The onerous transfer (sale, exchange, etc.) of goods is subject to the payment of income tax for capital gains. As its name indicates, with certain exceptions, its generating event is the profits generated by the transfer of assets.
As it is a tax on profits, for its correct application it is essential to determine if the operation generated capital gains or losses. To do this, we must calculate the taxable base of the tax based on the method established in article 83 of the Tax Concertation Law: subtract the asset’s acquisition cost from the transfer value.
Let’s take a closer look at each element we need to calculate it.
How is the transmission value determined?
Depends. In the case of assets not subject to registration with a public office, the transfer value is the value actually paid in the transaction or the market value of the asset, whichever is greater.
In the case of goods subject to registration, such as vehicles or real estate, the transfer value is the one that is higher when comparing the value contained in the public deed with the value of the appraisal issued by the Fiscal Registry.
How is the acquisition cost determined?
In this type of operation, the taxpayer is the alienator or seller because he is the one who receives the income, so this element refers to the amount paid by the alienator when he acquired the good that he is now selling. However, there are several elements that make up the acquisition cost and that we can summarize as follows:
Acquisition cost = actual amount paid for the asset + cost of improvements and investments made to the asset while it belonged to the transferor + expenses inherent to the acquisition paid by the transferor – amortization or depreciation fees applied before the transfer.
Likewise, the acquisition cost must be updated to reflect the variations of the official exchange rate of the córdoba with respect to the United States dollar.
Determination of the tax base and the tax to be paid
Once we have this data, we can determine the taxable base of the tax. Let’s look at an example for clarity:
- “A” sells a property with a cadastral value (the monetary value assigned to the property in the land registry records) of $50,000.00 for a price of $40,000.00 to “B”. In this case, the transmission value will be the cadastral value as it is the highest value.
- “A” paid $10,000.00 for the real estate when he bought it, as documented with his domain title.
- During the time that “A” owned the property, he made improvements that cost $20,000.00, as shown by the corresponding vouchers.
- At the time of purchasing the property, “A” assumed the fees of the notary who granted the deed, which totaled $300.
- Subsequently, “A” paid registration fees of $100.
- Based on the documents provided by “A” that support all those payments, we can determine that the acquisition cost is $30,400.00
With this, we can determine that the taxable base of the tax is as follows:
Transmission value: $50,000.00
Acquisition cost: – $30,400.00
Capital gain: $19,600.00
Given that the transfer value does not exceed $50,000.00, the applicable rate will be 1% of the first stratum of the table contained in article 87 of the Tax Agreement Law. In this example, the tax to be paid will be $196 ($19,600 X 1%).
What would happen if for some reason the taxpayer did not have documents that support their acquisition cost? In this case, the law provides in article 83 number 3 that the tax rate may be applied to 60% of the transmission value. In other words, the law presumes that there is a profit of 60% on which the tax will be applied.
Recommendations for an adequate calculation of the tax on capital gains
In practice, the withholding rate is usually applied directly to the transfer value of the asset when it comes to assets subject to registration with a public registry, which implies a higher tax to be paid. For a calculation in accordance with the Law, it is advisable to present to the corresponding authority the documents that prove the acquisition cost so that they can have all the elements to calculate it properly. This procedure would have to be done in person since the current platforms for issuing appraisals online do not contemplate the possibility of subtracting the effective or presumed cost of acquisition.
In case of disagreement of the taxpayer with the calculation method used by the corresponding authority considering that it does not comply with the legal provisions, you can make use of your right to challenge the resolution through the corresponding administrative resources within the legal term.
Now, what would happen if when performing the operation to calculate the tax base the result is negative? In this case, we are facing a capital loss. Wait for our next article, in which we will analyze the tax treatment of this possibility.