An Introduction to Capital Gains Tax (CGT)
Capital Gains Tax (CGTCapital Gains Tax (CGT) is a tax that is levied on profits or gains realized on the disposal of capital assets. It came into effect from May 1, 2011 replacing the Land Sales Tax. Capital Gains Tax is imposed and collected on a self-assessment basis and the vendor is liable for the tax. It is computed on the VAT Exclusive Price (VEP) of the capital asset. If you are thinking of selling a Capital Asset, or currently have some Capital Assets to transfer, contact us now and together we can discuss further in detail the technical implications of CGT and the current incentives that is in place that you can take advantage of.
The following are the capital assets that attract capital gains tax upon disposal but subject to exemption and deferral provisions, as provided for in the Income Tax Act 2015:
- Real property, structural improvement or an interest in real property
- Vessels of over 100 tonnes e.g. ship
- Ship and Boats
- A membership interest in a company, security or other financial asset
- Intangible assets e.g. goodwill
- An interest in a partnership or trust
- An airplane, helicopter or other aircraft
- An option, right or other interest in an asset but does not include trading stock, depreciable asset or a business intangible
Exempt Capital Gains
- a capital gain made by a resident individual or Fiji citizen that does not exceed FJD$16,000;
- a capital gain made by a resident individual or a Fiji Citizen on disposal of either the individual’s first residential property or principal place of residence;
- a capital gain made by a person on the disposal of shares listed on the South Pacific Stock Exchange;
- a capital gain made on disposal of an asset that is used solely to derive exempt income;
- any gain made by a person on the disposal of an interest in a company which is a trust, approved as a managed investment scheme under the Companies Act and includes a unit trust to which section 743 of the Companies Act applies;
- a capital gain made by a resident individual or a Fiji Citizen on disposal of his or her interest in a family home, provided that the disposal of the interest is by way of transfer to an existing joint tenant or tenant in common;
- a capital gain made by a resident person from the sale of shares where a private company goes through re-organisation, restructure or amalgamation for the purposes of listing or as part of a listing process on the South Pacific Stock Exchange, provided that—
(i) the private company is listed on the South Pacific Stock Exchange within 24 months from the date of commencement of re-organisation, restructure or amalgamation; and
(ii) where the private company is not listed with the South Pacific Stock Exchange in accordance with sub-paragraph
(i), the gain from the re-organisation, restructure or amalgamation of the private company shall be taxable under this Act;
- a capital gain made by the trustee or beneficiary of a deceased estate on the disposal of an asset forming part of the estate that, if the gain had been made by the deceased on a disposal of the asset immediately before death, the gain would be an exempt capital gain to the deceased, but only when the asset is disposed of by the trustee or beneficiary within 2 years after the death of the deceased or within such further time as the CEO allows.
Deferral of recognition of capital gain
For the purpose of Capital Gains Tax, no capital gain is taken to arise on the disposal of Capital Assets
by the transferor in any of the following cases:
- Disposal of an asset between spouses (including partners in a de-facto relationship) as part of a divorce settlement or under an agreement to live apart.
- Disposal of an asset by reason of the transmission of the asset on the death of a person to an executor or beneficiary of the person’s estate.
- Transfer of a principal place of residence, first residential property, an interest in a capital asset, or shares in a company, by reason of love and affection between spouses (also includes the de-facto relationship), siblings, parents to children and vice versa, and grandchildren to grandparents and vice versa.
- Disposal of an asset by reason of loss, destruction or compulsory acquisition of the (referred to as the “replaced asset”) if the consideration for the disposal is reinvested by the recipient in an asset of a like kind (referred to as a “replacement asset”) within one year of the disposal or within such further period as the CEO allows.
However, the transferee may be liable for Capital Gains Tax should it be disposed at a gain at a later date.
Accounting for Capital Gains Tax
A Capital Gains Tax return must be filed within one month after the disposal of the capital asset regardless of gain or loss made except for disposal of shares listed on the South Pacific Stock Exchange (SPSE).
The related Capital Gains Tax payment should be made within one month after the disposal of the capital asset.
Failure to lodge CGT returns and make necessary payments will render you liable for penalties. Capital Gains Tax returns lodged late will attract late lodgement penalty of 20% on the amount of CGT payable. Capital Gains Tax paid late will attract late payment penalty of 25% on the amount of CGT payable.