: Direct costs of disposal (estate agent’s commission, legal fees for sale, advertising) are deductible under s.11(2)(d). These are subtracted from gross capital amount (i.e. they increase allowable costs).

Bad debts: If part of the sale price became irrecoverable, the bad debt portion is deductible (s.11(2)(e)). For example, if a buyer defaults on a credit sale and the amount is written off (and claimed under s.19 allowances), it reduces the gain.

Court and appeal costs: Legal costs taxed by courts and not recovered in association with an appeal are allowed (s.11(2)(f)-(g)). These are unusual, but include costs of appeals in tax cases (both High Court and Supreme Court).

Formula summary: The basic capital gain formula is:

Capital Gain = Gross Capital Amount (selling price) 
               – (Acquisition Cost + Allowable Improvements + Selling Costs + other allowed deductions)

We will summarize this in a table after examples.

5. Capital Improvements vs Repairs

Not all expenditures on an asset are deductible for CGT. Repairs and maintenance for the purpose of income tax (s.11(d) of the Income Tax Act) are not added to CGT cost. Only true capital improvements (which create a new or permanent enhancement) are added under s.11(2)(b). Routine repairs (painting, fixing leaks) are revenue items and cannot be included in CGT cost.

There is little local case law on this distinction for CGT specifically. By analogy to income tax, general principles apply. (For example, if a factory roof is replaced, it is a capital improvement; repainting it is maintenance.) Practitioners should document clearly which expenses improved the asset’s value versus which were upkeep.

6. Inflation/Indexation Adjustments

The CGT Act does not generally index costs for inflation. The only statutory indexation is in s.11(2)(c), which applies when selling immovable property (or shares of a property-holding company) in or after 2007. It uses a CPI formula:

$$\text{Inflation\ Adjustment} = \frac{A - B}{B},$$

where A = CPI at disposal, B = CPI at improvement or acquisition (whichever later). This adjustment is effectively added to the cost base. For example, if someone bought a house before 2007 for $100k and sold it in 2022, they can multiply that $100k by (CPI₂₀₂₂/CPI₂₀₀₇) to adjust the base. (The formula shows the excess, which is then added.)

For other assets (shares, rights, etc.) no inflation relief is provided in statute. Practitioners must note that CGT on such assets is calculated without indexation, unless an election under Income Tax law (out of CGT scope) applied. The lack of indexation can produce large nominal gains; this is a policy issue but the law is silent.

Case Law: We found no Zimbabwe cases on CGT indexation. (The question of taxing inflationary gains remains a debated policy topic.)

7. Worked Examples

We now illustrate capital gain computations with examples. All figures in US$ for simplicity. Assume CGT rate = 20% of gain (consult current Finance Act for actual rates).

1. Property Sale: A homeowner bought a house for $80,000 and invested $20,000 in a verified extension (capital improvement). She sells it five years later for $150,000. Selling costs (agent/legal fees) were $5,000.
2. Gross capital amount = $150,000.
3. Acquisition cost = $80,000 (purchase price) + $20,000 (improvement) = $100,000.
4. Deductions (sale costs) = $5,000.
5. Capital gain = $150,000 – ($100,000 + $5,000) = $45,000.

6. CGT = 20% × $45,000 = $9,000. (If a conveyancer withheld, say, 15% of $150k = $22,500, then filing a return would credit $22,500 and result in a $9,000 tax, with $13,500 refunded.)

7. Listed Shares Sale: An investor bought 10,000 shares on the ZSE at $2.00 each ($20,000 total). Selling costs = $200. He sells them later for $3.50 each ($35,000). A transfer secretary withholds 5% of proceeds as CGT (per Finance Act, e.g. 5%).

8. Gross capital amount = $35,000. Withholding = 5% of $35,000 = $1,750 (credit to taxpayer).
9. Acquisition cost = $20,000.
10. Deductions = $200 (brokerage).
11. Capital gain = $35,000 – ($20,000 + $200) = $14,800.

12. CGT (20% of gain) = $2,960. The $1,750 withheld reduces the balance due; $2,960 – $1,750 = $1,210 additional tax payable by the seller (or refunded if negative).

13. Improvement-Adjusted Sale: A farmer acquires a piece of land in 2010 for $50,000. Over the years, he spends $10,000 on improving irrigation (capital expenditure) and $5,000 on ordinary repairs (painting, fencing). He sells the land in 2025 for $80,000. (Assume no CPI adjustment for simplicity.)

14. Gross capital amount = $80,000.
15. Acquisition cost = $50,000.
16. Capital improvements (deductible) = $10,000.
17. Repairs ($5,000) are not deductible (excluded from s.11) as routine maintenance.
18. No selling costs for simplicity.
19. Capital gain = $80,000 – ($50,000 + $10,000) = $20,000.
20. CGT = 20% × $20,000 = $4,000.

<table> <tr><th>Step</th><th>Property Sale</th><th>Shares Sale</th><th>Improved Asset Sale</th></tr> <tr><td>Gross capital amount (sale price)</td><td>$150,000</td><td>$35,000</td><td>$80,000</td></tr> <tr><td>Less: Acquisition cost</td><td>$100,000</td><td>$20,000</td><td>$50,000</td></tr> <tr><td>Less: Improvements</td><td>$20,000</td><td>$0</td><td>$10,000</td></tr> <tr><td>Less: Selling costs</td><td>$5,000</td><td>$200</td><td>$0</td></tr> <tr><td>Capital Gain</td><td>$45,000</td><td>$14,800</td><td>$20,000</td></tr> <tr><td>Tax Rate</td><td>20%</td><td>20%</td><td>20%</td></tr> <tr><td>CGT Due</td><td>$9,000</td><td>$2,960</td><td>$4,000</td></tr> </table>

Formulas:
- Gross Capital Amount = Selling Price (actual or deemed).
- Acquisition Cost = Purchase Price + documented capital expenses (s.11(2)(a)–(b)).
- Deductions include improvements, selling expenses, bad debts, etc. (from s.11(2)).
- Capital Gain = Gross Capital Amount – (Acquisition Cost + Deductions).
- CGT = Apply Finance Act rate (e.g. 20%) to the Gain.

Compliance Flowchart

flowchart TD
  S[Sale/Disposal of Specified Asset]
  S --> SP[Determine Selling Price (gross capital amt)]
  S --> AC[Determine Acquisition Cost + Improvements]
  SP --> GP[Compute Gross Capital Amount]
  AC --> GP
  GP --> LT[Subtract allowable deductions (improvements, costs)]
  LT --> CG[Capital Gain = Gross - Deductions]
  CG --> CT[Apply CGT rate (Finance Act) → Tax Due]
  CT --> WD[Less: Withholding Tax (if any)]
  WD --> NT[Net CGT payable/refundable]
  style S fill:#f0f8ff,stroke:#333,stroke-width:2px

This flow charts the steps: find selling price, add up costs/improvements, compute gain, apply tax rate, then account for any tax withheld (Part IIIA) to get net CGT.

Practitioner’s Checklist

• Title documentation: Deed of sale, title deeds (for land/buildings), share certificates, CSD depositary forms (CR14).
• Purchase records: Signed sale agreement, deposit slips, loan documents.
• Improvement proof: Invoices, construction contracts, architect drawings for major additions.
• Selling costs: Commission invoices, legal and agent fee receipts.
• Currency info: If foreign currency involved, record exchange rates at accrual and receipt dates.
• Inherited/gift documents: Will or estate inventory showing asset value; donation agreement.
• Valuations: Where cost is deemed, keep valuation reports or evidence of FMV at acquisition (for pre-1981 or gifts).
• Tax clearance: CGT clearance certificate (deeds) or broker confirmation of withheld tax, to verify tax paid.
• Records for CPI: For properties, note CPI figures at purchase/improvement and sale (s.11(2)(c)).

Maintaining thorough records will support each element of the capital gain calculation under s.8 and s.11.

Classroom Activities and Assessment Questions

• Short Answer: What is the “gross capital amount” and how does it differ from the capital gain? (Answer: Gross capital amount is total received or accrued on sale; capital gain = gross amount minus deductions (acquisition cost, improvements).)
• Statutory Interpretation: Read CGT Act s. 11(2). List which types of expenditure on an asset are allowed as deductions. Explain why routine repairs are excluded.
• Problem Solving: Sarah bought land for $40,000 and built a factory for $60,000 (costs in 2010). She sold the land & factory in 2026 for $150,000, after spending $20,000 on an extension in 2015 and $5,000 on maintenance (repairs). Calculate her capital gain and CGT (assuming a 20% rate). (Expected: cost = 40k+60k+20k=120k; gain=150k-125k=25k; CGT=5k.)
• True/False: “If an asset is inherited, the heir’s base cost is always the market value at the time of inheritance.” (Answer: False, it is the value at which it was included in the deceased’s estate.)
• Case Brief: Summarize Sabeta v CG ZIMRA. What key CGT rule did the court reinforce? (Hint: ZIMRA must issue a certificate once CGT is paid.)
• Discussion: Why might the law allow indexation only for property (s.11(2)(c)) and not for other assets? What are the fairness and policy implications?

Current Date: 2026-03-11.

Chapter 23:01

https://www.zimra.co.zw/downloads/category/17-acts?download=165:capital-gains-tax-act&start=20

zimra.co.zw

https://www.zimra.co.zw/downloads/category/17-acts?download=4234:capital-gains-tax-act-updated-to-1-dec-2024

https://lawportalzim.co.zw/cases/civil/3495/the-sheriff-for-zimbabwe/frank-humbe-and-desmond-muchina

Zimbabwe Revenue Authority

https://www.zimra.co.zw/14-tax/other-taxes/1729-withholding-tax