Although Capital Gains Tax (CGT) only applies on the gain from the disposal of a property, the gain takes the purchase cost into account. It is therefore crucial to keep accurate records of all the costs associated with your property purchase for the event that you one day dispose of it.
A capital gain is calculated by deducting the base cost of a property from the proceeds of the disposal of the property. The following are included in the base cost:
The cost of acquiring a property, including the purchase price, transfer cost, transfer duty, VAT and professional fees.
The costs of improvements, alterations, renovations and so forth.
The cost of disposing of the property, including the agent’s commission, advertising costs, valuation costs (including valuing the property for CGT purposes) and professional fees.
Expenditure on repairs, maintenance, insurance and rates and taxes is not included in base costs.
It is thus essential to maintain accurate records of these costs. If records are not kept, no deduction will be allowed from the proceeds to determine the capital gain. Records must be kept for four years from the date of submission of the income tax return for the year in which the capital gain or loss is reflected.
“Disposal” includes a sale, donation, exchange, vestment in a beneficiary of a trust, or emigration.