Capital Gains Tax: New Guidelines
KRA recently issued guidelines on Capital Gains Tax (CGT) along with the prescribed self-assessment form (CGT 1) to be used in computing capital gains on property. CGT came into force on 1 January 2015 and as per the Guidelines will be due on the 20th day of the month following the transfer of the property.
Taxpayers will be required to prepare self-assessment computations, subject to KRA approval, to determine the capital gains arising from their property sales. Once the property is transferred the taxpayer will be required to prepare the CGT 1 form and submit it to the KRA by the due date indicated above. The KRA has also specified the information that will be required to accompany the CGT 1 forms:
- Completed CGT 1 form by the seller;
- Copy of Sale/Transfer Agreement of the property;
- Proof of the incidental costs related to the acquisition and transfer of the property;
- A copy of the title deed or ownership document for the property;
- Report from a registered valuer for property transactions between related parties; and
- Any other document/information that the Commissioner may require.
This latest communication from the KRA sets the stage for the implementation of capital gains tax from the beginning of this year. The form and documentation requirement is fairly simple. However, there may be a challenge for owners of property acquired or developed many years back in terms of proof of costs of acquisition, development or enhancement and there may be need for the KRA to accept alternative evidence in certain cases where it may be impractical to obtain formal records, and bearing in mind that the statutory record keeping period is 7 years. Going forward, taxpayers should maintain proper records relating to property expenditure to facilitate correct assessment of CGT for future taxable disposals.