Capital Gain from Realisation of Interest in Land or Buildings
Realisation of interest in land and Building
A person who owns an interest in land or building shall be treated as realising the asset when the person parts with ownership of such interest including when it is sold, exchanged, transferred, distributed, cancelled, redeemed, destroyed or surrendered and in the case of interest of an entity when it ceases to exist, immediately before the entity ceases to exist.
The Income Tax Act requires a person who derives a gain from the realisation of an interest in land or buildings situated in the United Republic, to pay income tax by way of single instalment.
What is single instalment?
Income tax payable by way of single instalment in the case of realisation of interest in land or buildings is the amount of tax paid once before the Titles are transferred from one person to another. The Registrar of Titles shall not register such a transfer without the production of a certificate from TRA certifying that the single instalment has been paid or is not payable. The seller is required to declare the transfer of interest in land or building.
The applicable rates
(a) 10% of the gain for a resident person
(b) 30% of the gain for a non resident person
(c) 3% of the incomings or approved value of Land or Buildings, for sellers who do not possess document evidence substantiating the cost of the assets
However, the Income Tax Act, provides that an instalment payer shall be entitled to tax credit for a year of income of an amount equal to the income tax paid by way of single instalment for the year of income.
Exemptions
a) If the residence has been owned continuously by the individual for three years or more and lived in by the individual continuously or intermittently for a total of three years or more; and the interest was realised for a gain of not more than shillings 15,000,000.
b) An interest in land held by an individual that has market value of less than shillings 10,000,000 at the time it is realised and has been used for agricultural purposes for at least two of the three years prior to realisation.
c) Shares - DSE shares held by a person with shareholding less than 25%.
How capital gain is calculated?
Capital Gain = Selling Price (or Disposal Proceeds) − [Purchase Price + Acquisition Costs + Improvement Costs + Maintenance and Repair Costs + Disposal Costs + Incidental Costs]
What is the realization expenditure?
Realisation expenditure refers to the expenses incurred by a person in disposing of or selling an asset. Realisation expenditure includes costs that are directly related to the disposal of the asset, such as legal fees, brokerage or agent's commission, auctioneer's fees, valuation fees, advertising expenses, transfer taxes and duties, registration fees, surveyor's fees, and any other costs incurred solely for the purpose of completing the sale or transfer of the asset.
Capital gain tax on realization (Sale) of Securities
What is a security?
A security is a tradable financial asset (investment assets) of any kind. Securities are broadly categorized into: -
- Equity securities (e.g. Ordinary and preference shares)
- Debt securities, (e.g. bonds and debentures)
- Derivative securities, (e.g., forwards, futures, options and swaps).
Taxation of net gains on sale of securities
The net gains on sale of securities is treated as investment income to be included in determining the total income of the person during the year of income as provided by the Income Tax Act, 2004. The total income of an entity is charged at the rate of 30% while the resident individual tax rates will be applied on the total income of resident individuals.
What are the net gains from sale of investment assets?
Gain from the sale of investment asset is the excess of market value over the cost of asset
The net gain from the sale of investments assets is the sum of all gains from sale of investment assets reduced by: -
- Total of all losses from sale of investment assets
- Any unrelieved losses during the year and
- Any unrelieved losses for the previous year
What is the cost of asset (Security)?
The cost of asset is the sum of expenditure incurred in acquiring the asset including.
Exempted Securities
The Shares listed on the Dar es Salaam Stock Exchange provided that the shares are owned by a resident or a non-resident person who controls less than 25% of the controlling shares of the company
Limits on investment losses
If a person makes a loss from any investment, it can offset income from other investments and it cannot offset income from any business.
Limits on capital gains
If a person makes a loss when selling an investment asset, it can offset only gains from selling other investment assets. Foreign investment losses can offset only foreign investment income, losses on the sale of investment assets can offset only against the sale of foreign investment assets.
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