Capital Gains Tax (CGT) is a tax on the profit obtained from 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.
While CGT is 10% of your Capital Gains, the tax authorities provide guidelines for determining what can be deducted from the sales proceeds before arriving at the Capital Gains. The formula for calculating Capital Gains Tax is as follows:
N
Sales Proceeds XXX
Less: Allowable Expenses (XXX)
Net Sale Proceed XXX
Deduct: Cost of Acquisition (XXX)
Capital Gains XXX
Capital Gains Tax at 10% ZZZ
Steps used in computing CGT
Step 1: Identify what the Sales proceeds of the asset you disposed of.
Step 2: Deduct the allowable expenses as determined by the tax office to arrive at the Net Sales Proceeds.
Step 3: Deduct the cost of acquiring the asset originally from the Net Sales proceeds to arrive at the Capital Gains.
Step 4. Multiply the Capital Gains by 10% to arrive at the Capital Gains Tax.
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Allowable Expenses
As mentioned earlier, certain allowable expenses must be deducted from the sales proceeds before arriving at the Net Sales Proceeds. They are as follows:
- Selling expenses such as advertising and marketing cost spent before you sold the asset
- Professional fees such as fees paid to Estate Agents, Solicitors, Surveyors, Accountants, Estate Valuers, commissions, etc.
- Cost of refurbishing or improving the asset before being disposed
Note that allowable expenses are typically considered under the company income tax or petroleum profit tax is not allowed. For example staff salaries, payment to suppliers, utility bills, etc. Also, note that 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%. For example, if your business involves buying and selling houses then those houses are considered as stock and will be subject to capital gains tax.
What if I sell part of an asset?
This falls under partial disposal of an asset and is still subject to 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.
For example, imagine you bought a box of jewelry worth N1million 5 years back. You now decide to sell part of the jewelry for N822,000. Assuming the remaining jewelry is valued at N2.1million What is the capital gains to be paid assuming you spent N55,000 on selling expenses.
Since we need to determine the actual cost of part disposed of the formula recommended by law is as follows;
X Multiplied by Z
X + Y
X – Sales proceeds of part disposed
Y- Market Value of part not disposed
Z – Cost of acquiring the whole asset
We know X = N822,000, Y= N2.1million and Z= N1million.
Cost of part not sold, therefore, is N822,000/N822,000+N2,100,000 = 28.1%
28.1% multiplied by N1,000,000 = N281,314.17.
Capital Gains Tax can now be calculated as follows;
Sales Proceeds N822,000
Less Expenses (N55,000)
Net Sales Proceeds N767,000
Cost of Part Sold (N281,314.17)
Capital Gains N485,685.83
Tax @10% N48,568.58
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Are all Assets Sold subject to Capital Gains Tax?
No. The following assets are exempted from Capital Gains
1. Gains on Stock, shares, and other government securities such as
treasury bonds, premium bonds, and savings certificates.
2. Ecclesiastical, charitable or educational institutions of a public
character.
3. Any statutory or registered friendly society.
4. Any co-operative society registered under the Co-operative
Societies Law of any State in the Federation of Nigeria.
5. Any trade union registered under the Trade Union Act.
6. Gains on a decoration awarded for gallantry conduct.
7. Gains accruing to statutory bodies.
8. Gains arising from acquisitions, mergers, or takeovers provided
that no cash payment is made in respect of the shares acquired.
9. Gains on policies of assurance or deferred annuity unless the
beneficiary is not the original Owner as in an estate.
10. Compensation for a wrong or injury of libel, slander, enticement,
loss of office in a personal or professional capacity.
11. Gains from the main or only private residence of the individual
provided that the area does not exceed one acre.
12. Gains on private vehicles.
13. 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.
14. Gains from a provident or retirement benefit scheme.
15. Unit holders of a Unit Trust provided the proceeds are not
reinvested.
16. Any diplomatic body.
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Who collects Capital Gains Tax?
The Federal Inland Revenue Service.
HOW TO COMPUTE CAPITAL GAINS TAX IN NIGERIA – BEGINNERS GUIDE https://t.co/w80jYQIug2 #UGOMETRICSBLOGWEEKENDRECAP
RT @ugodre: HOW TO COMPUTE CAPITAL GAINS TAX IN NIGERIA – BEGINNERS GUIDE https://t.co/w80jYQIug2 #UGOMETRICSBLOG
PLEASE WHAT IF AN ASSET WAS SOLD BELOW ITS COST OF ACQUISITION DUE TO DEPRECIATION, DO I STILL HAVE TO PAY FOR CAPITAL GAIN TAX WHEN NO GAIN WAS RECORDED?
The computation Of CAPITAL GAIN takes into consideration ORIGINAL COST of The ASSET Not The Net Book Value. That is COST OF THE ASSET ORIGINALLY and the PROCEED From Sale of the ASSET.
ie
ORIGINAL COST Less SALES VALUE/PROCEED.
No. You didn’t make a capital gain. Instead, you’ve made a capital loss.
Pls explain dear
Please the Educational institutions of a public character as exempted from capital gain tax, do you mean Government owned schools or ?.
I cannot agree more to all other explanations given above except that not only the FG collects CGT. Both the FG and the SG are empowered under the Taxes and Levies (Approved List for collection) Act 1998 to collect Capital Gains Tax. The FG collects from residents of the FCT, corporations and non-resident individuals whilst the SG collects from individuals only.
Thanks.
Okoene Augustine Chisom, final yr law student, Esut.
How do one treat loss?
Do company pay CGT on bad debt?
Is CGT paid on loss made on diposal of an asset
no CGT [s paid on loss
Your calculation is incorrect
N822,000/N2,922,000= 0.28%
That is; 0.0028xN1,000,000=N2,800
Pls correct it
Hi Brown, thanks for your observation but the calculation is actually correct.
hi, why is it that the remaining asset is more than the cost of assets?
Hi Ugo! Great lecture! This is a refresher course for some of us who do not regularly engage in the CGT computation. Regards
What do we do if your former employer is trying to collect CGT on redundancy payout. Based on your explanation above, it should be exempted. Thanks
This is educative
Nice write up. Weldon.
Nice
Very Educative