Know About Capital Gains Tax in Nigeria.
Capital Gains Tax (CGT) is a tax imposed by the government on a profit from the sale of property or an investment.
This tax is imposed when individuals or an organisation part with an asset and make gains on it”
This sales can either be a disposal or exchange of certain kinds of assets. In Nigeria, Capital Gains tax is 10% of the profits from the sale of the qualifying assets. It is recognized in law under the Capital Gains Tax Act, 2004 as amended and the Federal Inland Revenue of Nigeria (FIRS) is mandated to collect it.
Steps used in Computing CGT
The 4 steps involved in computing Capital Gains Tax in Nigeria are:
- Identify what the Sales proceeds of the asset you disposed of
- Deduct the allowable expenses as determined by the tax office to arrive at the Net Sales Proceeds.
- Deduct the cost of acquiring the asset originally from the Net Sales proceeds to arrive at the Capital Gains.
the Capital Gains by 10% to arrive at the Capital Gains Tax.
The Allowable Expenses which will be deducted are:
- Selling expenses such as advertising and marketing cost spent before you sold the asset
- Professional fees such as fees paid to Accountants, Facility Managers, Estate Agents, Lawyers, Surveyors, Estate Valuers, Agency Fee or Commissions, etc.
- Cost of refurbishing or improving the asset before being disposed.
It is important to note, that allowable expenses that are typically considered under the Company Income Tax (CIT) or Petroleum Profit Tax are not allowed. E.g staff salaries, payment to suppliers, utility bills, etc. In addition, when Assets are sold as stock or in the ordinary course of business, their profits are not subject to Capital Gains Tax, but to Corporate Tax of 30%.
Even if parts of an asset is disposed or exchange with gains, this is subjected to Capital Gains Tax and will be prorated under partial disposal of an asset and Capital Gains Tax . However, when part of an asset is sold, the problem is that of determining what the cost of the part being disposed of is.
- Gains on Stock, shares, and other government securities such as
treasury bonds, premium bonds, and savings certificates.
- Ecclesiastical, charitable or educational institutions of a public
- Any statutory or registered friendly society.
- Any co-operative society registered under the Co-operative
Societies Law of any State in the Federation of Nigeria.
- Any trade union registered under the Trade Union Act.
- Gains on a decoration awarded for gallantry conduct.
- Gains accruing to statutory bodies.
- Gains arising from acquisitions, mergers, or takeovers provided
that no cash payment is made in respect of the shares acquired.
- Gains on policies of assurance or deferred annuity unless the
beneficiary is not the original Owner as in an estate.
- Compensation for a wrong or injury of libel, slander, enticement, loss of office in a personal or professional capacity.
- Gains from the main or only private residence of the individual
provided that the area does not exceed one acre.
- Gains on private vehicles.
- Gains on any asset used for the purpose of a trade or business
provided that the gain is used for replacing the old asset sold.
- Gains from a provident or retirement benefit scheme.
- Unit holders of a Unit Trust provided the proceeds are not
- Any diplomatic body.
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