The Capital Gains Tax Act contains comprehensive guidelines on how Capital Gains should be taxed. It also included the terms, conditions, and clauses attached to their taxation. It is made up of 47 sections, with subsections embedded in them. It is however improper for us to give you an insight into the Capital Gains Tax Act without giving you a synopsis of what Capital gains tax means. Capital gains tax is the tax you are mandated to pay on the profit you receive when you sell an asset or investment. The Capital Gains Tax Act is a tax compliance drawn up by the Federal Inland Revenue Service. It is an Act established to provide for the taxation of capital gains accruing on disposal of assets. It was enacted by Act No. 44 of April 1, 1967, and last amended by Act No. 45 of 1999. According to Section 2 Subsection 1 of this Act, the rate of capital gains tax is set at ten percent of the profit made from assets disposal. A capital gains tax event includes but are not limited to when:
- an individual sells an asset, such as a house.
- an individual sells an investment, for example, shares
- an individual makes an in-specie contribution to his/her super fund.
- shares an individual owns are redeemed, cancelled, surrendered or are considered valueless by a liquidator.
- an individual receives a payment from a company as a shareholder (not a dividend).
- an individual gives away, losses or destroys an asset, resulting in a capital gain or a capital loss.
It is worthy of note to state that the Capital Gains Tax Act is not limited only to disposal of assets situated inside Nigeria, but also disposal of assets situated outside Nigeria. Section 4 of this Act underlines the compliance involved in the taxation of capital gains situated outside Nigeria. This section states that a disposal would be taxed where the disposal of assets is by an individual who is temporarily in Nigeria for a purpose, stays in Nigeria for the sum of a period exceeding 182 days in that same year.
Section 11 of this Act gives us a clear understanding of how this Capital gain is being computed for taxation. It is calculated as the difference between your capital proceeds and your “cost base”, which is the initial amount you paid for your capital gain asset, plus expenditure incurred on acquiring, holding, and disposing the asset.
Section 26 to Section 42 of this Act however stipulates conditions where certain capital gains are exempted from taxation. These Capital Gains Tax compliance exemptions includes but are not limited to the following:
- Gains of ecclesiastical, charitable, or educational institution of a public character are exempted from taxation.
- Gains of any statutory or registered friendly society are exempted from taxation.
- Gains of any co-operative society registered under the Co-operative Societies Law of any State in the country is exempted from taxation.
- Gains of any trade union registered under the Trade Unions Actis exempted from taxation.
- Gains acquired from the sale of old business assets, whose proceeds are used to procure new and similar business assets.
For an indepth knowledge on the provisions of this Act, a copy of the Act has been made available for you to peruse at your own leisure. Download the PDF format of the Act via the link below. – Capital Gains Tax Act (Pdf)
To download PDF files of other Acts and Laws, please visit our Compliance Hub via the Link below – Nigeria Compliance Hub