Executive summary

Applying CGT rates to the determined capital gain — the full computation process from gain to tax payable under the CGT Act.

Lesson content

Capital gain formula, CGT rates, alternative methods, property and securities CGT, worked examples, and practitioners' pitfalls.

Flowchart & assessment

Calculation flowchart, classroom activities, and exam-style questions for Lesson 7 on CGT computation.

Calculation of Capital Gains Tax

Executive Summary. This lesson explains how to compute the capital gains tax (CGT) due when a specified asset is disposed. We begin with the statutory formula for capital gain, then apply the CGT rate per the current Finance Act. We cover alternative methods (installment sale rules, indexation, deemed prices) and special cases (principal residence, inter-spouse roll-over). We detail CGT on property (withholding by conveyancer, clearance certificates) and on shares (listed vs unlisted, depositary withholding, Finance Act changes). Four worked examples illustrate different scenarios (property sale with withheld tax, listed share sale, unlisted share sale, an installment sale) with step-by-step calculations. A summary table of formulas and a flowchart guide the computation steps from disposal to final tax. Throughout we cite relevant CGT Act sections (e.g. s.8 and s.11) and Finance Act provisions, as well as Zimbabwean case law (e.g. Sabeta v CG ZIMRA on property sale).

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

Apply the capital gain formula (gross amount minus deductions ) to calculate gain.
Determine the tax payable by applying the correct CGT rate (20% for post-2009 assets, 5% of sale price for pre-2009).
Use alternative computation rules: inflation indexation (s.11(2)(c) for property), installment sale adjustments (s.18–19), and deemed fair market value (s.14) where relevant.
Calculate CGT on property transactions: incorporate conveyancer withholding (s.22C), clearance (s.30A), and any principal residence relief (s.21).
Calculate CGT on shares: apply depositary withholding (Finance Act 39 and SI 110/2024), treating listed shares (final 2% withholding) vs unlisted (5% withholding) differently.
Analyze worked examples (land sale, share sale, credit sale) step-by-step, showing all formulaic steps.
Identify common pitfalls (e.g. forgetting improvements, misapplying rates) and necessary documentation (contracts, receipts, clearance certificates).

1. Capital Gain Formula (CGT Act s.8, s.11)

Statutory anchors: Under s.8(1)(c), “capital gain” is defined as the capital amount less allowable deductions. In practice:

Capital Gain = Gross Capital Amount (selling price) − (Acquisition Cost+Improvements+Selling Costs).

Here gross capital amount is the total consideration received (s.8(1)(a)), and the deductions come from s.11(2) (acquisition cost, improvements, CPI indexation, sale costs, etc.).

Step 1: Determine the selling price (or deemed price). Normally it is the actual price received. For deemed disposals (donation, expropriation, etc.), s.8(2) provides that the price = fair market value.
Step 2: Subtract acquisition cost (s.11(2)(a)). This includes original purchase price and capitalised fees.
Step 3: Subtract improvements (s.11(2)(b)). Add capital improvements (house extensions, etc.) to cost base.
Step 4: Subtract selling expenses (s.11(2)(d)), such as agent commissions, legal fees, transfer duties.
Result: The remainder is the capital gain.

For example, if land sells for $200,000, bought for $120,000, with $10,000 improvements and $5,000 selling costs, then gain = $200,000 – ($120,000 + $10,000 + $5,000) = $65,000.

Alternative methods: - Indexation (s.11(2)(c)): For property sold post-2007, one may index acquisition cost by CPI change (e.g. \$100k base becomes \$X after inflation). This increases deductible cost.
- Instalment sales (s.18–19): If sale is deferred, sections 18–19 treat full price as accrued at agreement date, then adjust for unpaid balance. (See Example 4 below.)
- Base-year concept: Not used in Zimbabwe (unlike some countries).

Case Law: In Commissioner of Taxes v Sommer Ranching (Pvt) Ltd (1999), the Supreme Court upheld using fair market values when taxpayers understated selling price. This affirms reliance on actual calculation, not evasion.

2. CGT Rates (Finance Acts)

Zimbabwe’s CGT rates are set by Finance Acts:

Post‑1 Feb 2009 assets: Tax is 20% of the capital gain.
Pre‑1 Feb 2009 assets: Tax is 5% of the gross selling price.

These are confirmed by ZIMRA guidance. (The Finance Act always amends s.8 or s.39 to impose rates, but we use ZIMRA as primary.) Note: The older 5% regime is uncommon now (for legacy disposals).

Example: If a building acquired in 2010 yields a $50,000 gain, CGT = 20% × 50,000 = $10,000. If an 2005-acquired building sells for $100,000, CGT = 5% × 100,000 = $5,000 (regardless of its cost).

Finance Acts/SIs: The Finance Act 2023 s.39 and SI No.110/2024 recently updated CGT withholding on shares (final tax), but core rates remain as above. We note post-2024 provisions as unspecified for future certainty.

3. Alternative Computation Methods

Besides the basic formula, Zimbabwe’s CGT law includes special cases:

Indexation (s.11(2)(c)): For property (or shares of a property-holding company), multiply the cost by (CPI at disposal / CPI at acquisition/improvement). Example: If $100k cost in 2010 (CPI=80) and sold in 2020 (CPI=120), adjusted cost = $100k × (120/80) = $150k. Use this in place of original cost.
Suspensive Condition Sales (s.18): If ownership transfers only after payment, the whole price accrues on agreement date. The seller may receive an instalment allowance for unpaid amounts per a statutory formula (s.18(1)(ii)). Practically, report full price, then add back unpaid portion.
Credit Sales (s.19): If ownership passes immediately but payment on credit, likewise the full sale price accrues at agreement date, with an allowance for the unpaid balance.
Share Transfers (Part IIIA): For listed shares, 1% (now 2%) of price is withheld as final tax. For unlisted shares, 5% of price is withheld and credited against eventual CGT. (These derive from Finance Act 2023 and SI 110/2024.)

Each method ensures correct timing and base for CGT. For instalments, detailed calculation is technical; practitioners often bring balances to present value for simplicity.

4. CGT on Property Transactions

When selling real estate:

Withholding (Part IIIA): The conveyancer (depositary) must withhold tax on the sale price. Current withholding is 15% of price (per Finance Act). This prepayment goes to ZIMRA.
Clearance (s.30A): No transfer can be registered unless a CGT clearance certificate is presented. In practice, once the seller pays the calculated CGT and requests a certificate, the Deeds Office will proceed.
Principal Residence (s.21): If the property is the seller’s main home and proceeds are reinvested in a new home, CGT on part of the gain may be deferred. (Detailed conditions in s.21.)

Example: Sale Price = $300,000. Withholding (15%) = $45,000. Seller’s cost = $200,000; no adjustments. Gain = $100,000. CGT due (20%) = $20,000. After filing, ZIMRA applies the $45,000 withheld; $20,000 of it covers the tax, $25,000 is refunded to the seller.

(Case: In Sheriff v Humbe (2020), the court upheld withholding/clearance rules.)

5. CGT on Shares and Securities

Listed Shares: The companies registry/stock exchange (depositary) withholds 2% of sale price as final tax on disposal of listed securities (per SI 110/2024). This replaces normal CGT for the six-month term (June–Dec 2024). (Before, it was 1% withholding; treated as advance CGT.) No further tax is due on a listed sale during this period.
Unlisted Shares: The company secretary (depositary) withholds 5% of sale price. The seller then computes CGT on the actual gain and applies the 5% withheld as credit.
CGT Computation: After a share sale, capital gain = sale proceeds – (cost + allowed deductions). Tax = 20% of gain (for post-2009 shares). In practice, pay: (20% of gain – withheld 5%).
Deposit Responsibilities: Sections 22A–22L (Part IIIA) cover obligations of depositories (exchange, brokers) and agents. Depositaries must register transactions with ZIMRA and withhold tax.
Example (Listed): Mary sells 1,000 XYZ Ltd shares at $100 each ($100,000). Withholding at 2% = $2,000 final tax (by SI). If Mary’s cost was $60,000, ordinarily gain = $40,000, CGT=20%=$8,000. But under SI110/2024, she pays $2,000 only (no further CGT for 6 months).
Example (Unlisted): John sells unlisted ABC shares at $200,000. Withheld = $10,000 (5%). His cost was $50,000, so gain = $150,000, CGT=20%=$30,000. After using $10,000 credit, John must pay $20,000 to ZIMRA.

(Case: Old Mutual v CG ZIMRA (2016) confirmed that proceeds from any share sale are fully subject to CGT.)

6. Worked Examples

We illustrate four scenarios, showing step-by-step CGT computation:

Example 1: Property Sale with Withholding.
- Sold house for $250,000. Purchase price was $150,000; no improvements. Conveyancer withheld 15% = $37,500.
- Capital gain = $250,000 – $150,000 = $100,000. CGT (20%) = $20,000.
- Payment: ZIMRA has $37,500 on record; $20,000 tax is covered, leaving $17,500 refund to seller.

Example 2: Listed Shares Sale (Final Tax).
- Sold 5,000 XSE Ltd shares (listed) at $50 each = $250,000. Acquisition cost was $100,000.
- Under SI 110/2024, 2% of $250k = $5,000 final tax is withheld and no further CGT for the 6-month period. (Gain $150k, CGT would have been $30k, but tax is fixed at $5k.)

Example 3: Unlisted Shares Sale.
- Sold unlisted Y Ltd shares for $300,000. Cost was $120,000. Broker fee $6,000.
- Gross capital amount = $300,000. Acquisition cost = $120,000. Selling cost = $6,000.
- Capital gain = $300,000 – ($120,000 + $6,000) = $174,000. CGT = 20% × $174,000 = $34,800.
- Withholding (5% of $300k) = $15,000 credited. Net CGT payable = $34,800 – $15,000 = $19,800.

Example 4: Instalment (Suspensive) Sale.
- Seller sells land for $120,000, payable $40,000 now, $80,000 in 2 years (ownership on full payment).
- By s.18, full $120,000 accrues at contract date. Compute gain on $120,000 (minus cost). If cost was $50,000: initial gain $70,000.
- However, $80,000 is unpaid. s.18 allows an instalment allowance deduction proportionate to deferred portion. Roughly, one would treat only $40k as received now, and bring the $80k later. The exact formula is complex. For teaching, one may simply note gain as $70k now, and when $80k paid, include the remainder.**

(This example highlights the principle; in practice, taxpayers file preliminary CGT on accrued amount and adjust later.)

Summary Table of Formulas:

Step	Formula/Action
Gross capital amount	Sale price (or deemed sale price)
Less: acquisition cost	Purchase price + capitalised costs
Less: improvements	Capital improvements (extensions, etc.)
Less: selling costs	Agent/legal fees, transfer taxes
Capital gain	= Above difference (if negative, treat as zero)
Tax calculation	Apply CGT rate (20% or 5%)
Subtract withheld taxes	CGT withheld by depositary (15% prop., 2/5% shares)
Net CGT payable	If negative, refund to taxpayer

7. Practitioners’ Notes and Pitfalls

Double tax with withholding: Ensure withheld tax is credited to seller’s account. Failure to reconcile may delay refunds.
Document everything: Contracts, receipts, valuations (especially for unlisted shares or instalment terms) must be kept.
Indexation use: Remember only property (post-2007) qualifies for CPI adjustment, not shares.
Timing: Compute on accrual date. In installment sales, use s.18–19 rules. Don’t ignore unpaid balances.
Spousal/exempt transfers: If asset qualifies for relief (e.g. principal residence rollover s.21), ensure election procedures are followed or tax will be due.

8. Flowchart of Calculation Steps

flowchart TB
  A[Asset Disposal] --> B{Compute Selling Price}
  B -->|Cash or agreed price| C[Gross Capital Amount]
  B -->|Foreign currency| C
  B -->|Deemed sale| D[Use FMV (s.8(2))]
  D --> C
  C --> E[Subtract Acquisition Cost]
  E --> F[Subtract Improvements (s.11(2)(b))]
  F --> G[Subtract Selling Costs (s.11(2)(d))]
  G --> H{Capital Gain = Remainder}
  H --> I[Apply CGT Rate (Finance Act)]
  I --> J[Compute Gross CGT]
  J --> K[Subtract Withholding/Prepaid Tax]
  K --> L[Net CGT Due or Refund]

9. Classroom Activities and Questions

Formula Exercise: State the formula for capital gain using s.8 and s.11 language. (Expect: Capital gain = gross capital amount minus deductions.)
Statutory Interpretation: Read Finance Act rates above. Explain the difference in treatment for assets acquired before vs after Feb 2009.
Calculation Problem: Compute CGT and withholding for: an immovable property sold for $500k (cost $300k, no improvements). Withholding 15%, CGT rate 20%. (Answer: Gain $200k, CGT $40k, withheld $75k, refund $35k.)
Case Brief: Sabeta v CG ZIMRA – identify how the tax was computed on her land sale and what documentation was upheld.
Discussion: Why might the tax on listed shares be treated as final and at a flat 2% for a period? Consider policy and compliance simplicity.
Group Activity: Walk through an installment sale example using s.18, identifying how much of the sale price accrues initially and how to adjust for unpaid balance.