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Outline Of Capital Gains Tax in Sri Lanka

  • Capital Gain Tax (CGT)
    • Tax on gains realized on the transfer of ownership including sale, exchange, transfer, distribution, cancellation, redeeming, destruction, loss, expiration, expropriation or surrender of an investment asset.
    • Elements of CGT
    • Investment Asset
    • Realization of the asset
    • Cost of the asset
    • Consideration
  • CGT = ( Consideration received – Cost of the asset at realization ) x 10%

 

Investment Asset

  • “Investment asset” –
  • means a capital asset held as part of an investment, but-
  • excludes the principal place of residence of an individual, provided it has been owned by the individual continuously for 3 years before disposal, and lived-in for at least 2 of those 3 years.
  • “Capital asset”– means each of the following assets:-

(i) land or buildings;

(ii) a membership interest in a company, partnership or trust;

(iii) a security or other financial asset;

(iv) an option, right or other interest in an asset referred above;

  • But excludes trading stock or a depreciable asset;
  • Excluded Investment Assets from CGT
    • Principal place of residence
    • Quoted shares listed in Colombo Stock Exchange
  • Exempted amount from CGT
    • Resident individual’s gain from realization of an investment asset not exceeding Rs.50,000 and
    • The total gains do not exceed Rs.600,000 in the year of assessment.
  • Capital Loss
    • A loss from the realization of an investment asset will not be deductible against any gain from the realization of investment asset.

Realization of Asset

  • On transfer of ownership of an asset (including when the asset is sold, exchanged, transferred, distributed, canceled, redeemed, destroyed, lost, expired, expropriated or surrendered) to a spouse;
  • Ceasing of the person owning the asset, including death;
  • When a debt claim is being written off as bad by the person;
  • When the person begins to employ trading stock, a depreciable asset, a capital asset of a business or an investment asset, in such a way that it ceases to be an asset of any of those types;
  • When a person resident in Sri Lanka ceases to be resident in Sri Lanka, all assets owned by the person is deemed to be realized;

Special cases

  • Transfer on death
    • Consideration on realization = Cost of asset
  • Transfer to spouse as part of divorce settlement or bona fide separation
    • Consideration on realization = Cost of asset
  • Transfer to ‘associate’ or gift
    • Consideration on realization = Cost of the asset / Market Value, whichever is higher
  • Transfer of land or building to ‘associate’ of an individual or charitable institution
    • Consideration on realization = Cost of the asset
  • Assignment of rights & obligations over an asset for more than 50 years (including by way of lease)
  • Transfer by way of finance lease/ instalment sale (hire purchase)

 

Cost of the Asset

The cost of an investment asset held by a person as at 30th September 2017 is equal to the market value of the asset at that time.

  • Expenditure incurred in acquiring the asset including expenditure on construction, manufacture or production of the asset;
  • Expenditure incurred in altering, improving, maintaining or repairing the asset;
  • Incidental expenditure incurred in acquiring and realizing the asset;

(a) advertising expenditure, transfer taxes, duties and other expenditure of transfer;

(b) expenditure of establishing, preserving or defending ownership of the asset; and

(c) remuneration for the services of an accountant, agent, auctioneer, broker, consultant, legal advisor, surveyor or valuer relating to above expenses.

  • The cost of an asset shall not include consumption expenditure, excluded expenditure and expenditure to the extent to which it is deducted in calculating a person’s income or included in the cost of another asset.

Payment and Filing obligation

  • Due Date for Payment of Tax :
    • Not later than one month after the date of realization of investment asset.
  • Due Date for Furnish Returns :
    • Not later than one month after the date of realization of investment asset.
  • Submit to :
    • The relevant Inland Revenue Metropolitan/Regional Office
    • Central Document Management Unit (CDMU) of the DIR

Penalty

  • Default in payment
    • CGIR issues a Notice of default
    • If payment is not made within 21 days from the date of Notice of Default, penalty of 20% will be imposed and legal action will be instituted.
  • Failure to submit return
    • Penalty of 5%, and 1% for each month in default, OR
    • 50,000, and Rs. 10,000 for each month in default, whichever is higher
    • Penalty is limited to Rs. 400,000.
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DesaramOutline Of Capital Gains Tax in Sri Lanka