Capital Gains Tax is not charged on total proceeds. It is charged on net gains.
The computation formula is:
Disposal Proceeds
minus Acquisition Cost
minus Improvement Costs
minus Incidental Expenses (legal fees, agent fees, stamp duties, etc.)
Only the remaining profit is taxable.
Business Assets & Capital Allowance
If the asset was used in trade and capital allowances were previously claimed, only the residue (remaining tax value) is deductible.
Part Disposal Formula
Where only part of an asset is disposed:
Cost is apportioned using:
A / (A + B)
Where:
A = Value of the disposed part
B = Market value of the undisposed portion
This determines the deductible cost attributable to the disposed portion.
Loss or Destruction of Asset
If an asset is destroyed and insurance compensation is received:
- If the compensation is used to replace the asset within 3 years, special relief applies.
- If excess funds remain unutilized, that excess may trigger a chargeable gain.
Incorrect computation is one of the most common tax errors in Nigeria.
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