The Gift and the Taxman: Navigating Capital Gains Tax on Donations in Zimbabwe

In the spirit of generosity, many Zimbabweans choose to gift houses or shares to their children or relatives. However, in the eyes of the Zimbabwe Revenue Authority (ZIMRA), a “gift” is not a tax-free event. Under the Capital Gains Tax (CGT) Act [Chapter 23:01], a donation is treated with the same legal scrutiny as a multi-million-dollar sale.

If you are thinking of giving your child a house or transferring shares to them, you need to understand the “magic” of Deemed Disposals.

1. The Core Principle: A Gift is a “Deemed Sale”

The most common mistake people make is assuming that because no money changed hands, no tax is due. However, Section 8(2)(b) of the CGT Act explicitly states that where an asset is disposed of “otherwise than by way of sale” (such as a gift or donation), it is deemed to have been sold.

The law creates a fictional sale to ensure the government doesn’t lose out on tax revenue just because a taxpayer chose to be generous.

The Valuation Rule (Section 14)

Since there is no “selling price” in a gift, how does ZIMRA calculate the tax?

Under Section 14, the Commissioner-General has the power to determine the Fair Market Price. If you give your son a house in Borrowdale worth $250,000, you cannot tell ZIMRA the “price” was zero. ZIMRA will assess the house based on what a willing buyer would have paid a willing seller on the open market at that date.

Layman’s Example: > If Mr. Moyo gives his daughter a house that he bought for $50,000 ten years ago, and today it is worth $120,000, ZIMRA will treat this as if Mr. Moyo sold it for $120,000. He will be liable for CGT on the $70,000 “profit,” even though his daughter didn’t pay him a cent.

2. Gifting a House: The Family Dynamics

When gifting immovable property (real estate), the tax treatment depends heavily on who is involved and the status of the property.

The “Spouse” Exception (Section 16)

It is important to note that while gifts to children are taxed, gifts between spouses are generally exempt (or rather, deferred) under Section 16. If a husband gifts a house to his wife, they can elect to have the “selling price” equal the original purchase price, resulting in zero tax at that moment. This privilege does not extend to children.

The 55+ Exemption

If the father gifting the house is 55 years or older and the house is his Principal Private Residence (PPR), he may be exempt from CGT under Section 10. This is a massive relief for parents looking to distribute their estate while still alive.

3. Gifting Shares: The Story of the Minor vs. The Adult

Gifting shares (marketable securities) follows similar logic but introduces specific complexities regarding the age of the recipient.

Scenario A: Gifting Shares to an Adult Son

If a father gives shares in his private company to his 25-year-old son, the father is the “seller” in the eyes of the law.

• The Tax: The father must pay 20% CGT on the gain (Market Value minus Original Cost).

• The Process: The company’s share register must be updated, and ZIMRA will require a CGT Clearance Certificate before the transfer is legally recognized.

   

Scenario B: Gifting Shares to a Minor Child

When a minor (someone under 18) is involved, the Income Tax Act and CGT Act work together to prevent “income splitting” (a trick where parents move assets to children to pay less tax).

• Deemed Income: Under Section 10 of the Income Tax Act, if a minor child receives income (like dividends) from shares donated by a parent, that income is deemed to be the parent’s income. The parent will pay the tax on those dividends at their own high tax rate.

• CGT Treatment: For the actual gift of the shares, the father still pays CGT on the “deemed sale” at market value. However, the law remains vigilant. If the minor later “sells” those shares, the cost base for the child will be the market value at the time they received the gift.

   

4. Summary of the Tax Treatment

5. Practical Steps for Gifting Assets

If you are planning to gift an asset, you cannot simply hand over the keys or a share certificate. To be legally compliant in Zimbabwe, you must:

1. Obtain a Valuation: Get a professional valuation report to prove the “Fair Market Value” to ZIMRA.

2. Apply for CGT Clearance: Submit a CGT1 Form to ZIMRA. Even if the tax is zero (due to an exemption), you still need the certificate to move the Title Deed or update the Share Register.

3. Prepare for Cash Flow: Since no money is being paid by the receiver, the “giver” must have the cash ready to pay the tax out of their own pocket.

In Zimbabwe, “giving” is legally viewed as “selling at a fair price.” Whether it is a family home or a block of shares, the Deeming Provisions of the CGT Act ensure that the taxman is a silent partner in your generosity. Before you sign that deed of donation, ensure you have calculated the “cost of giving.”