Introduction to Capital Gains Tax

This lesson teaches the other half of the capital gains deduction story. In the companion lesson on Allowable Deductions When Calculating CGT we built up the closed list of deductions a taxpayer may claim against the capital amount under Section 11(2)(a)–(h) of the Capital Gains Tax Act [Chapter 23:01]. This lesson turns the list over and asks the harder, more examinable question: which costs can a taxpayer never deduct, and why? Getting this wrong is expensive — a practitioner who deducts a non-permissible cost understates the capital gain, the assessment is corrected on audit, and additional tax of up to 100% (imported via Section 23 of the CGT Act from Section 46 of the Income Tax Act [Chapter 23:06]) can follow.

The single most important structural fact is this: capital gains tax has no general deduction formula. Income tax has the famous "general deduction formula" in Section 15(2)(a) of the Income Tax Act — "expenditure and losses incurred… in the production of… income" — and then a list of express prohibitions in Section 16. CGT is built the opposite way round. There is no open-ended permission; Section 11(2) is an exhaustive closed list, and anything not named in it is automatically non-permissible. So in CGT the question is never "is this cost prohibited?" but "is this cost on the list?" If it is not, it falls away, regardless of how genuinely it was incurred.

On top of that structural rule, the law adds four express, targeted prohibitions that disallow even amounts that would otherwise qualify:

• Section 12 — exempt assets. "Notwithstanding the provisions of section eleven, no deduction shall be made in respect of expenditure on or in relation to specified assets the sale of which is exempt from tax." This is symmetry: if the gain is not taxed, the costs are not relieved either (C W (Pvt) Ltd v COT 89-ZLR-361; Ellis N.O. v COT 92-SC-001).
• The income-tax carve-out inside Section 11(2)(a) and (b). Acquisition, construction and improvement costs are deductible "other than expenditure in respect of which a deduction is allowable in the determination of the seller's taxable income" for income-tax purposes. This stops double-dipping — you cannot claim the same cost once as an income-tax deduction (or capital allowance) and again as a CGT deduction.
• Section 11(4) — no double deduction. Where one amount could be deducted under more than one provision, the taxpayer elects one; it cannot be claimed twice.
• Section 11(3) provisos — assessed capital losses. A brought-forward capital loss is disallowed where it is the product of loss-trafficking (a shareholding change engineered to use the loss) or where the taxpayer has become insolvent.

Finally — and this is where most real-world money is lost — the Finance Act [Chapter 23:04] rewrites the deduction rules by currency and date through Section 39A. For foreign-currency (USD) gains, Section 39A(9a) disallows every Section 11 deduction except (a), (b), (d), (e), (f) and (g) and replaces the CPI inflation allowance in Section 11(2)(c) with a flat 2½% per year of cost. Worse, Section 39A(10) disallows all Section 11 deductions for any specified asset acquired between 1 February 2009 and 22 February 2019 and sold afterwards — the "dead zone." And for any asset acquired before 22 February 2019, Section 38(a) of the Finance Act charges 5% of the gross capital amount, so deductions are economically irrelevant — the tax is on proceeds, not gain. The rate split date is 22 February 2019, not 1 February 2009 (re-pegged by Finance Act 7/2021, backdated).

The practical lesson is that "non-permissible deductions" in Zimbabwean CGT is not one rule but a layered system: a closed list that excludes by silence, four express prohibitions that exclude by name, and a currency/date overlay in the Finance Act that switches deductions off entirely for large classes of taxpayer. This lesson walks every layer clause by clause, with USD worked computations for each.

Every tax on a gain must answer two questions in sequence: what is brought in (the proceeds side), and what is taken out (the cost side). The difference is the gain on which tax is levied. We have already studied the proceeds side — the gross capital amount under Section 8(1) of the Capital Gains Tax Act [Chapter 23:01] — and the deductions side — the Section 11(2) list. This lesson studies the boundary of the deductions side: the costs that sit outside the list, or that are pushed outside it by an express prohibition or by the Finance Act.

Why does this deserve its own lesson? Because the cost side is where taxpayers and even practitioners make their most confident mistakes. A seller who has spent real money — bank interest on the loan that bought the property, municipal rates over fifteen years of ownership, insurance premiums, the cost of their own time managing a renovation, transfer duty paid on acquisition — feels, intuitively, that all of these should reduce the taxable gain. They were genuine outflows connected to the asset. In income tax, many of them would be deductible. In capital gains tax, almost none of them are, and the reason is structural, not punitive: CGT simply does not have a provision that lets them in.

To see this, contrast the two architectures the student already knows.

Income tax (Income Tax Act [Chapter 23:06]). As established in Introduction to Taxation in Zimbabwe and Prohibited Deductions under section 16, income tax works by permission then prohibition. Section 15(2)(a) grants a broad, general deduction — "expenditure and losses to the extent to which they are incurred for the purposes of trade or in the production of income," excluding amounts of a capital nature. That open door lets in a vast range of business costs. Section 16 ("Cases in which no deduction shall be made") then closes specific doors — private expenditure, recoverable losses, income tax itself, entertainment, excessive related-party fees, and so on. The default is deductible; you need a named prohibition to keep something out.

Capital gains tax (CGT Act [Chapter 23:01]). CGT works by enumeration only. There is no general deduction formula. Section 11(2) lists eight specific deductible items — (a) acquisition/construction cost, (b) improvements, (c) the CPI inflation allowance, (d) selling costs, (e) bad debts, (f)/(g) taxed appeal costs, (h) the de minimis allowance — and that is the entire universe of what may be deducted. The default is non-deductible; you need a named permission to get something in.

This single inversion explains most CGT non-permissible-deduction problems. When a student asks "can I deduct loan interest against my capital gain?" the income-tax-trained instinct is to look for a prohibition, find none, and conclude "yes." The correct CGT method is the reverse: look for the permission in Section 11(2)(a)–(h), find none (interest is not acquisition cost, not an improvement, not a selling cost), and conclude "no — it is not on the list, therefore it is non-permissible."

Where ZIMRA audit interest is high: because under-claiming hurts the taxpayer and over-claiming hurts the fiscus, ZIMRA scrutinises the cost side of every CGT 1 return closely — especially (1) inflated "improvement" figures that are really repairs or holding costs, (2) deductions claimed on exempt disposals (barred by Section 12), (3) the same cost claimed for both income tax and CGT (barred by the Section 11(2)(a)/(b) carve-out), and (4) any Section 11 deduction claimed on a USD gain or a dead-zone asset where Section 39A has switched the deductions off. Each of these is examined below.

The non-permissible-deduction rules are scattered across the CGT Act and the Finance Act. Read together they form several disallowance mechanisms. We take each by its section number.

B.1 The closed-list rule — Section 11(2), CGT Act [Chapter 23:01]

Section 11(1) opens: "For the purposes of determining the capital gain of any person there shall be deducted from the capital amount of such person the amounts allowed to be deducted in terms of this section." The phrase "the amounts allowed to be deducted in terms of this section" is the closed-list lock. Only the amounts that this section allows may be deducted; the section then lists them exhaustively in subsection (2), paragraphs (a) to (h). There is no residual or catch-all paragraph, and no incorporation of the income-tax general deduction formula. Consequence: any cost not described by one of paragraphs (a)–(h) is non-permissible by operation of the closed list, without needing any express prohibition.

The paragraphs (studied fully in Allowable Deductions When Calculating CGT) are: (a) acquisition or construction cost; (b) additions, alterations or improvements; (c) the inflation allowance (CPI formula); (d) expenditure directly incurred for or in connection with the sale; (e) bad debts previously brought into the capital amount; (f) and (g) costs taxed by the Registrar of the High/Special Court and the Supreme Court on a successful appeal; (h) the de minimis allowance (whole gain deductible where the year's total capital gains are US$50 or less).

What is conspicuously absent from the list — and therefore non-permissible — includes: interest on borrowings used to acquire or hold the asset; rates, levies and land tax paid during ownership; insurance premiums; repairs and maintenance that do not amount to an addition, alteration or improvement; valuation and holding costs unconnected to the sale; the opportunity cost or notional value of the owner's own labour; transfer duty and conveyancing on acquisition (as opposed to costs of the sale, which are (d)); and any general overhead of owning the asset.

B.2 Express prohibition on exempt assets — Section 12, CGT Act

Section 12 ("Circumstances in which no deductions may be made") reads in full:

"Notwithstanding the provisions of section eleven, no deduction shall be made in respect of expenditure on or in relation to specified assets the sale of which is exempt from tax."

Three features matter. First, the opening word "Notwithstanding" makes Section 12 an override of Section 11 — even an amount that fits squarely within the Section 11(2) list is disallowed if the asset's sale is exempt. Second, the test is the sale being exempt from tax, i.e. covered by an exemption in Section 10 of the CGT Act (the Section 10(a)–(r) list studied in Capital Gains Tax Exemptions — exempt bodies, deceased-estate realisations, State and statutory-corporation loan stock, the over-55 principal-private-residence exemption Section 10(l), VFEX-listed securities Section 10(r), and so on). Third, the principle is symmetry: tax relieves costs only where it taxes gains. If the gain escapes tax under Section 10, the matching costs cannot be used to manufacture or enlarge a loss that would shelter other taxable gains.

This is the only provision in the CGT Act actually headed "no deductions" — but, as we shall see, it is far from the only provision that produces a non-permissible deduction.

B.3 The income-tax carve-out — Section 11(2)(a) and (b), CGT Act

Both paragraph (a) (acquisition/construction cost) and paragraph (b) (improvements) contain an identical internal exclusion. Paragraph (a) allows acquisition or construction expenditure "other than expenditure in respect of which a deduction is allowable in the determination of the seller's taxable income as defined in subsection (1) of Section 8 of the Taxes Act." Paragraph (b) repeats the same carve-out for improvements.

The effect is an anti-double-dip rule built into the permissive paragraphs themselves. If a cost has already been (or could be) deducted for income-tax purposes — most importantly as a capital allowance (Special Initial Allowance or wear-and-tear under the Fourth Schedule to the Income Tax Act), or as a trading-stock cost, or under the general deduction formula — then it is carved out of the CGT deduction. It cannot do double duty. This keeps income tax and CGT mutually exclusive on the cost side, mirroring the mutual-exclusivity on the proceeds side (the gross capital amount excludes amounts proved to be income-tax gross income, established in Capital Gains Tax in Zimbabwe: Introduction, Purpose and Legal… and Capital vs Revenue Receipts).

This is technically a permission with a hole in it rather than a free-standing prohibition, but its practical result is a non-permissible deduction: the portion of cost relieved for income tax is not available as a CGT deduction.

B.4 No double deduction within CGT — Section 11(4), CGT Act

Section 11(4) provides that where an amount would be deductible "under more than 1 provision of this Act," whether in the same or different years, the taxpayer "shall not be entitled to claim that such amount shall be deducted more than once," and where the overlap is in the same year, the taxpayer must elect which single provision to use. This prevents internal double-counting — for example, claiming the same expenditure as both an improvement under (b) and a selling cost under (d). The second claim is non-permissible.

B.5 Disallowed assessed capital losses — Section 11(3) provisos, CGT Act

Section 11(3) allows a brought-forward assessed capital loss (defined in Section 2 as the excess of deductions over the capital amount) to be deducted from the current year's capital amount. But three provisos govern the carry-forward:

• Proviso (i) — anti-loss-trafficking. If during a year there is a change in the shareholding of a company with an assessed capital loss (or of a company that controls it), and the Commissioner is satisfied the change was made "solely or mainly… for taking advantage of such assessed capital loss," then no loss incurred before the change is deductible. "Control" is defined as holding the majority of voting rights. This mirrors the income-tax loss-trafficking proviso in Section 15(3) of the Income Tax Act (see Corporate Income Tax in Zimbabwe).
• Proviso (ii) — insolvency. A taxpayer who has been adjudged or declared insolvent, or has assigned property to creditors, cannot carry forward an assessed capital loss incurred before that event.
• Proviso (iii) — conversion preserved (a saving, not a prohibition). Conversely, where a company converts to a private business corporation under the Companies and Other Business Entities Act [Chapter 24:31], or vice versa, the assessed capital loss survives the conversion. This is included for completeness: it is the one provision in Section 11(3) that preserves rather than disallows.

B.6 Rollover-funded expenditure lock-out — Section 13(4), CGT Act

Where a specified asset is damaged or destroyed, Section 13(3) grants a two-year replacement rollover: to the extent the receipt (e.g. insurance proceeds) is reinvested within two years in a like replacement asset or in repairs, the deemed sale under Section 13(1) does not apply to the amount reinvested. The catch is Section 13(4): "Expenditure to which subsection (3) relates shall not be allowable as a deduction in terms of section eleven upon the subsequent sale of the specified asset concerned." In other words, the cost you funded with the tax-deferred receipt is locked out of your future Section 11 deduction. If you could both defer the gain and later deduct the replacement cost, you would get relief twice. Section 13(4) makes that future deduction non-permissible.

B.7 The Finance Act overlay — Sections 38 and 39A, Finance Act [Chapter 23:04]

The CGT Act tells you what may be deducted; the Finance Act then switches deductions on or off by currency and acquisition date. Three rules confirmed against the Finance Act as at 27 May 2025:

Section 38 — the rate split. CGT is "$0.05 / US$0.05 for each dollar of the gross capital amount" for an asset acquired before 22 February 2019, and "$0.20 / US$0.20 for each dollar of the capital gain" for an asset acquired after 22 February 2019. For a pre-22 February 2019 asset, the charge is on the gross capital amount — proceeds, before any Section 11 deduction — so deductions have no effect on the tax at all. They are not "prohibited," but they are economically inert: claiming or not claiming them changes nothing. The threshold is 22 February 2019 (substituted by Finance Act 7/2021, backdated), not the older 1 February 2009 date.

Section 39A(9a) — the foreign-currency restriction. "For the purposes of determining the capital gain… in a foreign currency, no amounts shall be deducted therefrom that are allowed to be deducted in terms of Section 11… other than — (a) the amount referred to in Section 11(2)(a), (b), (d), (e), (f) and (g); and (b)… an amount of 2½% of the purchase price of the specified asset [per year], and 2½% of the cost of additions/improvements." So for a USD gain, the CPI inflation allowance in Section 11(2)(c) is non-permissible — it is replaced by the flat 2½%-per-year allowance — and the de minimis allowance in Section 11(2)(h) is also outside the permitted list. (Inserted by Finance Act 7/2021, backdated to 22 February 2019.)

Section 39A(10) — the dead zone. "For the purposes of determining the capital gain… in respect of a specified asset acquired on or after the 1st February, 2009, but before the 22nd February, 2019, and disposed of after that date, no amounts shall be deducted therefrom that are allowed to be deducted in terms of Section 11." For these assets, the entire Section 11 list is non-permissible — every cost is disallowed and the rate bites on approximately the full proceeds. This is the harshest non-permissible-deduction rule in the CGT system. (Inserted by Finance (No.2) Act 7/2019.)

A fourth provision, Section 39A(11), presumes any purported Zimbabwe-dollar sale to have been made in USD at market value unless the seller proves otherwise — which can pull a transaction into the USD-restricted regime of Section 39A(9a) and so disallow the CPI allowance.

It helps to organise every disallowed CGT cost into six families, each traceable to a provision in section B.

Family 1 — "Not on the list" (the structural default; Section 11(2))

This is the largest family. A cost is non-permissible simply because Section 11(2)(a)–(h) does not describe it. No prohibition is needed; the closed list excludes by silence. Walk the common candidates:

• Interest on acquisition or holding finance. A mortgage bond or loan used to buy the property generates interest over years of ownership. Interest is not "expenditure incurred on the acquisition" (paragraph (a) captures the price/construction cost, not the cost of financing it), not an improvement, and not a selling cost. Non-permissible. (Contrast income tax, where interest in the production of income is deductible under Section 15(2)(a)/(b).)
• Rates, levies, land tax, and municipal charges paid during ownership: recurrent holding costs, not on the list. Non-permissible.
• Insurance premiums on the asset: a holding cost, not on the list. Non-permissible. (Note the asymmetry: insurance proceeds on damage/destruction are taxed as a deemed sale under Section 13(1), but the premiums that bought the cover are not deductible — see Common Pitfalls.)
• Repairs and maintenance that merely keep the asset in its existing state. Paragraph (b) allows "additions, alterations or improvements" — capital enhancements that change the asset's character or extend it. Routine repairs restore rather than improve; they are non-permissible for CGT. (This is the classic repair-versus-improvement line, the same distinction the student met in income tax.)
• The owner's own labour or time (e.g. a developer who project-manages their own renovation): no expenditure has been "incurred" — there is no outflow — so nothing is deductible. Non-permissible.
• Acquisition transfer duty and conveyancing. Paragraph (d) allows costs "directly incurred for the purposes of or in connection with the sale" — the disposal end. Costs incurred to buy the asset (transfer duty, conveyancing on purchase) are not selling costs. They may, however, qualify under paragraph (a) if they form part of the cost of acquisition — a point of genuine difficulty flagged under Common Pitfalls.

Family 2 — Exempt-asset expenditure (Section 12)

If the disposal is exempt under Section 10, every related cost is non-permissible, even costs that would otherwise be squarely on the Section 11 list. The "Notwithstanding section eleven" override is absolute. Examples: improvements to a principal private residence sold by an over-55 seller (gain exempt under Section 10(l)) cannot be deducted to create a loss; the cost of VFEX-listed shares (exempt under Section 10(r), Act 8/2020) cannot be deducted; expenditure on State or statutory-corporation loan stock exempt under Section 10(c) is non-permissible (the very point litigated in C W (Pvt) Ltd and Ellis N.O.).

Family 3 — Income-tax double-dip (Section 11(2)(a)/(b) carve-out)

Any acquisition, construction or improvement cost already relieved for income tax is carved out. The flagship case is capital allowances: a commercial building on which the owner claimed Special Initial Allowance / wear-and-tear under the Fourth Schedule has, to that extent, already deducted the cost against income. That portion is non-permissible as a CGT deduction. The carve-out reaches anything "allowable in the determination of the seller's taxable income" — note "allowable," so it bites whether or not the taxpayer actually claimed it, provided it could have been claimed.

Family 4 — Internal double-counting (Section 11(4))

The same amount cannot be deducted under two CGT provisions. If a cost is claimed under (b) as an improvement it cannot also be claimed under (d) as a selling cost; the taxpayer elects one. The duplicate is non-permissible.

Family 5 — Tainted or extinguished assessed losses (Section 11(3) provisos)

A brought-forward capital loss is disallowed where it is the fruit of loss-trafficking (majority-shareholding change to exploit the loss) or where the taxpayer has gone insolvent. The loss exists arithmetically but is non-permissible as a deduction in the current year.

Family 6 — Currency / date switch-off (Finance Act Section 38, Section 39A)

Even a perfectly listed, non-exempt, non-double-counted deduction can be switched off by the Finance Act:

• Pre-22 February 2019 acquisition (Section 38(a)): charge is 5% of gross — deductions are inert.
• USD gain (Section 39A(9a)): Section 11(2)(c) CPI allowance and Section 11(2)(h) de minimis are non-permissible; only (a), (b), (d), (e), (f), (g) survive, plus the 2½%/yr substitute.
• Dead-zone asset, acquired 1 Feb 2009 – 22 Feb 2019 (Section 39A(10)): all Section 11 deductions non-permissible; tax on ≈ full proceeds.

The six families are cumulative filters. A cost must pass all of them to be deducted: it must be on the list (Family 1), the asset must not be exempt (Family 2), the cost must not be relieved for income tax (Family 3), it must not duplicate another CGT deduction (Family 4); a loss must not be tainted (Family 5); and the Finance Act currency/date overlay must not switch it off (Family 6).

A step framework for the exam

When asked "is cost X deductible against the capital gain?", apply this sequence:

1. Is the disposal exempt under Section 10? If yes → Section 12: nothing is deductible. Stop.
2. What is the acquisition date? Before 22 Feb 2019 → Section 38(a) 5% of gross; deductions are irrelevant (compute on proceeds). Acquired 1 Feb 2009 – 22 Feb 2019 → Section 39A(10): no deductions at all. After 22 Feb 2019 → continue.
3. Is the gain in USD? If yes → only Section 11(2)(a),(b),(d),(e),(f),(g) plus 2½%/yr; no CPI (c), no de minimis (h).
4. Is cost X described by a surviving paragraph of Section 11(2)? If no → non-permissible (Family 1).
5. Has cost X already been relieved for income tax (capital allowance, Section 15(2) deduction)? If yes → carved out (Family 3).
6. Is cost X already being claimed under another CGT provision the same year? If yes → elect one (Section 11(4), Family 4).

All computations below are for a year of assessment in the post-22 February 2019 regime unless stated, and use the 20% of the capital gain rate for post-2019 acquisitions and 5% of the gross capital amount for pre-2019 acquisitions (Finance Act Section 38). Figures are illustrative; the CPI inflation allowance in Section 11(2)(c) is shown only where the gain is in Zimbabwe dollars, because Section 39A(9a) disallows it for USD gains and substitutes 2½%/yr.

Individual — the "everything should count" homeowner (Family 1)

Tatenda bought a residential rental flat in March 2021 (post-2019; 20%-of-gain regime, USD) for USD 80,000, financing it with a bank loan. He sells it in the current year for USD 130,000. Over four years he paid USD 18,000 of mortgage interest, USD 4,000 of municipal rates, USD 3,000 of insurance, and USD 6,000 on a new roof and an added garage (a genuine improvement). Conveyancing on the sale cost USD 2,500. He is under 55 and the flat is a rental (not his principal private residence), so no exemption applies.

Tatenda's instinct is to deduct everything: 80,000 + 18,000 + 4,000 + 3,000 + 6,000 + 2,500 = "costs" of USD 113,500, leaving a gain of only USD 16,500. This is wrong. Apply the filters:

The 2½%/yr allowance (Section 39A(9a)(b)) replaces the disallowed CPI allowance: 2½% × USD 80,000 × 4 years = USD 8,000 on the cost, plus 2½% × USD 6,000 × (say) 3 years on the improvement = USD 450, total USD 8,450.

Computation:

Gross capital amount (proceeds) USD 130,000
Less Section 10 exemptions 0
Capital amount USD 130,000
Less permissible Section 11 deductions:
 Acquisition cost (a) USD 80,000
 Improvement: roof + garage (b) USD 6,000
 2½%/yr allowance in lieu of CPI (39A(9a)) USD 8,450
 Selling conveyancing (d) USD 2,500
 Total deductions USD 96,950
Capital gain USD 33,050
CGT at 20% (Section 38(b)) USD 6,610

The USD 25,000 of interest, rates and insurance Tatenda wanted to deduct is non-permissible, raising his gain from his imagined USD 16,500 to USD 33,050 and his tax from a hoped USD 3,300 to USD 6,610. Had he filed his CGT 1 with the non-permissible deductions, ZIMRA would have corrected the assessment and could have added additional tax under Section 46 (imported via Section 23).

Individual — the exempt over-55 seller (Family 2, Section 12)

Mrs Dube, aged 60, sells her principal private residence — her home throughout ownership — for USD 200,000, having spent USD 40,000 on a new wing. Because she is over 55, the entire gain is exempt under Section 10(l) (see CGT on Property Sales). She asks whether she can instead deduct her USD 40,000 of improvements to crystallise a capital loss she could carry to a future taxable disposal. Section 12 says no: "no deduction shall be made in respect of expenditure on or in relation to specified assets the sale of which is exempt from tax." The disposal is exempt; the improvement cost is non-permissible; there is no loss to carry. Symmetry holds: no tax on the gain, no relief for the cost. Tax payable: nil; deductible loss generated: nil.

SME / company — the capital-allowance double-dip (Family 3)

Nyasha Trading (Pvt) Ltd owns a warehouse it bought and built for USD 300,000 in 2020 (post-2019, USD). Over the years it claimed Special Initial Allowance and wear-and-tear under the Fourth Schedule to the Income Tax Act totalling USD 120,000 against its trading income. It now sells the warehouse for USD 500,000, with USD 10,000 of selling agent's commission.

The temptation is to deduct the full USD 300,000 construction cost. But Section 11(2)(a) carves out "expenditure in respect of which a deduction is allowable in the determination of the seller's taxable income." The USD 120,000 already relieved through capital allowances is non-permissible for CGT.

Gross capital amount (proceeds) USD 500,000
Less permissible Section 11 deductions:
 Net construction cost (a), after carve-out USD 180,000
 2½%/yr allowance on cost (39A(9a)(b))* USD 27,000
 Selling commission (d) USD 10,000
 Total deductions USD 217,000
Capital gain USD 283,000
CGT at 20% (Section 38(b)) USD 56,600

Illustrative: 2½% × USD 180,000 × 6 years = USD 27,000 (the allowance runs on the cost*).

Recall too the mutual-exclusivity safety net: where capital allowances were claimed, a later recoupment may be taxed as income under Section 8(1)(j) of the Income Tax Act on the sale (see Capital vs Revenue Receipts). The CGT computation deals only with the capital element; the recouped allowances are an income-tax matter, and the CGT gross capital amount excludes amounts that are income-tax gross income. The two systems meet but never overlap on the same dollar — which is exactly what the Section 11(2)(a) carve-out enforces on the cost side.

SME — the dead-zone trap (Family 6, Section 39A(10))

Mukoma Hardware acquired a commercial stand in June 2015 — squarely inside the dead zone (1 Feb 2009 – 22 Feb 2019) — for USD 60,000, spent USD 25,000 on improvements, and sells it now for USD 150,000 with USD 6,000 selling costs. The asset was acquired on or after 1 February 2009 but before 22 February 2019, so it falls under Section 39A(10): no Section 11 deductions whatsoever.

Note the rate. The asset was acquired before 22 February 2019, so Section 38(a) charges 5% of the gross capital amount:

Gross capital amount (proceeds) USD 150,000
Deductions: NONE permitted (Section 39A(10); Section 38(a) charges on gross)
CGT at 5% of gross (Section 38(a)) USD 7,500

Here the two rules align: under the pre-2019 5%-of-gross rate the deductions were already inert, and Section 39A(10) confirms none are available. Tax: USD 7,500 on USD 150,000 of proceeds, regardless of the USD 91,000 of real cost. This is the punitive edge of the regime; the only relief is that the rate is 5% rather than 20%.

Large corporate — tainted assessed capital loss (Family 5, Section 11(3) proviso (i))

HoldCo has a subsidiary LossCo carrying an assessed capital loss of USD 2,000,000 from a 2022 property disposal. A buyer wants LossCo only for that loss, to shelter a USD 5,000,000 gain it expects on its own portfolio. It acquires 70% of LossCo's voting shares (majority — "control") and routes the gain through LossCo. The Commissioner, satisfied the shareholding change was effected "solely or mainly… for taking advantage of such assessed capital loss," invokes Section 11(3) proviso (i): no assessed capital loss incurred before the change is deductible. The USD 2,000,000 loss is non-permissible; the USD 5,000,000 gain is taxed in full at 20% = USD 1,000,000, with no shelter. This is the CGT analogue of the income-tax loss-trafficking rule (Corporate Income Tax in Zimbabwe, Section 15(3)).

Zimbabwean CGT case law on deductions is thin — the system is young (the CGT Act commenced 1 August 1981) and most disputes are about valuation and exemption rather than the cost list. The cases below are the load-bearing authorities; where a point rests on principle rather than a decided case, that is stated.

C W (Pvt) Ltd v COT 1989 (ZLR) 361 and Ellis N.O. v COT 1992-SC-001. These companion authorities concern the exemption for State / local-authority / statutory-corporation loan stock (now Section 10(c)). Their relevance to non-permissible deductions is the symmetry principle behind Section 12: where the gain on a specified asset is removed from charge by an exemption, the matching costs cannot be used to generate relief. An exempt asset is outside the system on both sides — no taxable gain, and (by Section 12) no deductible cost. The cases establish that the exemption operates cleanly to take the whole transaction out, which is precisely why Section 12 must disallow the costs.

R (Pvt) Ltd v Zimra 2019-HH-792. A disposal otherwise than by sale (a transfer at undervalue / in specie) is a deemed sale at fair market price under Section 8(2)(b). The case matters here because it fixes the proceeds side at fair market price even where little or no cash changes hands — and the deduction side is then confined to the Section 11(2) list. A taxpayer cannot answer a deemed-sale assessment by inflating costs that are not on the list; the gain is FMP less only permissible deductions. It also anchors the transferee's cost base at the deemed price under Section 11(2)(a)(ii)B, so the next owner's permissible acquisition cost is the FMP previously brought to tax — neither more (no stepped-up phantom cost) nor a separately deductible amount.

Old Mutual (Pvt) Ltd v Zimra 2016-HH-143. The court confirmed that an amount being "capital" is not the same as being "tax-free." Capital receipts are exactly what CGT exists to reach. For deductions, the lesson is that a taxpayer cannot argue a cost should be deductible "because the gain is capital and therefore special" — the gain is taxable, and the deductions are limited to the closed Section 11 list like any other.

Sommer Ranching (Pvt) Ltd v COT 1999-SC-065. Authority that the CGT Act borrows the Income Tax Act machinery mutatis mutandis (via Section 23). This underpins the import of additional-tax (Section 46) and assessment (Section 45) powers that ZIMRA uses to correct a return claiming non-permissible deductions, and confirms that the read-across is of machinery, not of the income-tax general deduction formula — which is precisely why CGT has no general deduction and the list stays closed.

Sibanda G v Masanga L 2024-SC-090. Illustrates the practical friction of fair-market-price determinations under Section 14 and the transfer gate (Section 30A): where ZIMRA's FMP differs from the deal price, the assessment — and the permissible-deduction computation that feeds it — can stall a transfer. Relevant to deductions because the base cost of the next owner depends on the figure ZIMRA accepts.

On the income-tax double-dip (persuasive analogue): the anti-double-dip logic of the Section 11(2)(a)/(b) carve-out parallels income-tax authority on the boundary between deductible expenditure and capital allowances (e.g. A Bank v Zimra 2020-HH-270, discussed in Prohibited Deductions under section 16, on capital expenditure being recovered only through the allowance regime, not the general formula). That is an income-tax authority cited by analogy; it is not a CGT decision on Section 11.

Where Zimbabwe lacks an on-point CGT decision — for instance on whether a specific holding cost is "on the list" — the matter is governed by the statutory closed list itself, strictly construed (a charging-and-relief provision is read literally; "no equity about a tax"), not by an invented authority.

1. Importing the income-tax mindset. The deadliest error: assuming that because a cost is genuine and asset-related it must be deductible. CGT has no general deduction formula; the test is "is it on the Section 11(2) list?" not "is it prohibited?" Interest, rates, insurance and routine repairs are all non-permissible despite being real and asset-related.

2. Deducting on an exempt disposal (Section 12). Claiming improvement or acquisition costs on a sale that is exempt under Section 10 — most often an over-55 PPR (Section 10(l)) or VFEX shares (Section 10(r)) — to manufacture a carry-forward loss. Section 12 disallows it outright. No tax, but no loss either.

3. Double-dipping capital allowances (Section 11(2)(a)/(b) carve-out). Deducting the full cost of a commercial building for CGT when capital allowances already relieved part of it for income tax. The relieved portion is carved out. ZIMRA cross-checks the income-tax file.

4. Confusing acquisition costs with selling costs. Paragraph (d) allows costs of the sale only. Transfer duty and conveyancing on the original purchase are not selling costs — they may instead form part of acquisition cost under (a), but they cannot be claimed under (d). Misclassifying them risks the claim being disallowed on a technicality even where a correct (a) claim was available.

5. Forgetting the currency rewrite (Section 39A(9a)). Claiming the CPI inflation allowance (Section 11(2)(c)) on a USD gain. For foreign-currency gains the CPI allowance is non-permissible; only the 2½%/yr substitute is available. Claiming both, or claiming CPI, overstates the deduction.

6. Ignoring the dead zone (Section 39A(10)). Treating an asset acquired 1 Feb 2009 – 22 Feb 2019 as if normal deductions apply. None do. This is counter-intuitive and frequently missed; the only mercy is that such assets attract the 5%-of-gross rate under Section 38(a), not 20% of an undeducted gain.

7. Deducting against a pre-2019 5%-of-gross charge. Spending effort computing deductions for an asset acquired before 22 February 2019 when the charge is 5% of the gross capital amount — deductions are inert. The work is wasted; worse, a taxpayer who believes deductions reduced the tax may under-provide.

8. Insurance asymmetry. Treating insurance premiums as deductible because insurance proceeds on damage/destruction are taxed (deemed sale, Section 13(1)). Premiums are a holding cost — non-permissible. The system taxes the proceeds but does not relieve the premium.

9. Double-counting within CGT (Section 11(4)). Claiming the same renovation as both an improvement (b) and a selling cost (d). The taxpayer must elect one; the duplicate is non-permissible.

10. Assuming a loss always carries forward (Section 11(3) provisos). Relying on a brought-forward assessed capital loss after a shareholding change designed to use it, or after insolvency. The loss is non-permissible in those circumstances.

Work through the questions one at a time. Choose an answer and it is graded immediately, with an explanation and the provision it comes from. Your progress is saved, so you can stop and resume.

• CGT has no general deduction formula. Section 11(2)(a)–(h) of the CGT Act [Chapter 23:01] is a closed list; anything not on it is non-permissible by default. The exam question is "is it on the list?", never "is it prohibited?"
• Common non-permissible "list" costs (Family 1): loan interest, rates and levies, insurance premiums, routine repairs, the owner's own labour, and acquisition transfer duty/conveyancing (the last may instead qualify under (a), not (d)).
• Section 12 disallows all costs on an exempt disposal — symmetry. No taxable gain, no deductible cost; cited authorities C W (Pvt) Ltd and Ellis N.O.
• The Section 11(2)(a)/(b) carve-out blocks double-dipping: any cost already relieved for income tax (especially capital allowances) is non-permissible for CGT — keeping the two taxes mutually exclusive on the cost side.
• Section 11(4) forbids claiming the same amount under two CGT provisions (elect one); Section 11(3) provisos disallow assessed capital losses tainted by loss-trafficking or insolvency; Section 13(4) locks out rollover-funded replacement cost from future Section 11 deductions.
• The Finance Act switches deductions off by currency and date. Section 39A(9a): USD gains lose the CPI allowance (c) and de minimis (h) — only (a), (b), (d), (e), (f), (g) + 2½%/yr survive. Section 39A(10): the dead zone (acquired 1 Feb 2009 – 22 Feb 2019) loses all deductions. Section 38(a): pre-22 Feb 2019 assets are taxed on gross at 5%, so deductions are inert.
• The rate split date is 22 February 2019 (Finance Act 7/2021, backdated), not 1 February 2009.
• Policy insight: non-permissible-deduction rules in CGT are mostly structural (a closed list) and symmetry-driven (no relief where no charge), reinforced by anti-avoidance (loss-trafficking, double-dip) and a currency/date overlay that protects USD revenue in a multi-currency economy. The practitioner's safest habit is to compute proceeds first, then admit costs only through a named, surviving paragraph.

Table 1 — Permissible vs non-permissible CGT costs

Table 2 — The disallowance mechanisms vs the structural default

Diagram — Is this CGT cost deductible?

flowchart TD
 A[Cost incurred in relation to a specified asset] --> B{Is the disposal exempt under Section 10?}
 B -->|Yes| X[Non-permissible - Section 12 overrides Section 11]
 B -->|No| C{Acquisition date?}
 C -->|Before 22 Feb 2019| D[Charge is 5% of gross Section 38a - deductions inert]
 C -->|1 Feb 2009 to 22 Feb 2019| E[Non-permissible - Section 39A 10 dead zone]
 C -->|After 22 Feb 2019| F{Gain in USD?}
 F -->|Yes| G{Cost in Section 11 2 a b d e f g or 2.5% per yr?}
 F -->|No ZWL| H{Cost described by Section 11 2 a to h?}
 G -->|No| Y[Non-permissible - Section 39A 9a excludes CPI c and de minimis h]
 G -->|Yes| I{Already relieved for income tax?}
 H -->|No| Z[Non-permissible - not on the closed list]
 H -->|Yes| I
 I -->|Yes| J[Carved out - non-permissible Section 11 2 a or b]
 I -->|No| K{Claimed under another CGT provision same year?}
 K -->|Yes| L[Elect one - duplicate non-permissible Section 11 4]
 K -->|No| M[Permissible deduction]

Statutes & sections

• Capital Gains Tax Act [Chapter 23:01] — Section 8(1) (gross capital amount → capital amount → capital gain funnel); Section 11(1) (closed-list lock: only amounts "allowed to be deducted in terms of this section"); Section 11(2)(a)–(h) (the exhaustive deduction list, with the income-tax carve-out in (a) and (b)); Section 11(3) provisos (i) loss-trafficking, (ii) insolvency, (iii) PBC-conversion preservation; Section 11(4) (no double deduction / election); Section 11(5)–(6) (lessor and deed-of-sale base); Section 12 ("Circumstances in which no deductions may be made" — exempt-asset bar); Section 13(1)–(4) (damage/destruction deemed sale; 2-year replacement rollover; Section 13(4) future-deduction lock-out); Section 10 (exemptions that trigger Section 12); Section 14 (Commissioner's fair-market-price determination); Section 23 (imports Income Tax Act assessment/additional-tax machinery mutatis mutandis).
• Income Tax Act [Chapter 23:06] — Section 8(1) (gross income; the carve-out reference point in CGT Section 11(2)(a)/(b)); Section 15(2)(a) (income-tax general deduction formula — the architecture CGT does not have); Section 16 (income-tax express prohibitions — contrast); Fourth Schedule (capital allowances, the principal double-dip carve-out); Section 46 (additional tax up to 100%, applied to CGT via Section 23).
• Finance Act [Chapter 23:04] — Section 38 (rates: 5% of gross capital amount if acquired before 22 Feb 2019; 20% of gain if after); Section 39A(9a) (USD gains: only Section 11(2)(a),(b),(d),(e),(f),(g) plus 2½%/yr in lieu of CPI — CPI (c) and de minimis (h) non-permissible); Section 39A(10) (dead zone: no Section 11 deductions for assets acquired 1 Feb 2009 – 22 Feb 2019); Section 39A(11) (purported-ZWL sale presumed USD).

Case law

• C W (Pvt) Ltd v COT 1989 (ZLR) 361 and Ellis N.O. v COT 1992-SC-001 — exemption of State/statutory-corporation loan stock (now Section 10(c)); underpin the symmetry behind Section 12 (exempt asset → no deductible cost).
• R (Pvt) Ltd v Zimra 2019-HH-792 — disposal otherwise than by sale = deemed sale at fair market price (Section 8(2)(b)); transferee cost base fixed at the deemed price (Section 11(2)(a)(ii)B); deductions confined to the Section 11 list.
• Old Mutual (Pvt) Ltd v Zimra 2016-HH-143 — "capital" ≠ "tax-free"; capital gains are taxable and deductions limited to the closed list.
• Sommer Ranching (Pvt) Ltd v COT 1999-SC-065 — CGT borrows Income Tax Act machinery mutatis mutandis (not the general deduction formula); supports Section 23 import of assessment/additional-tax powers.
• Sibanda G v Masanga L 2024-SC-090 — fair-market-price (Section 14) friction and the transfer gate; relevance to the base cost of the next owner.
• A Bank v Zimra 2020-HH-270 (income-tax, persuasive analogue) — capital expenditure recovered only via the allowance regime, not the general formula; cited by analogy to the Section 11(2)(a)/(b) carve-out.

ZIMRA guidance

• Comprehensive Guide to Form CGT 1 (ZIMRA External Guide) — the per-disposal Return for Remittance of CGT on which the deduction computation is declared; mandatory supporting documents for cost claims.