Outline Of Capital Gains Tax in Sri Lanka


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:-
    • land or buildings;
    • a membership interest in a company, partnership or trust;
    • a security or other financial asset;
    • 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


    • 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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