The statutory formula for computing the capital gain, from gross proceeds through to the net taxable gain under the CGT Act.
Selling price, acquisition cost, cost adjustments, improvements versus repairs, inflation/indexation adjustments, and worked examples.
Compliance flowchart, practitioner's checklist, and classroom assessment questions for Lesson 5.
This lesson introduces the principles, statutory framework, and practical workflows around Determination of Capital Gain in Zimbabwe. By the end you will understand the underlying concepts, know which legislation governs the topic, recognise common compliance traps, and be able to apply the rules confidently in real-world taxpayer scenarios.
The CGT Act does not generally index costs for inflation. The only statutory indexation is in section 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:
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.)
The determination of capital gain in Zimbabwe is governed by the Capital Gains Tax Act [Chapter 23:01]. At its core, the calculation reduces to a single algebraic formula prescribed by the Act:
Capital Gain = Gross Capital Amount − (Allowable Deductions)
where allowable deductions = acquisition cost + capital improvements + selling expenses + inflation allowance (where applicable) + bad debts (where applicable)
Section 8(1)(a) of the CGT Act defines the gross capital amount as “the total amount received by or accrued to or in favour of a person, or treated as so received or accrued, from the sale of a specified asset”. Three points in this definition do the heavy lifting:
Section 11(2) sets out a closed list of deductions that may be subtracted from the gross capital amount. Anything outside this list is automatically disallowed under section 12:
| Statutory provision | What it allows | Practical examples |
|---|---|---|
| section 11(2)(a) and (3) | Cost of acquisition or construction of the asset | Purchase price, conveyancing fees, transfer duty, stamp duty, agent’s commission paid on purchase, costs of construction |
| section 11(2)(b) | Expenditure on additions, alterations or improvements that enhance the asset’s value | Extensions, renovations, structural improvements (but not routine repairs) |
| section 11(2)(c) | Inflation allowance — 2.5% per year of the cost of immovable property (or shares of a property-holding company), from the year of acquisition to the year of sale | Only available for immovable property. Calculated on cost-of-acquisition + improvements |
| section 11(2)(d) | Selling expenses directly incurred in connection with the disposal | Estate-agent commission, legal fees on sale, advertising, valuation reports prepared for the sale, transfer-related disbursements paid by the seller |
| section 11(2)(e) | Bad debts — capital amounts previously included as accrued but proven irrecoverable | Where part of the sale price is never collected and the seller has exhausted recovery options |
| section 11(2)(f) | Costs of objection or appeal against an assessment | Legal and professional fees incurred to contest the CGT assessment itself |
Both section 11(2):
The inflation allowance is the only statutory indexation in the CGT Act and applies only to immovable property (and shares of a private company whose assets are predominantly immovable property). The mechanics are:
From 2019 onwards, transactions in foreign currency must be reported in that currency under the “currency of trade” principle, with the Income Tax Act’s 50/50 forex rule applied where mixed-currency operations are present. For CGT specifically, the gain is computed and the tax payable in the currency in which the consideration was received. Where conversion is required, taxpayers may elect either the spot rate on the date of disposal or the annual average exchange rate (consistent with how income tax has been declared for the same year).
Where only part of a specified asset is sold (e.g., subdivision of a single title into multiple stands, or sale of a fraction of a shareholding), the cost base must be apportioned between the part sold and the part retained. The standard apportionment formula is:
Cost attributable to part sold = Total cost × (Consideration for part sold ÷ (Consideration for part sold + Market value of part retained))
Failure to apportion is one of the most common audit findings — a seller who deducts the full original cost against a partial-sale price overstates the deduction and understates the gain.
Once each component is determined, the capital gain is calculated, and CGT is then applied at the rate prescribed in the Finance Act in force at the date of disposal. As at the Finance Act 7 of 2025, the standard rate of CGT on immovable property acquired after 1 February 2009 is 20% of the gain; for property acquired before that date and for marketable securities, withholding-tax-style flat rates apply (5% of the gross selling price for pre-2009 immovable property; 1.5% to 4% for various classes of marketable securities, settled by the depository or stockbroker as Capital Gains Withholding Tax).
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).
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.)
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%).
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).
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.)
<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:
Formulas:
- Gross Capital Amount = Selling
Price (actual or deemed) .
- Acquisition Cost = Purchase
Price + documented capital
expenses (section 11(2):
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.
Maintaining thorough records will support each element of the capital gain calculation under section 8 and section 11 .
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), section 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 (section 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 (section 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 (section 30A) . That withheld amount is a prepayment of CGT on the selling price.
Statutes: section 8(2)(a)-(c), section 18-19 (sale timing) ; section 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, section 18 would have treated the full $200k as accrued on agreement date.
Not all expenditures on an asset are deductible for CGT. Repairs and maintenance for the purpose of income tax (section 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 section 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.
Capital gain computations are unforgiving — small classification errors compound into material under-declarations that ZIMRA routinely picks up on audit. The pitfalls below are the most frequent reasons taxpayers receive corrective assessments under section 26 of the Tax Administration provisions of the CGT Act.
The gross capital amount is what the seller received; the capital gain is what the seller profited. Some taxpayers report the full sale price as the taxable amount and either over-pay (when no deductions are claimed) or under-pay (when the rate is misapplied). Always run the formula: gross capital amount − allowable deductions = capital gain, and apply CGT to the gain.
Section 11(2)(c) gives an automatic 2.5% per-year uplift on the cost of immovable property — a statutory benefit ZIMRA does not compute for you. Forgetting to claim it (especially on properties held for many years) materially overstates the gain. Conversely, claiming inflation allowance on marketable securities or other non-immovable assets is invalid and will be disallowed.
If a building was used in the seller’s trade and capital allowances (depreciation, S.I.A., wear-and-tear) were claimed against income tax over the years, the cost base for CGT must be reduced by those allowances. Ignoring this rule under sections 11(2):
Routine maintenance — painting, plumbing repairs, replacing a roof on a like-for-like basis — is not deductible under section 11(2)(b). Only expenditure that extends, enhances, or adds to the asset (extensions, structural alterations, new fittings adding to value) qualifies as an improvement. Misclassifying repairs as improvements inflates the cost base and triggers ZIMRA adjustment.
Section 8(2) empowers the Commissioner to substitute the fair market value as the deemed selling price where the actual consideration is materially below market — the typical scenario being intra-family sales or sales between related companies. Without a defensible independent valuation, ZIMRA will impose its own valuation and assess CGT on the higher (deemed) gain.
Where a single title is subdivided (e.g., five residential stands carved out of one farm property) and only some are sold, the original cost must be split between the parts sold and parts retained. Deducting the full cost against the partial proceeds is one of the easiest and most-corrected audit findings.
Property acquired before 1 February 2009 (the date of currency conversion to the multi-currency regime) gets a special treatment: the cost base is reset to the open-market value at 1 February 2009, NOT the original Zimbabwe-dollar acquisition cost. Using the original Zim-dollar figure (often a tiny pre-2009 number) overstates the gain dramatically. Many older properties also fall under the alternative 5% withholding tax on gross selling price regime instead of the standard 20%-on-gain method.
If proceeds are received in USD but expenses were incurred in ZWL (or vice versa), inconsistent conversion produces nonsensical gains. Apply the same conversion convention (spot rate or annual average) consistently across all components of the calculation, and lodge the return in the currency of the transaction as required by the 50/50 currency-of-trade rules.
ZIMRA bears no burden of accepting an undocumented deduction. Sale agreements, purchase deeds, transfer duty receipts, agent invoices, contractor invoices for improvements, and bank-statement evidence of payment should be retained for the full six-year statutory period under the Tax Administration provisions of the CGT Act, and produced on demand.
CGT returns are due within 30 days of disposal for immovable property where the buyer is required to withhold (Capital Gains Withholding Tax) and on annual filing deadlines for self-assessed disposals. Late filing attracts penalties and interest under the standard penalty regime, and can suspend the issuance of the seller’s tax-clearance certificate — which in turn blocks the conveyancer from registering the transfer at the Deeds Office.
Test your understanding of the determination of capital gain. Questions are sequenced from foundational to applied. Answers and full working appear in section H.
When you have completed the questions, expand section H to view the full solutions.
Detailed solutions to the practice questions in section G. Each answer cites the relevant statutory provision so you can trace the reasoning back to the CGT Act [Chapter 23:01].
Answer. The gross capital amount is defined in section 8(1):
Answer: (c) Annual rates and water bills paid during the holding period. These are holding costs — recurring expenditures that maintain the asset but do not enhance it. They are explicitly disallowed under section 12 (the no-list bar) and under the general principle that only the closed-list items in section 11(2) are deductible. Items (a) stamp duty (section 11(2):
Answer.
Step 1: Gross capital amount. Sale price = US$120,000.
Step 2: Allowable deductions under section 11(2).
| (a) Cost of acquisition (section 11(2)(a)) | $45,000 + $1,500 + $2,000 = $48,500 |
| (b) Capital improvements (section 11(2)(b)) | Wall + paving = $8,000 |
| (c) Inflation allowance (section 11(2)(c)) | 2018 to 2025 = 7 complete years; 2.5% × 7 = 17.5% 17.5% × ($48,500 + $8,000) = 17.5% × $56,500 = $9,887.50 |
| (d) Selling expenses (section 11(2)(d)) | Agent commission ($120,000 × 5% = $6,000) + conveyancing $2,500 = $8,500 |
| Total deductions | $74,887.50 |
Step 3: Capital gain. $120,000 − $74,887.50 = $45,112.50.
Step 4: CGT payable. 20% × $45,112.50 = $9,022.50 (per current Finance Act 7 of 2025 standard rate).
Step 1: Cost base. The shares were inherited in 2010, so the cost base is the market value at the date of inheritance: US$15,000.
Step 2: Allowable deductions under section 11(2).
Step 3: Capital gain. $48,000 − $15,960 = $32,040.
Step 4:
Step 1: Apportion the original $80,000 cost. Two stands sold at $35,000 each = $70,000. Two stands retained valued at $32,000 each = $64,000.
Cost attributable to part sold = $80,000 × ($70,000 / ($70,000 + $64,000)) = $80,000 × 0.5224 = $41,791
Step 2: Allowable deductions.
Step 3: Capital gain. $70,000 − $55,739 = $14,261.
Step 4: CGT payable. 20% × $14,261 = $2,852.20.
If Farai had ignored apportionment and deducted the full $80,000 cost, his “loss” would have been declared as zero gain — producing a ZIMRA assessment of $2,852 plus penalty and interest on audit.
Answer. This is a classic section 8(2) deemed-disposal scenario. Because the actual consideration ($80,000) is materially below market value ($350,000) and the parties are connected, the Commissioner is empowered to substitute the fair market value as the deemed selling price. Mr Sibanda will be assessed CGT on the deemed gain (around $350,000 less his cost base of approximately $200,000 plus inflation allowance and selling costs), not on the actual cash he received.
Documentation to limit the assessment:
Without robust documentation, ZIMRA will impose its own valuation and the burden falls on Mr Sibanda to displace it through objection and appeal procedures.
Answer. The consequences are layered:
The most important things to retain from this lesson: