- Capital gains tax administration in Nigeria is regulated by the capital Gains Tax Act Cap C!, LFN 2004. The act administered by both Federal Inland Revenue Service and the States Internal Revenue Service
- Federal Inland Revenue Service deals with the taxation of capital gains arising from the deposal of property by corporate entities while the State Internal Revenue deal with gains on deposal by individual sole traders.
- The Tax rate is 10% on capital gains.
- The capital gain is the difference between the sale proceeds from sale of the assets. Expenses that are incidental to the deposal are allowed as a deduction from the sales proceeds. A positive different is a gain while the negative difference is a loss.
- There is no relief for disposal made at loss neither can it be set of against the gains from the disposal of any other asset.
- Options, debts and incorporeal property generally,
- Any currency other than Nigerian currency
- Any form of property created by the person disposing of it, or otherwise coming to be owned without being acquired.
- Asset situated outside Nigeria.
DIPOSAL OF ASSET
Asset is said to be disposed where any capital sum is derived from a sale, lease, transfer, an assignment, a compulsory acquisition or any other deposition of assets, not withstanding that no asset is acquired by the person paying the capital sum, and in particular the followings:
- Where any capital sum is derived by way of compensation for any loss of office or employment
- Where any capital sum is derived under a policy of insurance and the risk of any kind of damage or injury to, or the loss or depreciation of assets.
- Where any capital is returned or forfeiture or surrender of rights, or for refraining from exercising rights.
- Where any capital sum is received as consideration for use or exploitation of any asset,
- Where any capital sum is received in connection with or arises by virtue of any trade, business, profession or vocation
COMPULSORY ACQUISITION OF LAND
A person shall not be chargeable to tax in respect of any acquisition and disposal of land by reference to a disposal to an authority exercising or having compulsory powers, if that person had not:
- Acquire the land at a time he knew or might reasonably have known that it was likely to be acquired by the authority, or
- Taken any steps by advertisement or otherwise to dispose of the land or to make his willingness to dispose of it known to the authority or others.
COMPUTATION OF CAPITAL GAINS
Capital gains is the positive difference between the consideration accruing on disposal and the original cost of the asset. The following expenditures are allowable for deduction from the sales consideration.
- Expenditure wholly, exclusively and necessarily incurred for the acquisition of the asset.
- Incidental cost on acquisition of the asset.
- Expenditure wholly, exclusively and necessarily incurred in enhancing the values of the asset for the disposal.
- Expenditure incurred on asset for the purpose of establishing, preserving or defending the title or right over asset.
- Incidental cost of making the disposal.
GAINS NOT CHARGEABLE
A gain shall not be chargeable if it accrues to:
- Any ecclesiastical, charitable or educational institution of public character
- Any statutory or registered friendly society.
- Any cooperative register under the Co-operative Societies Law of any state.
- Any trade union registered under the Trade Union Act.
However, if the gain arose from a disposal of any asset in connection with the trade or business carried on by the institution or society, it is chargeable
- Gains accruing to any local government council.
- Gains arising from disposal of investment held as part of any superannuation fund.
- Gains from the deposal of investment held as part of any national provident fund or retirement benefits schemes established under the provisions of any Act or enactment for employees throughout Nigeria
- Gain arising from disposal of decoration awarded for valour or gallant conduct.
- Gains on disposal of replaced assets (i.e. rolled-over relief). The following conditions must exist in order to enjoy the relief:
- Only the following classes of assets are affected: Building, Land, Fixed Plant and Machinery, Ships, Aircraft and Goodwill
- The gain to be rolled over must be in the same category of the asset that was disposed.
- The new asset much have been acquired within 12 months before or 12 month after the disposal of the old asset.
- The acquisition must have been for the purpose of the of the trade and not for the purpose of making gain from the deposal of the new asset,
- All the consideration from the disposal of the old asset must be used in the acquisition of the new asset
- The claim is based on application to the service
- Gains arising from the acquisition of shares of company either taken over, or absorbed or merged provided that no cash payment is made in respect of the shares acquired,
- Gains accruing to unit holders of a Unit trust in respect of disposal of securities provided the proceeds are re-invested.
- Sums obtained as compensation or damages for any wrong or injury suffered. This includes compensation for loss of office except the mount exceeds N10,000 in year of assessment.
- Gains arising from the disposal of the principal private residence of an individual.
- Gains from the sale of chattels for N1,000 or less in a year.
SOME BASIC CONCEPTS IN CAPITAL ALLOWANCES AND CAPITAL GAINS
- Sales proceeds less historical cost of the asset equals capital gains. The gain is reflected in the financial statement but adjusted during income tax computation. The gain is therefore not liable to companies income tax.
- Sales proceeds less Tax written down value of the asset gives:
- Balancing Allowance if the sale proceeds is less than the tax written down value. The balancing allowances in the computation of income tax.
- Balancing charge if the sale proceeds is greater than the tax written down value. The balancing charge is added to profit for income tax purpose. However, the total balancing charge for income tax purpose is restricted to the total capital allowances granted on the asset from point of usage to point of disposal.
- Balancing Charge is not considered for Education Tax computation. That is, it does not form part of the assessable profit for the purpose of Education Tax calculation