• 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:-

1. land or buildings;


2. a membership interest in a company, partnership or trust;


3. a security or other financial asset;


4. 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
  
  
  • The relevant Inland Revenue Metropolitan/Regional Office
  
  

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.