How to Calculate Capital Gains Tax in Nigeria

Capital Gains Tax (CGT) imposes a tax on the profit obtained from disposing or exchanging certain kinds of assets. In Nigeria, the Capital Gains tax amounts to 10% of the profits from the sale of qualifying assets. It is established in law under the Capital Gains Tax Act.

To calculate Capital Gains Tax, follow these steps:

Step 1: Identify the sales proceeds of the asset you disposed of.

Step 2: Deduct allowable expenses, determined by the tax office, from the sales proceeds to find the Net Sales Proceeds.

Step 3: Subtract 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 determine the Capital Gains Tax.

Allowable Expenses include:

Selling expenses such as advertising and marketing costs incurred before the sale.

Professional fees paid to Estate Agents, Solicitors, Surveyors, Accountants, and Estate Valuers.

Costs of refurbishing or improving the asset before disposal.

Note: Expenses considered under company income tax or petroleum profit tax are not allowed. For instance, staff salaries, payments to suppliers, and utility bills are not deductible. Assets sold as stock or in the ordinary course of business are subject to corporate tax at a rate of 30%.

Partial disposal of an asset is also subject to Capital Gains Tax. When selling part of an asset, the cost of the part disposed of can be calculated using the formula:

(X / X + Y) * Z

Where:

X = Sales proceeds of part disposed

Y = Market Value of part not disposed

Z = Cost of acquiring the whole asset

Certain assets are exempt from Capital Gains Tax, including:

  • Stock, shares, and government securities
  • Ecclesiastical, charitable, or educational institutions
  • Statutory or registered friendly societies
  • Diplomatic bodies
  • Personal residences within certain parameters
  • Private vehicles
  • Assets used for trade or business purposes

These exemptions aim to provide relief and encourage specific activities or entities.

Read Also: How Do You Calculate Net Salary?

Are all Assets Sold subject to Capital Gains Tax? 

  • No, not all assets sold are subject to Capital Gains Tax. Certain assets are exempted from Capital Gains Tax, including:
  • 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 character.
  • Any statutory or registered friendly society.
  • Any cooperative society registered under the Cooperative 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 reinvested.
  • Any diplomatic body.

Who collects Capital Gains Tax?

The Federal Inland Revenue Service.

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