BAM 127: Income Taxation for BA

Teachers’ Guide Module #8

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Lesson title: Capital Gains Tax Materials:

Lesson Objectives: Text book:
At the end of this module, I should be able to: Income Taxation by Rex
1. Explain the different Classification and Rules of Taxpayer’s Banggawan
Properties
2. Discuss the Tax Implications of Gain on Sale, Exchange References:
and Other Disposition of Domestic Stocks www.bir.gov.ph

Productivity Tip: Don’t underestimate the power of small chunks of time to get things done.
Instead of wasting the 10 minutes on browsing thru the internet, make a list of little tasks that
you can do in ten or even five minutes.

A. LESSON PREVIEW/REVIEW

1) Review (5 – 10 min)

I - What are the three income taxation schemes under the NIRC.
1._______________________________
2. _______________________________
3. _______________________________

II- Indicate the Final Tax Rate on each Passive Income.

No Passive Income Final Tax

Rate
1 Prizes and Winnings Exceeding P10,000
2 Royalties in general
3 Tax Informer’s Reward
4 Non-resident Foreign Corporation
5 Non-resident Alien – Not Engage in Business
6 Cash and Property Dividend from Domestic
Corporation
7 Stocks Dividend
8 Interest from local banks

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module #8

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

9 Interest from foreign banks

10 Cash dividend from Foreign Corporation

Activity 1 - What I know Chart (3 mins)

Try answering the questions below by writing your ideas under the first column What I Know. It’s
okay if you write key words or phrases that you think are related to the questions.

What I Know Questions: What I Learned

1. What are Capital Asset?

2. What are Ordinary Assets?

3. What is Capital Gains Tax?

B. MAIN LESSON
Activity 2 – Content Notes

LO 1: Explain the different Classification and Rules of Taxpayer’s Properties

CLASSIFICATION OF TAXPAYER’S PROPERTIES

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 BAM 127: Income Taxation for BA
Teachers’ Guide Module #8

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

What is Capital Assets?

All assets held by the taxpayer except the following:
a. Stock in Trade;
b. Inventories: Ordinary
c. Real Properties Held for Sale; Assets
d. Real Properties used in trade or business

Taxation of Gains on Dealing in Properties

Types of Gains Applicable tax Tax Rates

a. Individual – subject to progressive tax
1. Ordinary Regular Income Tax b. Corporation – 30% Corporate Income Tax
Gains
Capital Gains Tax / a. Sale of Domestic Stocks Directly to Buyers –
2. Capital Gains Regular Income Tax 15%
b. Sale of Real Properties – 6%
c. Sale of Personal Properties - RIT

LO 2: Discuss the Tax Implications of Gain on Sale, Exchange and Other Disposition of Domestic
Stocks.

SELLER OF STOCKS APPLICABLE TAX

1. Dealer of Stocks Regular Income Tax
2. Non-dealer of stocks
2.1. Directly to Buyer 15% Capital Gains Tax
2.2. Through PSE 0.6% Percentage Tax

Note: Foreign Corporations are subject to old rates.5% first P100,000 and 10% in excess.

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module #8

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Costing for Stocks

1. By purchase – Purchase Price + Direct Cost
2. By gratuitous Transfer – w/c ever is lower between the acquisition cost and FV at the time of
transfer.
3. Using Inventory Method – Specific Identification; Moving Average; and FIFO.

Note: Capital losses are only deductible to Capital Gain.

Illustration:
Mr. Covid Bryant sold the following stock investments:

Identify the applicable tax scheme and compute the tax liability of Mr. Covid Bryant. Assume that:
1. He is a dealer of stocks
Ans: The applicable tax scheme is Regular Income Tax. Mr. Bryant tax liability is P650,000.
(P2,500,000 Gain = 490,000 + (500,000*32%))

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module #8

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

2. He is not a dealer of stocks

a. Through PSE
Ans: Mr. Bryant is liable to pay 0.6% tax based on total selling price, thus P138,000.

b. Directly to Buyer
Ans. The applicable tax scheme is Capital Gains Tax. Mr. Bryant tax liability is P375,000.
(P2,500,000 * 15%)

Activity 3: Skill-building Activities

Let’s practice! After completing each exercise, you may refer to the Key to Corrections for feedback.
Try to complete each exercise before looking at the feedback.

Exercise 1: True or False (5 Minutes)

____________1. A vacant and unused lot is an ordinary asset to a real estate dealer.
____________2. For taxpayers not engaged in business, assets shall cease to be ordinary assets when
they are discontinued from active use for more than two years.
____________3. Real and other properties acquired are ordinary assets to banks even if they are not
engaged in the realty business.
____________4. Capital assets will not become ordinary assets when used in business.
____________5. An ordinary asset becomes automatically become a capital asset when it is
withdrawn from active use.
____________6. The sale of real property capital assets will never be subject to regular income tax.
____________7. Donated assets become ordinary assets even if the donee does not employ the same
in business.
____________8. An ordinary asset continues to be an ordinary asset even if idled for more than two
years if the taxpayer is engaged in realty business.
____________9. The real properties used by exempt corporations in their exempt operations are
capital assets.
____________10. Dealers in realties are subject to the regular tax on their sale of properties.

ACTIVITY 4: What I know Chart – Part 2 (3 mins)

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 BAM 127: Income Taxation for BA
Teachers’ Guide Module #8

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

It’s time to answer the “what I learned” column in the What I Know chart in Activity 1.

ACTIVITY 5: ‘Check for understanding’, Problem Solving. Provide your solutions. (5-10
Minutes)

1. Mabait sold her shares of a resident foreign corporation directly to a buyer. The shares were
purchased for P100,000 and were sold at a net selling price of P210,000. Compute the capital
gains tax.

2. Matapang, a non-resident citizen, sold domestic stock rights directly to a buyer at a net gain of P
320,000. Compute the capital gains tax.

3. Makisig sold domestic stocks directly to a buyer at a markup on the cost of P 200,000. He paid
P5,000 broker’s commission and P8,000 documentary stamp tax on sale. Compute the capital
gains tax.

4. Maalindog exchanged its share investment from Macho Inc., as payment of its P600,000 long
outstanding loan from the latter. Maalindog acquired the shares for P 400,000. Compute the
capital gains tax on the transaction.

C. LESSON WRAP-UP

Congratulations in finishing this module! You can now shade the number of the module that you finished.

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module #8

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Did you have challenges learning the concepts in this module? If none, which parts of the module helped you
learn the concepts?
____________________________________________________________________________________________________________________
____________________________________________________________________________________________

Some question/s I want to ask my teacher about this module is/are:

____________________________________________________________________________________________________________________
____________________________________________________________________________________________

FAQs

1. Can an ordinary asset convert to capital asset?

Properties classified as ordinary asset but have not been used in business for more than 2 years are
converted to capital asset.

2. Can a sale executed abroad be subject to capital gains tax?

CGT is a universal tax. It applies to all taxpayers even if the sale is executed outside the Philippines. The
situs of Gain on the sale of domestic stocks is within the Philippines.

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module #8

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Key to Corrections:

Review Exercises

Income Taxation Scheme

1. Final Income Tax
2. Capital Gains Tax
3. Regular Income Tax

Final Income tax Rates

No Passive Income Final Tax

Rate
1 Prizes and Winnings Exceeding P10,000 20%
2 Royalties in general 20%
3 Tax Informer’s Reward 10%
4 Non-resident Foreign Corporation 30%
5 Non-resident Alien – Not Engage in Business 25%
6 Cash and Property Dividends from Domestic 10%
Corporation
7 Stocks Dividend Not Taxable
8 Interest from local banks 20%
9 Interest from foreign banks RIT
10 Cash dividend from Foreign Corporation RIT

Exercise no. 1
1. True 6. False
2. True 7. False
3. True 8. True
4. False 9. True
5. False 10. True

Check for Understanding

1. P 0

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module #8

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

2. P48,000
3. P28,050
4. P 30,000

This document is the property of PHINMA EDUCATION