Computations - Examples

 

Where initial, annual or wear and tear, or obsolescence allowance is granted under the Income Tax (In Aid of Industry) Act, Chapter 81:02, or the Income Tax Act, Chapter 81:01, in respect of the property disposed of, the capital gain shall be the amount by which the value of the consideration received exceeds the cost of acquisition or the value upon acquisition, as the case may be, of the property, less any initial, annual, wear and tear or obsolescence allowance granted in respect of that property since 1st January 1991.

Example I
Machinery was purchased for $90,000 in 1991 Initial Allowance of $36,000 and Annual Allowance of $18,000 was granted. Machinery was sold in 1992 for $100,000.

 

COMPUTATION OF CAPITAL GAINS

 $$$$
Sale Proceeds    
Purchase Price 90,000100,000 
Less: initial allowance36,000   
Annual Allowance18,00054,00036,000 
    64,000
Less: Balancing Charge    
Subject to Income Tax   54,000
Capital Gain   10,000

 

Example II
A motor car was purchased for $90,000 on 1st January 1991. Wear and Tear Allowance of $54,000 was granted. The motor car was sold for $100,000 on 31st December 1992.

 

 COMPUTATION OF CAPITAL GAINS

 $$$
Sale Proceeds   
Purchase Price90,000100,000 
Less: Wear and Tear Allowance 54,000  
  36,000 
 Capital Gain  64,000

A capital loss occurs when the value arising from the change of ownership of an asset is less than the cost of acquisition of that asset or the market value as at 1st January 1991, whichever is later.

A capital loss may also arise on the redemption of any shares, debentures or other obligations and from the dissolution of a business or the liquidation of a company.

Capital allowances granted under the provisions of the Income Tax (In Aid of Industry) Act, 81:02, wear and tear allowance granted under the Income Tax Act, Chapter 81:01, are taken into consideration when computing capital gain.

For More information check the Guide to Capital Gains Tax.