Capital Gains Tax (CGT)

Principal Act

Capital Gains Tax is governed by the Inland Revenue Act, No. 24 of 2017 (as amended).

Scope of Liability & Chargeability

CGT is payable on the gains from the realisation (e.g., sale, exchange, transfer) of investment assets. The gain is calculated as the amount by which the consideration received for the asset exceeds the cost of the asset at the time of realisation.

Registration Threshold

While there is no specific “registration threshold,” resident individuals are not liable to pay CGT if their total gains from the realisation of investment assets during a year of assessment do not exceed Rs. 600,000.

Tax Rates

The applicable tax rate for Capital Gains depends on the type of taxpayer:

• Individuals and Partnerships: Subject to a 10% tax rate on the capital gain.
• Companies and Other Entities: (Including trusts, NGOs, unit trusts, and charitable institutions) Subject to a 30% tax rate on the capital gain.

Key Exemptions

Certain gains are exempt from CGT, including:

• Principal Residence: A gain made by a resident individual on the realisation of their principal place of residence, provided they have owned it continuously for the three years before realisation and lived in it for at least two of those three years.
• Quoted Shares: Gains made on the realisation of shares quoted in any official list published by a stock exchange licensed by the Securities and Exchange Commission of Sri Lanka.
• Individual Threshold: Total gains up to Rs. 600,000 for a resident individual in a year of assessment.
• Joint Ownership: If an investment asset is jointly owned, the gain is exempt if the total gain made by all owners does not exceed Rs. 50,000, provided the resident individual’s total gains for the year do not exceed Rs. 600,000.

Calculation Scenarios

To calculate the Capital Gain, you must deduct the Total Cost of the Asset from the Consideration Received.

• Consideration Received: The amount received or receivable for the asset.
• Total Cost of Asset Includes:
  • The market value of the asset as of September 30, 2017, OR the actual Cost of Acquisition.
  • Cost of Improvements, Maintenance, or Repairs (after 30.09.2017).
  • Incidental Expenses in Acquisition and Realisation (after 30.09.2017).

Calculation Example:

1. Consideration Received: Rs. 5,000,000
2. Less Total Cost: Rs. 3,500,000 (Cost of Acquisition + Improvements + Incidental Expenses)
3. Capital Gain: Rs. 1,500,000
4. CGT Payable: * For an Individual/Partnership (10%): Rs. 150,000
   • For a Company/Entity (30%): Rs. 450,000

Payment and Return Due Dates

• Filing the Return: A person must file a capital gains tax return within thirty days after the end of the relevant calendar month in which the realisation of the investment asset occurred.
• Payment Due Date: The tax must be paid on the same date the capital gains tax return is required to be filed.

Penalty for Non-Compliance

Failure to comply with CGT obligations is subject to penalties under Chapter XVII of the Inland Revenue Act. This includes penalties for:

• Late filing of the tax return.
• Late payment of the tax due.
• Making false or misleading statements.