FREQUENTLY
ASKED QUESTIONS
1) What is meant by capital asset?
Capital asset means property held by the taxpayer
(whether or not connected with his trade or business), but does
not include –
a) stock in trade of the taxpayer or other property
of a kind which would properly be included in the inventory
of the taxpayer if on hand at the close of the taxable year;
or
b) property held by the taxpayer primarily for
sale to customers in the ordinary course of his trade or business;
or
c) property used in the trade or business of
a character which is subject to the allowance for depreciation
provided in subsection (F) of Sec. 34 of the Code; or
d) real property used in trade or business of
the taxpayer.
2) What is meant by ordinary
asset?
Ordinary asset refers to all properties specifically
excluded from the definition of capital assets under Sec. 39
(A)(1) of the NIRC.
3) What is meant by real property?
Real property shall have the same meaning attributed
to that term under Article 415 of Republic Act No. 386, otherwise
known as the “Civil Code of the Philippines.
4) What does a real estate dealer refer to?
A real estate dealer refers to any person engaged
in the business of buying and selling or exchanging real properties
on his own account as a principal and holding himself out as
a full or part-time dealer in real estate.
5) What does a real estate developer refer to?
Real estate developer refers to any person engaged
in the business of developing real properties into subdivisions,
or building houses on subdivided lots, or constructing residential
or commercial units, townhouses and other similar units for
his own account and offering them for sale or lease.
6) What does a real estate lessor refer to?
Real estate lessor refers to any person engaged
in the business of leasing or renting real properties on his
own account as a principal and holding himself out as a lessor
of real properties being rented out or offered for rent.
7) Who are considered engaged in the real estate business?
Taxpayers who are considered engaged in the real
estate business refer collectively to real estate dealers, real
estate developers and/or real estate lessors. A taxpayer whose
primary purpose of engaging in business, or whose Articles of
Incorporation states that its primary purpose is to engage in
the real estate business shall be deemed to be engaged in the
real estate business.
8) Who are considered not engaged in the real estate business?
Taxpayers who are considered not engaged in the
real estate business refer to persons other than real estate
dealers, real estate developers and/or real estate lessors.
9) Who are considered habitually engaged in the real estate
business?
Real estate dealers or real estate developers
who are registered with the Housing and Land Use Regulatory
Board (HULRB) or HUDCC
10)How can you determine whether a particular real property
is a capital asset or an ordinary asset?
a) Real properties shall be classified with respect
to taxpayers engaged in the real estate business as follows:
i) All real properties acquired by the real estate
dealer shall be considered as ordinary assets.
ii) All real properties acquired by the real
estate developer, whether developed or undeveloped as of the
time of acquisition, and all real properties which are held
by the real estate developer primarily for sale or for lease
to customers in the ordinary course of his trade or business
or which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year and all
real properties used in the trade or business, whether in the
form of land, building, or other improvements, shall be considered
as ordinary assets.
iii) All real properties of the real estate lessor,
whether land, building and/or improvements, which are for lease/rent
or being offered for lease/rent, or otherwise for use or being
used in the trade or business shall likewise be considered as
ordinary assets.
iv) All real properties acquired in the course
of trade or business by a taxpayer habitually engaged in the
sale of real property shall be considered as ordinary assets.
Note: Registration with the HLURB or HUDCC as
a real estate dealer or developer shall be sufficient for a
taxpayer to be considered as habitually engaged in the sale
of real estate.
If the taxpayer is not registered with the HLURB
or HUDCC as a real estate dealer or developer, he/it may nevertheless
be deemed to be engaged in the real estate business through
the establishment of substantial relevant evidence (such as
consummation during the preceding year of at least six (6) taxable
real estate sale transactions, regardless of amount; registration
as habitually engaged in real estate business with the Local
Government Unit or the Bureau of Internal Revenue, etc.)
b) In the case of taxpayer not engaged in the
real estate business, real properties, whether land, building,
or other improvements, which are used or being used or have
been previously used in trade or business of the taxpayer shall
be considered as ordinary assets.
c) In the case of taxpayers who changed its real
estate business to a non-real estate business, real properties
held by these taxpayer shall remain to be treated as ordinary
assets.
d) In the case of taxpayers who originally registered
to be engaged in the real estate business but failed to subsequently
operate, all real properties acquired by them shall continue
to be treated as ordinary assets.
e) Real properties formerly forming part of the
stock in trade of a taxpayer engaged in the real estate business,
or formerly being used in the trade or business of a taxpayer
engaged or not engaged in the real estate business, which were
later on abandoned and became idle, shall continue to be treated
as ordinary assets. Provided however, that properties classified
as ordinary assets for being used in business by a taxpayer
engaged in business other than real estate business are automatically
converted into capital assets upon showing proof that the same
have not been used in business for more than two years prior
to the consummation of the taxable transactions involving said
properties
f) Real properties classified as capital or ordinary
asset in the hands of the seller/transferor may change their
character in the hands of the buyer/transferee. The classification
of such property in the hands of the buyer/transferee shall
be determined in accordance with the following rules:
i) Real property transferred through succession
or donation to the heir or donee who is not engaged in the real
estate business with respect to the real property inherited
or donated, and who does not subsequently use such property
in trade or business, shall be considered as a capital asset
in the hands of the heir or donee.
ii) Real property received as dividend by the
stockholders who are not engaged in the real estate business
and who do not subsequently use such property in trade or business,
shall be considered as a capital asset in the hands of the recipients
even if the corporation which declared the real property dividends
is engaged in real estate business.
iii) The real property received in an exchange
shall be treated as ordinary asset in the hands of the case
of a tax-free exchange by taxpayer not engaged in real estate
business to a taxpayer who is engaged in real estate business,
or to a taxpayer who, even if not engaged in real estate business,
will use in business the property received in exchange.
g) In the case of involuntary transfers of real
properties, including expropriations or foreclosure sale, the
involuntariness of such sale shall have no effect on the classification
of such real property in the hands of the involuntary seller,
either as capital asset or ordinary asset as the case may be.
11) What is the basis in the valuation of property?
The value of the real property will be based
on the selling price, fair market value as determined by the
Commissioner (zonal value) or the fair market value as shown
in the schedule of values of the Provincial or City Assessor,
whichever is higher.
If there is no zonal value, the taxable base
is whichever is higher of the gross selling price per sales
documents or the fair market value that appears in the latest
tax declaration.
If there is an improvement, the FMV per latest
tax declaration at the time of the sale or disposition, duly
certified by the City/Municipal Assessor shall be used. No adjustments
shall be added on the said value, provided that the tax declaration
bears the upgraded fair market value of the said property pursuant
to Section 219 of R.A. No. 7160, otherwise known as the Local
Government Code of 1991 and the last paragraph of the Local
Assessment Regulations No. 1-92 dated October 6, 1992.
In case the tax declaration being presented was
issued three (3) or more years prior to the date of sale or
disposition of the real property, the seller/transferor shall
be required to submit a certification from the City/Municipal
Assessor whether or not the same is still the latest tax declaration
covering the said real property. Otherwise, the taxpayer shall
secure its latest tax declaration and shall submit a copy thereof
duly certified by the said Assessor. (RAMO 1-2001)
For shares of stocks, it will be based on the
net capital gains realized from the sale, barter, exchange or
other disposition of shares of stocks in a domestic corporation,
considered as capital assets not traded through the local stock
exchange.
12) What are the applicable tax rates of Capital Gains Tax under
the National Internal Revenue Code of 1997?
a) Real Properties - 6 %
b) For Shares of Stocks not Traded in the Stock
Exchange, on the net Capital Gains
- Not over P100,000 - 5%
- Any amount in excess of P100,000 - 10%
13) Who are required to file the Final Capital Gains Tax return?
Every person, whether natural or juridical, resident
or non-resident, including estates and trusts, who sells, transfers,
exchanges or disposes real properties located in the Philippines
classified as capital assets, including pacto de retro sales
and other forms of conditional sales or shares of stocks in
domestic corporations not traded through the local stock exchange
classified as capital assets.
14) What is the procedure in the filing of Final Capital Gains
Tax return?
File the Final Capital Gains Tax return in triplicate
(two copies for the BIR and one copy for the taxpayer) with
the Authorized Agent Bank (AAB) in the Revenue District where
the seller or transferor is registered, for shares of stocks
or where the property is located, for real property. In places
where there are no AAB, the return will be filed directly with
the Revenue Collection Officer or Authorized City or Municipal
Treasurer.
15) Who/what are considered
exempt from the payment of Final Capital Gains Tax?
· Dealer in securities, regularly engaged
in the buying and selling of securities
· An entity exempt from the payment of
income tax under existing investment incentives and other special
laws
· An individual or non-individual exchanging
real property solely for shares of stocks resulting in corporate
control
· A government entity or government-owned
or controlled corporation selling real property
· If the disposition of the real property
is gratuitous in nature
· Where the disposition is pursuant to
the CARP law
16) Who are conditionally
exempt from the payment of Final Capital Gains Tax?
Natural persons who dispose their principal residence,
provided that the following criteria are met:
· The proceeds of the sale of the principal
residence have been fully utilized in acquiring or constructing
new principal residence within eighteen (18) calendar months
from the date of sale or disposition;
· The historical cost or adjusted basis
of the real property sold or disposed will be carried over to
the new principal residence built or acquired;
· The Commissioner has been duly notified,
through a prescribed return, within thirty (30) days from the
date of sale or disposition of the person’s intention to
avail of the tax exemption;
· Exemption was availed only once every
ten (10) years; and
· There is no full utilization of the
proceeds of sale or disposition. The portion of the gain presumed
to have been realized from the sale or disposition will be subject
to Capital Gains Tax.
· In case of sale/transfer of principal
residence, the Buyer/Transferee shall withhold from the seller
and shall deduct from the agreed selling price/consideration
the 6% capital gains tax which shall be deposited in cash or
manager’s check in interest-bearing account with an Authorized
Agent Bank (AAB) under an Escrow Agreement between the concerned
Revenue District Officer, the Seller and the Transferee, and
the AAB to the effect that the amount so deposited, including
its interest yield, shall only be released to such Transferor
upon certification by the said RDO that the proceeds of the
sale/disposition thereof has, in fact, been utilized in the
acquisition or construction of the Seller/Transferor’s
new principal residence within eighteen (18) calendar months
from date of the said sale or disposition. The date of sale
or disposition of a property refers to the date of notarization
of the document evidencing the transfer of said property. In
general, the term “Escrow” means a scroll, writing
or deed, delivered by the grantor, promisor or obligor into
the hands of a third person, to be held by the latter until
the happening of a contingency or performance of a condition,
and then by him delivered to the grantee, promise or obligee.
17) What is a Certificate Authorizing
Registration?
Certificate Authorizing Registration (CAR) is
a certification issued by the Commissioner or his duly authorized
representative attesting that the transfer and conveyance of
land, buildings/improvements or shares of stock arising from
sale, barter or exchange have been reported and the taxes due
inclusive of the documentary stamp tax, have been fully paid.
CARs shall now have a validity of one (1) year
from date of issue. In case of failure to present the same to
the Registry of Deeds (RD) within the one (1) year period, the
same shall be presented for revalidation to the District Office
where the CAR was issued. The revalidation, evidenced by stamping
the phrase "revalidated on __________ to expire on ___________"
in a conspicuous space in the CAR, shall be good for another
one-year period, after which the CAR losses its validity. (RMO
15-2003)
