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      Botswana’s women boxing on the rise 

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      Home Columns Tax & Your Pockets

      Sold plot or farm ? Remember CGT !

      Sometimes people end up selling a piece of land they own because of personal circumstances or simply because they want to realise a gain in asset appreciation. In some instances, it might be because of financial distress or possibly to secure an alternative investment. There are many and various reasons why people sell land. However, in as much as such disposals may appear to bring immediate gains that would fulfil the objective of the seller, there are tax implications to consider. The disposal of farmland or a plot may seem to be informal in that people may simply agree on a price and complete the transaction. However, it is vital to remember that such a transaction triggers a tax called Capital Gains Tax or CGT. In this article, words importing the masculine shall be deemed to include the feminine.

      mm by Jonathan Hore
      November 16, 2021
      in Tax & Your Pockets
      Reading Time: 2 mins read
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      Sold plot or farm ? Remember CGT !
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      The sale 

      The sale of a plot or farm cannot be equated to everyday transactions relating to buying and selling of movable articles or implements. Such a sale is predominantly characterized as a sale of an investment unless someone is in the business of selling such properties on which the land becomes his or her trading inventory. Accordingly, the occurrence of such transactions is sporadic so to say, resulting in most landowners neglecting the resultant tax obligations. In essence, property disposals result in gains technically referred to as capital gains. If one buys a plot at P100 000 and sells it at P500 000, the potential capital gain, before other deductions, is P400 000. Let us have a look at what the tax laws say about this tax. 

      Enter Tax

      The tax laws generally impose capital gains tax on gains realized from the sale of immovable property. The tax is assessed on the selling price less the cost of acquiring the farm, incidental disposal costs and some inflation allowance, i.e., the capital gain. If you dispose of a farm you inherited, the cost in such an instance will be the market value of the farm at that point in time the farm devolved to you. In addition to the cost of the land, the Income Tax Act permits the seller to deduct costs of any additions such as durawalls, pavements, extensions, disposal costs and an inflation adjustment. Further to note is that the cost of acquiring a capital asset i.e., the farm or plot, includes costs that are incidental to such acquisition, including tax advice, legal expenses and transfer taxes.

      CGT is determined using sliding scales which end with a tax rate of 25% on the higher bracket, for individuals. Companies suffer the tax at 22% for resident companies and 30% for non-resident ones registered at CIPA as branches.

      On the other hand, the acquisition of immovable property triggers another tax known as transfer duty. The tax is payable to the Registrar of Deeds. The transfer duty is basically triggered by transfer of ownership of a farm or plot, among others, and it is assessed in the hands of the buyer. But that was just meant to be a teaser as I am not in the mood of talking about transfer duty at length today.

      Cheers buddy!

      You probably may be wondering what you must do for previous disposals of immovable properties where you didn’t pay tax. Well, let me leave that to you to decide on the way forward. I however advise that you consider the tax in the next similar transaction you will embark on. If you are a business advisor, you may need to share a few hints with your clients but don’t forget that you may require expert tax advice! Lastly, this tax is not payable under instances where two or more resident companies restructure and such reorganization does not result in a change in the beneficial ownership of assets changing hands. Cheers buddy and thanks for reading

      Tags: Income Tax ActRegistrar of DeedsTAX

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