Case Stimulus
Disposal of assets is an important concept in the determination of capital gains tax payable. Section 6 of Capital Gains Tax Act 2004 (as amended) specifically provides that a disposal of assets by a person occurs where any capital sum is derived from a sale, lease, transfer, an assignment, a compulsory acquisition or any other disposition of assets, notwithstanding that no asset is acquired by the person paying the capital sum. In the same vein, Section 2 (4) of Finance Act 2020 states the period for filing of self-assessment returns and when payment of the tax computed in respect of chargeable assets disposed is to be made. Nice-One Nigeria Limited, a manufacturing concern, with head office in Calabar and branches in Ikeja, Kano and Abuja, has been in business for several years, reporting its accounts to December 31 of every year. The extracts from the books of accounts of the company during the year ended December 31, 2021, revealed the following transactions: (i) Disposal of an option On February 1, 2021, the company sold an option on a piece of land in Ikeja for the sum of N8,500,000 to Eco-Raheem Limited, which subsequently exercised the right by purchasing the land for N32,200,000. (ii) Acquisition of asset in exchange for debt On March 15, 2021, one of the company’s debtors in Calabar, Mr. Baba Tee, reached an agreement with the company by exchanging his piece of land, which was valued at N15,000,000, for the debt of N13,500,000. The company, on May 7, 2021, disposed of the land for N18,000,000. Incidental expenses incurred towards the disposal of the land was N250,000. (iii) Disposal of a building The company has a staff estate, which comprises five buildings in its Abuja branch. In order to source for funds to construct a new staff estate in Kano, the company, on August 12, 2021, sold one of its buildings in the Abuja estate for N110,000,000. The cost of acquisition of the five buildings in the estate was N250,000,000. The cost of acquisition of the building sold was N75,000,000, while the remaining buildings unsold were professionally valued at N240,000,000. The company also incurred for the purpose of the disposal of the building, N400,000 on building repairs and professional valuers’ fee of N1,100,000. (iv) Disposal of industrial plants One of the company’s industrial plants in Kano branch, which cost N4,500,000, was disposed of on September 15, 2021, for N6,000,000. A new plant was bought for the purpose of the company’s operations the following month for N8,000,000. During the installation of the new plant, it was found out that the plant could not efficiently satisfy the requirements of the company and it was subsequently sold on December 2, 2021 as “second-hand” for N7,300,000. The company incurred the sum of N25,000 as disposal expenses. The Managing Director of the company is of the opinion that issues around the transactions undertaken by the company in the financial year are “technical”, which only competent professional accountants, with experience in tax matters, can conveniently handle. Accordingly, your firm of accountants was contacted to help provide tax advice on each of the above transactions.