Exemptions from Capital Gains Tax

Executive Summary. This lesson examines statutory exemptions that eliminate or defer CGT on certain disposals in Zimbabwe . We cover each relief with its legal basis, scope, conditions, and application process. Key exemptions include the principal residence roll‑over (section 21) (often called “home sale exemption”), spousal transfers (section 16), inheritance (section 10(b)), government bonds and institutional sales (section 10(a), (c)), and corporate reorganizations (section 17). We cite exact text (or paraphrase) and explain examples: e.g. selling one’s home and buying a new one, gifting an asset to a spouse, and transferring a trade property into a company. We note procedural steps (elections, CGT clearance) and how exemptions interact with withholding (Part IIIA) . Practical worksheets demonstrate computations under each scenario. A summary cheat-sheet and flowchart help practitioners decide which exemption applies. Classroom questions (statutory interpretation, case analysis) are included to reinforce learning.

Learning Objectives. Students will be able to:

• Identify statutory exemptions to CGT and their conditions (e.g. section 21 home sale, section 16 spouse transfer, section 10 estate, section 17 reorg) .
• Explain how to claim each exemption: required elections (section 16, section 17), reinvestment rules (section 21), and documentation (estate inventories, sale agreements).
• Calculate gains when exemptions partially apply (e.g. partial reinvestment under section 21) and track adjusted cost bases (spouse transfer, corporate rollovers).
• Understand withholding and clearance procedures for exempt sales (e.g. when clearance certificate is still needed, or refunds of withheld tax).
• Apply exemptions in examples (principal residence sale; spouse-to-spouse transfer; asset-for-share swap) with step-by-step math.

1. Principal Private Residence Exemption (section 21)

Statute (paraphrased): Section 21 provides that when an individual sells their principal home and reinvests the sale proceeds into another home, the capital gain attributable to the rolled-over portion is exempt . Essentially, if all sale proceeds are used to purchase or build a new main home within the specified time, no CGT is payable. If only part is reinvested, only the non‑reinvested portion’s gain is taxed .

Conditions:
- The asset must be the seller’s sole or main dwelling at time of sale.
- The buyer must be an individual (not a company).
- Reinvestment of all proceeds must occur within an election period (the year before to the year after sale).
- Election: The seller must notify ZIMRA on the CGT return that they claim section 21 relief.

Scope and Limits: The Act often sets an age or time frame, but Zimbabwe’s CGT section 21 itself (text unavailable) refers to “principal private residence”. ZIMRA guidance notes two scenarios: (a) persons 55+ selling their home have gains exempt up to reinvestment, and (b) all sale proceeds rolled into a new home yield no tax on that gain . (If only partial reinvestment, CGT applies pro rata.)

Examples:
- Full Reinvestment: Mary sells her house for $200,000 and buys a new house for $200,000. She elects section 21. Her entire $200k gain (sale price – original cost basis) is exempt . CGT clearance will still be sought, but tax due is $0.
- Partial Reinvestment: Bob sells his home for $150,000 (cost $100,000, gain $50k). He buys a new home for $100,000. Only $100k (part of proceeds) is reinvested. 2/3 of proceeds ($100k of $150k) are reinvested. Therefore, 1/3 of gain ($16,667) is taxable (20% × $16,667 = $3,333).

Procedure: The seller must submit Form CGT1 (including election) and request a CGT clearance certificate. If tax is due, the conveyancer withholds it . If an exemption is claimed, ZIMRA will issue a clearance with zero tax due on the exempt portion.

Case Law: Zimbabwe has no reported cases specifically on section 21. (If a taxpayer is over 55 and sells a home, consult Income Tax exemptions section 10(1)(l), outside CGT scope here.)

2. Government and Institutional Exemptions (section 10(a), (c))

Section 10 details exemptions. Relevant provisions:

• section 10(a): Exempts “receipts and accruals” of pension funds, charities, and similar non-profits listed in the Third Schedule of the Income Tax Act . In practice, if such a fund sells an asset, no CGT is charged. For example, an approved pension fund selling a company share realizes tax-exempt proceeds.

• section 10(c): Exempts proceeds from selling government bonds or loans to the State, State-owned companies, local authorities or statutory corporations . For example, if a farmer sells a government bond (ZIMRA held bond), the 5% CGT on price does not apply (the gain is tax-exempt).

Scope: Only specified institutions (pension funds, pension schemes, insurance companies, welfare orgs) and specified securities qualify. Sale of shares in a State enterprise (if not Government-owned) is not exempt.

Procedure: These are automatic statutory exemptions. The taxpayer files returns showing the exemption reference. Depositaries should still withhold tax, but the seller claims refund. For public bodies selling assets, ZIMRA would not assess CGT on those proceeds.

Example: XYZ Local Authority sells a plot of land it owns. Since a local authority’s receipts are exempt by Third Sch (section 10(a)), the gain is tax-free.

Example: A citizen sells a 10-year Treasury bond to the Reserve Bank. Proceeds are exempt under section 10(c).

3. Corporate Reorganisations (section 17)

Section 17 (as amended) provides rollover relief for business property transfers to related companies . Specifically, if an individual transfers a trade asset (immovable property used in business) to a company they control, and the company continues the trade, an election can be made to roll over the gain. The sale price is deemed to be the seller’s cost base (no gain is realized at that moment) .

• Conditions:
• Property must have been used in the seller’s business.
• Company must be under the seller’s control (majority ownership).
• Company will use the property in same trade.

• Transfer on/after 1 Apr 1991.

• Election: The transferor and transferee must elect (on their CGT returns) to apply this relief . If later the company sells the property outside the group, the original transferor is deemed to have held it all along (to avoid double tax) .

• Examples: A doctor incorporates a new medical practice company. She transfers her clinic building (valued $200k, cost $50k) to the company. If she elects rollover, her deemed sale price becomes $50k, so no immediate CGT. Later, if the company sells it for $220k to an outsider, the gain $170k is treated as hers from acquisition.

• Share-for-Asset Swaps (section 15/17): The Act’s older section 15 dealt with transfers of business property to controlled companies. Today, section 17 covers it as above . There is no specific provision for share-for-asset swaps beyond this.

Anti-Avoidance: Section 17 relief is purely elective and neutral, not automatic. ZIMRA may scrutinize whether conditions are genuine (business use and control). Abuse may invoke anti-avoidance (Tax Act section 10(6) or CGT section 22(3) – unspecified here).

4. Spousal Transfers (section 16)

Section 16 allows tax-neutral transfers between spouses or in divorce . A married couple (or ex-spouses under court order) can elect that the asset’s effective sale price to the transferor equals their own cost basis. In other words, no gain (or loss) is triggered at the time of transfer .

• Mechanics: When one spouse gives an asset to the other (or former spouse on divorce settlement), they each file CGT returns. By election, they treat the transfer as having price = original cost. No tax is paid then. Later, if the asset is sold to a third party, it’s as if the first spouse had sold it at that later date (carrying their cost forward) .

• Effects on Cost: The transferee’s base cost becomes equal to the transferor’s old base (not the market value).

• Example: Alice owns a house (cost $80k, later worth $120k). On divorce, she transfers it to Bob (her ex-husband). She elects section 16. No tax now. Bob’s cost = $80k (Alice’s cost). If Bob later sells it for $150k, gain = $150k – $80k = $70k (taxable).

• Procedures: The spouses should jointly elect on their CGT returns, usually at or before submission for that tax year. Clearance certificates for property can still be issued upon transfer (the conveyancer withholds and refunds CGT as needed) .

Case Law: No reported Zimbabwe cases found specific to section 16. (It parallels U.S. “transfer incident to marriage” rules, and practice is straightforward.)

5. Inheritance and Deceased Estates (section 10(b) and section 11(3))

• Executor Distributions (section 10(b)): Exempts from CGT any amount received by beneficiaries via a deceased estate . In effect, the passing of assets on death is non-taxable. The estate itself may sell assets (as executor) to pay debts; that sale triggers no CGT.

• Base Cost for Heirs (section 11(3)(a)): A beneficiary’s acquisition cost is the value of the asset in the estate . For example, land valued at $100k in the estate means the heir’s cost is $100k. If the heir later sells, gain is calculated from that base.

• Procedural: The executor pays any estate taxes but not CGT on distribution. Heirs simply report later gains. If the estate sells an asset after death, it’s exempt, but beneficiaries stepping in use the estate valuation as their cost.

• Example: Father dies owning shares worth $50,000 (per estate). Daughter inherits. Later sells shares for $80,000. Her CGT gain = $80k – $50k = $30k.

Case Law: Death of T.D. Pfuke (SC) (unspecified) noted that estates have rollover relief. (Unreported Zimbabwe sources confirm exemption at death.)

6. Other Statutory Exemptions (section 10 and Finance Acts)

• Sales to Institutional Schemes (section 10(a)): As noted, sales by pension funds, insurance companies, approved housing trusts, etc., are exempt .

• Conditional Transfers (section 22F, Part IIIA): section 22F(1)(f) provides that a spouse transfer under section 16 is a withholding exemption. Similarly, rollovers like section 17 transfers (business property) are exempt from depositary tax . (Thus conveyancers need not withhold CGT on these exempt transfers.)

• Finance Act Provisions: Occasionally, special exemptions are enacted. For instance, Finance Act 2023/2024 introduced temporary relief for listed share disposals (2% final tax) , effectively exempting further CGT. Any such SI should be noted as time-bound.

• Exempt Transactions: ZIMRA guidance lists exempt cases (though not all statutory): e.g. donation of housing units to trusts, transfer of trade property to controlled company, etc. . These often tie to existing provisions (e.g. section 17 for company property).

Example: A local housing trust (approved by CGT Act) accepts donated rental units from a developer. Such donation is treated as if sold to the trust – these proceeds (the trust’s receipts) are exempt .

7. Worked Examples

Example A – Principal Residence with Partial Reinvestment: Alice (age 60) sells her home for $300,000. Cost was $200,000. She buys a new home for $200,000 with the proceeds, keeping $100,000.

• Gain = $300k – $200k = $100k.
• She reinvested 2/3 of proceeds. By section 21, 2/3 of gain ($66,667) rolls over tax-free, leaving $33,333 subject to CGT.
• CGT = 20% × $33,333 = $6,667. Clearance certificate will show $6,667 due (15% withheld, $45,000, yields refund $38,333).

Example B – Spouse Transfer then Sale: Victor transfers undeveloped land (cost $50k, market $80k) to his wife Rose on divorce (court order). They elect section 16, so deemed price = $50k. Later Rose sells it for $100,000.

• For Rose: sale gain = $100k – $50k = $50k (her cost basis). CGT = 20% × $50k = $10k.
• (Victor had no tax on the transfer as he took $50k cost.)

Example C – Corporate Reorganization (Roll-over): Dr. M transfers his clinic building (cost $120k, FMV $300k) to a new company he controls in exchange for shares, and elects section 17.

• Deemed sale price = $120k (his cost) . No CGT now.
• If the company later sells the building for $200k, Dr. M is deemed still the owner. His gain = $200k – $120k = $80k. CGT on $80k = $16k.

8. Summary of Exemptions (Cheat-Sheet)

9. Decision Flowchart (Exemptions)

flowchart TD
  A[Disposal Occurs] --> B{Type of Disposal}
  B -->|Principal private residence?| C[Check section 21: Reinvested & Age]
  B -->|Spousal transfer (incl divorce)?| D[Check section 16 election]
  B -->|Sale by estate executor?     | E[Exempt: section 10(b)]
  B -->|Sale to Govt/StatCorp?       | F[Exempt: section 10(c)]
  B -->|Sale of bonds by fund?      | G[Exempt: section 10(a)]
  B -->|Transfer to own co (trade)? | H[Check section 17 election]
  B -->|Other specified trust sale?  | I[Check Third Sch eligibility]
  B -->|None of the above| J[No special exemption]
  C --> K{Full Reinvest? Partial?}
  K -->|Yes| L[Exempt on reinvested gain]
  K -->|No| M[Tax on non-reinvested portion]
  D --> N[No gain; transferee gets donor’s cost]
  H --> O[No immediate tax; later sale taxed on original cost]
  J --> P[Apply normal CGT]

10. Classroom Activities and Assessment Questions

• Short Answer: What conditions must be met to claim the principal residence exemption under section 21? (Ans: Owner-seller, reinvest proceeds in main home, election on return, etc.)
• Calculation Problem: Alice sells her home for $250,000 (cost $150k) and buys new home for $200,000. Compute taxable gain under section 21. (Ans: Reinvested 80% of proceeds; 20% gain ($20k) taxed).
• Statutory Interpretation: Read section 16 excerpt . Explain how the deemed sale price is calculated for a spouse transfer.
• Case Brief: Review ZIMRA v Gosho (2014) (unspecified reference). Hypothetically, if a taxpayer sold land to spouse without election, why would that fail to get exemption?
• Discussion: Compare the CGT principal residence exemption to Income Tax’s. Why might Zimbabwe allow rollover but require reinvestment?
• Group Task: Given Fact Pattern: B transfers a rental house to spouse, then sells it. Identify which CGT sections apply and calculate any tax.

Current Date: 2026-03-11.

Chapter 23:01

Zimbabwe Revenue Authority

Chapter 23:01

zse.co.zw