Capital Gains Taxation

Classification of Taxpayer’s Properties

A. Ordinary Assets
B. Capital Assets
Ordinary Assets
• Assets held for sale – such as inventory
• Assets held for use – such as supplies and items of property, plant,
and equipment like buildings, property improvements, and equipment
Ordinary Assets (Sec. 39(A)(1))
• Stock in trade of a taxpayer or other real property of a kind which would be
included in the inventory of the taxpayer if on hand at the close of the year.
• Real property held by the taxpayer primarily for sale to customers in the
ordinary course of his trade or business.
• Real property used in trade or business or a character which is subject to
allowance for depreciation.
• Real property used in trade or business of the taxpayer.

• Business is habitual engagement in a commercial activity involving the regular

sale of goods or services for a profit. Non-profit entities are not businesses.
• Real properties acquired by banks through foreclosure sales are considered as
their ordinary assets. However, banks shall not be considered as habitually
engaged in the real estate business
Capital Assets
• Capital assets are any asset other than ordinary assets

• Basically, capital assets are:

1. Personal assets (non-business) of an individual taxpayers
2. Business assets of any taxpayers which are:
a. Financial assets such as cash, receivables, prepaid expenses, and
investments
b. Intangible assets such as patents, copyrights, leasehold rights, franchise
rights
Asset classification is relative
• Classification of assets or properties does not depend upon the nature
of the property but upon the nature of the taxpayer’s business and its
usage by the business.

• Example:
1. A domestic stock is an ordinary asset to a dealer in securities but is a
capital asset to a non-security dealer;
2. A vacant and unused lot is an ordinary asset to a taxpayer engaged in
the real estate business such as a realty dealer, realty developer, or lessor
but is a capital asset to those not engaged in the real estate business.
Asset Classification Rules
• Property purchased for future use in business is an ordinary asset
even though this purpose is later changed by circumstances beyond
the taxpayer’s control
• Discontinuance of the active use of the property does not change
its character previously established as a business property.
• Real properties used, being used, or have been previously used, in
trade of the taxpayer shall be considered ordinary asset.
Asset Classification Rules (cont.)
• Properties classified as ordinary assets for being used in business by a
taxpayer not engaged in the real estate business are automatically
converted to capital assets upon showing proof that the same has not
been used in the business for more than 2 years prior to the
consummation of the taxable transaction involving such property.
• A depreciable asset is an ordinary asset even if it is fully depreciated,
or there is a failure to take depreciation during the period of ownership.
• Real properties used by an exempt corporation in its exempt operations
are considered capital assets. Exempt corporations are not businesses.
Asset Classification Rules (cont.)
• The classification of property transferred by sale, barter, exchange,
inheritance, donation, or declaration of property dividends shall
depend on whether or not the acquirer uses it in business.
• For real properties subject to involuntary transfer such as
expropriation and foreclosure sale, the involuntariness of such sale
shall have no effect on the classification of such real property
• Change in business from real estate to non-real estate business shall
not change the classification of ordinary assets previously held.
Types of Gains on Dealings in Properties

Type of Gain Applicable Taxation Scheme

Ordinary gains Regular income tax

Capital gains General rule: Regular income tax

Exception: Capital gains tax

Capital Gains Subject to Capital Gains Tax

There are only two types of capital gains subject to capital gains tax:
1. Capital gains on sale of domestic stocks sold directly to buyer;
and
2. Capital gains on sale of real properties not used in business
Scope of Capital Gains Taxation

Gains on dealings in Capital Assets Tax Rates

Gain on the sale, exchange, and other disposition

15% Capital gains tax
of domestic stocks directly to buyer
Gain on the sale, exchange, and other disposition
6% Capital gains tax
of real property in the Philippines
Gains from other capital assets Regular income tax

• The tax treatment of gains on dealings in other properties other than those subject to capital
gains tax will be discussed in detail in Chapter 12 – Dealings in Properties
Capital Gains on Sale, Exchange, and Other
Disposition of Domestic Stocks Directly to Buyer
• Domestic stocks are evidence of ownership or rights to ownership in a domestic
corporation regardless of its features, such as:
1. Preferred stocks
2. Common stocks
3. Stock rights
4. Stock options
5. Stock warrants
6. Unit of participation in any association, recreation, or amusement club
Non-cash Transactions Covered by Capital Gains Tax

• The capital gains tax covers not only sales of domestic stocks for cash but also
exchange of domestic stocks in kind and other dispositions such as:
1. Foreclosure of property in settlement of debt
2. Pacto de retro sale – sale with buyback agreement
3. Conditional sale – sale which is will be perfected upon completion of certain
conditions
4. Voluntary buyback of shares by the issuing corporation – redemption of
shares which may be re-issued and not intended for cancellation.
Mode of Disposing Domestic Stocks
• Shares of stocks may be sold, exchanged, or disposed:
1. Through the Philippine Stock Exchange (PSE); and
2. Directly to buyer

• The sale of domestic stocks classified as capital assets through the PSE is not
subject to capital gains. It is subject to a stock transaction tax of 60% of 1%
of the selling price.
Capital Gains Tax on Sale of Domestic Stock
Directly to Buyer
• Nature of the CGT:
1. Universal Tax
• It applies to all taxpayers disposing stocks classified as capital assets
regardless of the classification of the taxpayer. By situs, the gain on sale of
domestic stock is within. The tax applies even if the sale is executed outside
the Philippines.
2. Annual Tax
• It is imposed on the annual net gain on the sale of domestic stocks directly to
buyer.
Determination of Net Capital Gain

Selling Price P XXX

Less:
Basis of stocks disposed P XXX
Selling Expenses XXX
Documentary stamp tax on the sale* XXX P XXX
Net Capital Gain (Loss) P XXX
* The documentary stamp tax is deductible if paid by the seller
Determination of Selling Price
• In the case of cash sale, the selling price shall be the total consideration per deed of
sale.
• If the total consideration of the sale or disposition consists partly in money and partly
in kind, the selling price shall be sum of money and the fair market value of the
property received.
• In the case of exchange, the selling price shall be the fair market value of the property
received
• In case the fair market value of the shares of stock sold, bartered, or exchanged is
greater than the amount of money and/or fair market value of the property
received, the excess of the fair market value of the shares of stock sold, bartered or
exchanged over the amount of money and the fair market value of the property, if any,
received as consideration shall be deemed a gift subject to the donor's tax under Sec.
100 of the Tax Code, as amended.
Basis for Determining Gain or Loss from Sale or
Disposition of Shares of Stock
Acquired by Purchase. — If the property is acquired by purchase, the basis is the cost of such
property.
Determination of the Cost. — The cost basis for determining the capital gains or losses for
shares of stock acquired through purchase shall be governed by the following rules:
1. If the shares of stock can be identified, then the cost shall be the actual purchase price plus
all costs of acquisition, such as commissions, documentary stamp taxes, transfer fees, etc.
2. If books of accounts are maintained by the seller where every transaction of a particular
stock is recorded, then the moving average method shall be applied rather than the FIFO
method;
3. If the shares of stock cannot be properly identified, then the cost to be assigned shall be
computed on the basis of the first-in-first-out (FIFO) method;
4. In general, stock dividends received shall be assigned with a cost basis which shall be
determined by allocating the cost of the original shares of stock to the total number of shares
held after receipt of stock dividends
Basis for Determining Gain or Loss from Sale or
Disposition of Shares of Stock (cont.)
• Acquired by Devise, Bequest or Inheritance. —the basis shall be the fair
market value of such property at the time of death of the decedent.
• Acquired by Gift. — the basis shall be the lower of the fair market value at the
time of gift and the basis in the hands of the donor or the last preceding owner
by whom it was not acquired by gift.
• Acquired for Inadequate Consideration. —the basis of such property is the
amount paid by the transferee for the property.
• Acquired under tax-free exchange. — the basis is the substituted basis of the
stock or securities received by the transferor on a tax-free exchange
Capital Gains Tax Rate
• The TRAIN law and the CREATE law simplified the rate to a 15%
flat rate.
• No Loss Scenario – Due to the flat rate tax, there will be no capital
gains tax payable in the final consolidated return if all transactions
during the year result to a gain.
Installment Payment of the Capital Gains Tax
• When domestic stock is sold in installments, the capital gains tax
may also be paid in installments if the:
1. Selling price exceeds P1,000; and
2. Initial payment does not exceed 25% of the selling price.
Losses from Wash Sales of Shares of Stock
• A taxpayer cannot deduct any loss claimed to have been sustained
from the sale or other disposition of stock, if, within a period
beginning thirty (30) days before the date of such sale or
disposition and ending thirty (30) days after such date (referred
to as the sixty-one-day (61) period), he has acquired (by purchase or
by an exchange upon which the entire amount of gain or loss was
recognized by law), or has entered into a contract, or option to
acquire substantially identical stock. However, this prohibition does
not apply in the case of a dealer in stock if the sale or other
disposition of stock is made in the ordinary course of the business of
such dealer.
Losses from Wash Sales of Shares of Stock
• Securities for the purpose of the 61-day rule include stock stocks and
bonds. The wash sales rule has significance on the recognition of
reportable capital losses on domestic stocks sold directly to buyer.
• For the purposes of a wash sale, substantially identical means that
the stock or bonds of the same class with the same features. A
common stock is not substantially identical to a preferred stock.
Illustration 1 of Wash Sale
• On December 1, 2000, Ms. Rose Miranda whose taxable year is the
calendar year, purchased 100 shares of common stock of M company
for Php10,000. On December 15, 2000, she purchased 100 additional
shares for Php9,000. On January 2, 2001, she sold the 100 shares
purchased on December 1, 2000 for Php9,000.

• Following the rule on wash sale, no loss from the sale is allowable as
a deduction.
Illustration 2 of Wash Sale
• Ms. Karren Punzalan, whose taxable year is the calendar year, had
the following stock transactions:
• On September 21, 2000, purchased 100 shares of the common stock
of M Company for Php5,000 or at Php50.00/share.
• On December 21, 2000, she purchased 50 shares of substantially
identical stock for Php2,750 or at Php55/share.
• On December 26, 2000, she purchased 25 additional shares of such
stock for Php1,125 or at Php45/share.
• On January 2, 2001, she sold for Php4,000 the 100 shares purchased
on September 21, 2000 or at Php40.00/share.
Illustration 2 of Wash Sale (Cont.)
• Computation of the Indicated Loss:

Proceeds from the sale of 100 shares P4,000

Cost of shares bought on September 21, 2000 5,000
Indicated Loss from the sale P(1,000)
Illustration 2 of Wash Sale (Cont.)
• Computation of Non-deductible Loss due to the 61-day Period of
Purchase of Substantially Identical Shares:
Deferred loss (75 shares/100 shares) x P1,000 750.00
Deductible loss (25 shares/100 shares) x P1,000 250.00
Capital loss P1,000

• The loss on the sale of the remaining 25 shares (Php1,250 less

Php1,000 or Php250) is deductible.
Illustration 3 of Wash Sale
• Ms. Ding Cruz, whose taxable year is the calendar year, had the
following stock transactions:
• On September 15, 2022, purchased 100 shares of the stock of M
Company for Php5,000.
• On February 1, 2023, she sold these shares for Php4,000.
• On each of the four days from February 15, 2023, to February 18,
2023, she purchased 50 shares per day of substantially identical stock
for Php2,000 per purchase.
Illustration 3 of Wash Sale (Cont.)
• Computation of the Indicated Loss:

Proceeds from the sale of 100 shares 4,000

Cost of shares bought on September 21, 2000 5,000
Indicated Loss from the sale (1,000)
Illustration 3 of Wash Sale (Cont.)
• There is an indicated loss of P1,000 from the sale of the 100 shares
on February 1, 2001, but since within the sixty-one-day period she
purchased not less than 100 shares of substantially identical stock,
the loss is not deductible.
• The particular shares of stock, the purchase of which resulted in the
non-deductibility of the loss are the first 100 shares purchased
within such period, that is, the 50 shares purchased on February 15,
2001, and the next 50 shares purchased on February 16, 2001.
Rationale of the Wash Sales Rules

• The wash sale rule is intended to prevent taxpayers from feigning

temporary losses which could enable them to manipulate their reportable
taxable net gain.

• The prohibition against the claim of wash sales is not an absolute rule but
is a form of deferral of loss intended to reflect the economic substance of
the transaction.

• The wash sale rule is not applicable to dealers in securities as it is normal

way of business to buy and sell stocks and as result realize gains or incur
losses within short duration of time
Tax Free Exchanges
• No gain or loss shall be recognized on a corporation or on its stock or
securities if such corporation is a party to a reorganization and
exchanges property in pursuance of a plan of reorganization
solely for stock or securities in another corporation that is a
party to the reorganization.
Tax Free Exchanges
• A reorganization is defined as:
1. A corporation, which is a party to a merger or consolidation,
exchanges property solely for stock in a corporation, which is a
party to the merger or consolidation; or
2. The acquisition by one corporation, in exchange solely for all or a
part of its voting stock, or in exchange solely for all or part of the
voting stock of a corporation which is in control of the acquiring
corporation, of stock of another corporation if, immediately after
the acquisition, the acquiring corporation has control of such other
corporation whether or not such acquiring corporation had control
immediately before the acquisition; or
Tax Free Exchanges
• A reorganization is defined as:
3. The acquisition by one corporation, in exchange solely for all or a part of its
voting stock or in exchange solely for all or part of the voting stock of a
corporation which is in control of the acquiring corporation, of substantially
all of the properties of another corporation. In determining whether the
exchange is solely for stock, the assumption by the acquiring corporation of a
liability of the others shall be disregarded; or
4. A recapitalization, which shall mean an arrangement whereby the stock and
bonds of a corporation are readjusted as to amount, income, or priority or an
agreement of all stockholders and creditors to change and increase or decrease
the capitalization or debts of the corporation or both; or
5. A reincorporation, which shall mean the formation of the same corporate
business with the same assets and the same stockholders surviving under a
new charter.
Tax Free Exchanges
• “Substantially all the properties of another corporation” means
the acquisition by one corporation of at least 80% of the assets,
including cash, of another corporation which has the element of
permanence and not merely momentary holding.
• In determining whether the exchange is solely for stock, the
assumption by the acquiring corporation of the liability of the others
shall be disregarded.
Merger or Consolidation
• A merger occurs when one corporation acquires all or substantially all of the
properties of another corporation. A consolidation occurs when two or more
corporations merge to form one corporation.
• The gains or losses on share-for-share swaps pursuant to a plan of merger or
consolidation will not be recognized for taxation purposes. In a share swap
pursuant to a plan of merger or consolidation, the shareholders of the acquired
corporation will be integrated into the acquiring corporation. The shares of the
acquired corporations will be called in for replacement with the shares of the
acquiring corporation.
• In effect, the transaction merely involves a replacement of shares of stocks of
the shareholders of the absorbed corporation with them being simply integrated
as shareholders of the acquiring corporation.
Illustration: Merger or Consolidation
• Mr. Fernando was required to surrender his Zambales Inc. shares in exchange for Baler shares
with a total fair value of P1,200,000 pursuant to the merger of Zambales Inc. and Bataan
Inc. The Zambales shares were previously purchased by Mr. Fernando for P1,000,000.

Fair value of Baler, Inc. shares received (selling price) 1,2000,000

Less: Cost of Zambales shares 1,000,000
Indicated gain 200,00

• The 200,000 indicated gain is not taxable as the exchange involves stocks for stocks. Similarly, an
indicated loss shall not likewise be recognized. The P1,000,000 tax basis of the Zambales shares
given shall be carried over as the substituted basis of the Baler shares received.
Share swap resulting in a control
• The acquisition of control in another corporation achieved by acquisition of
majority of its voting shares or by the acquisition of substantially all of its
assets is tax-free if the acquiring corporation exchanged therewith:
a. its own shares, or
b. shares of its controlling parent corporation
Illustrations: Share swap for control
• Subsico is 60% owned by its parent company Parenco and 40% by an investor, Invesco. Subsico
also bought and held as investment shares of Parenco and Invesco. Subsequently, Subico acquired
30% share ownership in Affico and 60% share ownership in Newsubico.

• Assume that after the acquisition of the initial 60% NewSubsico and 30% Affico, Subsico made a
second share swap for another 10% NewSubsico and 25% Affico. Subsico now has a 70%
controlling interest in Newsubsico and a 55% controlling interest in Affico.

• Assuming further the same data in illustration 1, except that instead of share ownership, Subsico
acquired the warehouse building of Newsubsico and the net assets of Affico by acquiring all its
assets and assuming its liabilities by exchanging shares:
Initial Acquisition of Control
• No gain or loss shall also be recognized if the property is transferred to a
corporation by a person in exchange for the stocks or units of participation in
such a corporation of which as a result of such exchange, said person, alone or
together with others not exceeding four, gains control of said corporation.
• "Control" shall mean ownership of stocks in a corporation which amounts to at
least 50% plus 1 of the total voting power of all classes of stocks entitled to
vote.
• This rule may be relevant only to the capital gains tax or the recognition of
capital gains when stocks are exchanged in the acquisition of corporate control.
• The law views initial acquisition of control by not more than 5 persons as an
investing transaction rather than an income generating transaction
Exchange not solely for stocks
• In a tax-free exchange, if stocks are exchanged not solely for stocks but with
other consideration such as cash and other properties, the gains but not losses are
recognized up to the extent of cash and other properties received.
Minimum public float requirement of publicly
listed corporations
• Listed corporations are mandatorily required to maintain a minimum public ownership under
Philippine Stock Exchange (PSE) regulations.

• The minimum public ownership is the higher of.

1. The 10% of issued and outstanding shares; and
2. The minimum public ownership required by the Securities and Exchange Commission or the
Philippine Stock Exchange.

• Non-compliance to the minimum public ownership shall result in the de-listing of the stocks of
the corporation in the PSE. The sale of listed stocks that fall below their minimum public
ownership requirement will be subject to the 15% capital gains tax and not to the 6/10 of 1%
stock transaction tax.
Persons not liable to the 15% capital gains tax
1. Dealers in securities
2. Investors in shares of stocks in a mutual fund company in connection with
gains realized upon redemption of stocks in the mutual company
3. All other persons, whether natural or juridical, who are specifically exempt
from national revenue taxes under existing investment incentives and other
special laws, such as:
a. Foreign governments and foreign government-owned and controlled
corporations
b. Qualified employee trust funds
c. Qualified Personal Employee Retirement Accounts (PERA)
SALE, EXCHANGE, AND OTHER DISPOSITION OF REAL, PROPERTY
CLASSIFIED AS CAPITAL ASSET LOCATED IN THE PHILIPPINES

• The sale, exchange, and other disposition of real property capital assets in the Philippines is subject to a
tax of 6% of the selling price or the fair value, whichever is higher
• Under the NIRC, the fair value of real property is whichever is higher of the:
a. Zonal value, which is the value prescribed by the Commissioner of Internal Revenue for real properties
for purposes of enforcement of internal revenue laws, and
b. Fair market value, as shown in the schedule of market values of the Provincial and City Assessors.
• Normally, only land has zonal value but both land and improvements have fair market value in the
Provincial or Assessor's Office.
• For lands, the capital gains tax is 6% of whichever is the highest of the selling price (bid price in the case
of foreclosure sales), zonal value, or Provincial or City Assessor's fair value.
• Note that independent appraisal valuation, the fair value commonly used in financial reporting, is not used
in the computation of the capital gains tax.
SALE, EXCHANGE, AND OTHER DISPOSITION OF REAL, PROPERTY
CLASSIFIED AS CAPITAL ASSET LOCATED IN THE PHILIPPINES

• The sale, exchange, and other disposition of real property capital assets in the Philippines is subject to a
tax of 6% of the selling price or the fair value, whichever is higher
• Under the NIRC, the fair value of real property is whichever is higher of the:
a. Zonal value, which is the value prescribed by the Commissioner of Internal Revenue for real properties
for purposes of enforcement of internal revenue laws, and
b. Fair market value, as shown in the schedule of market values of the Provincial and City Assessors.
• Normally, only land has zonal value but both land and improvements have fair market value in the
Provincial or Assessor's Office.
• For lands, the capital gains tax is 6% of whichever is the highest of the selling price (bid price in the case
of foreclosure sales), zonal value, or Provincial or City Assessor's fair value.
• Note that independent appraisal valuation, the fair value commonly used in financial reporting, is not used
in the computation of the capital gains tax.
BIR Tax Clearance
• No registration of any document transferring real property shall be
effected by the Register of Deeds unless the Commissioner or his
duly authorized representative has certified that such transfer has
been reported, and the capital gains o creditable withholding tax, if
any, has been paid. (Sec. 58(E), NIRC)

• The certificate for purposes of this legal requirement is referred to as

the "Certificate Authorizing Registration (CAR)"
NATURE OF THE 6% CAPITAL GAINS TAX

a. Presumption of capital gains

The 6% capital gains tax applies even if the sale transaction resulted in a loss. Gain is always
presumed to exist. The basis of taxation is the selling price or fair value whichever is higher,
not the actual gain.
b. Non-consideration to the involuntariness of the sale
The capital gains tax applies even if the sale is involuntary or is forced by circumstances such
as in the case of expropriation sale, foreclosure sale, dispositions by judicial order, and other
forms of forced disposition. It also applies to conditional sales and pacto de retro sales
c. Final tax
The capital gains tax shall be withheld by the buyer against the selling price of the seller and
remit the same to the government.
SCOPE AND APPLICABILITY OF THE 6%
CAPITAL GAINS TAX
• The 6% capital gains tax is applicable to all individual taxpayers but it applies
only to domestic corporations. The NIRC did not impose final capital gains tax
on foreign corporations.
• However, in cases where foreign corporations realize gains from sale of real
property classified as capital assets, the capital gain shall be subject to regular
income tax.
SCOPE AND APPLICABILITY OF THE 6%
CAPITAL GAINS TAX
• The sale of real property located abroad is not subject to capital gains tax since
withholding of the capital tax cannot be imposed abroad due to territorial
considerations. Hence, the actual gains realized on the sale, exchange, and other
dispositions of properties abroad are subject to the regular income tax if the
taxpayer is taxable on global income such as resident citizens and domestic
corporations.
• For all other taxpayers, the capital gain realized abroad is exempt.
EXCEPTIONS TO THE 6% CAPITAL GAINS TAX

a.Alternative taxation rule

b.Exemption rules
• Exemption under the NIRC
• Exemption under special laws
ALTERNATIVE TAXATION RULE
• An individual seller of real property capital assets has the option to be taxed at
either:
1.6% capital gains tax; or
2.The regular income tax
• It should be noted that this is permissible only when:
1.The seller is an individual taxpayer; and
2.The buyer is the government, its instrumentalities or agencies including
government-owned and controlled corporations
EXEMPTION TO CAPITAL GAINS TAX UNDER
THE NIRC
• Requisite of exemption:
1. The seller must be a citizen or resident alien.
2. The sale involves the principal residence of the seller-taxpayer.
3. The proceeds of the sale is utilized in acquiring a new principal residence.
4. The BIR is duly notified by the taxpayer of his intention to avail of the tax exemption within 30 days
of the sale through a prescribed return (BIR Form 1706) and "Sworn Declaration of Intent"
5. The reacquisition of the new residence must be within 18 months from the date of sale.
6. The capital gain is held in escrow in favor of the government.
7. The exemption can only be availed of once in every 10 years.
8. The historical cost or adjusted basis of the principal residence sold shall be carried over to the new principal
residence built or acquired.
• It must be emphasized that the sale of principal residence must precede to acquisition of the new
principal residence to be exempt. (BIR Ruling No. 038-2015)
Basis of New Residence with Full Utilization
• If the proceeds is fully utilized, the tax basis of the new residence shall be the
basis of the old residence plus additional cost incurred by the taxpayer in
acquiring the new residence. The additional cost is the excess of the purchase
price of the new residence over the selling price of the old residence.
• Tax basis has no relevance for real property capital assets because the actual gain
on the sale is irrelevant to capital gains taxation. However, when the real
property capital assets subsequently qualify as ordinary assets such as when they
are later employed in business, the tax basis of the property becomes necessary
for gain or loss measurement. That's why the basis of the new property needs to
be monitored.
Partial utilization of proceeds is partially exempt

• The portion representing the unused proceeds shall be subject to tax.

• The capital gains tax held in the escrow account including any
accrued interest shall be allocated to the taxpayer and to BIR.
• Note: Any interest which might have accrued on the escrow fund
shall be released to the taxpayer. The government is entitled to the
amount of the unpaid tax only.
Tax Basis of the New Residence with Less Than
Full Utilization
• If the proceeds is not fully utilized, the tax basis of the new
residence shall be reduced accordingly by prorating the old
basis as follows:

Tax basis of old residence × utilized proceeds / total

proceeds
CAPITAL GAINS TAX EXEMPTION UNDER
SPECIAL LAWS
• Exempt from capital gains tax under special laws:
1. Sale of land pursuant to the Comprehensive Agrarian Reform
Program
2. Sale of socialized housing units by the National Housing Authority
Sale of land under the Comprehensive Agrarian
Reform Program
• The sale of agricultural lands by land owners pursuant to the
Comprehensive Agrarian Reform Program of the government
shall be exempt from capital gains tax. Similarly, interest income
on the selling price that may have been agreed by the land owner and
the tenant-buyer shall be exempt from income tax.
Sale of socialized housing units by the National
Housing Authority
• The sale of socialized housing units for the underprivileged and homeless
citizens by the National Housing Authority (NHA) pursuant to the Urban
Development and Housing Act of 1992 is exempt from the capital gains tax.
• This exemption is limited to socialized housing units only. The BIR ruled that
the sale of the NHA of commercial lots which is not part of the socialized
housing project for the poor and homeless is subject to capital gains tax or
regular tax and documentary stamp tax.
• To qualify for exemption, the socialized housing units of the NHA must comply
with price ceilings set by the NIRC and other special laws.
PAYMENT OF THE 6% CAPITAL GAINS TAX IN
INSTALLMENT

• The capital gains tax may be paid in installments if, under the
payment terms. Initial payment does not exceed 25% of the selling
price. The initial payment refers to the collections in the taxable
year the sale is made.
DEADLINE FOR PAYMENT OF CAPITAL GAINS TAX

• The capital gains tax will be filed through BIR Form 1706 and is due within 30 days from the
date of the sale or exchange. For foreclosure sales, it is due within 30 days from the expiration of
the applicable statutory redemption period. When the tax on sale is qualified for installment
payment, it is due 30 days after receipt of every installment.

• Statutory redemption period on foreclosure sale

a. Foreclosed properties are subject to a right of redemption by individual mortgagor within one
year counted not from the date of sale but from the time of registration of the sale in the
Office of the Registry of Deeds. (Santos vs. Register of Deeds of Manila).
b. For juridical persons, redemption must be made before the registration of the certificate of
foreclosure sale with the applicable Register of Deeds or within 3 months from foreclosure,
whichever is earlier.
COMPARISON OF THE 6% CGT AND 15%
CGT

6% CGT 15% CGT

Tax object Gain on real property Gain on sale of stocks
Basis of the tax Presumed gain Actual gain
Nature of the tax Final tax Self-assessed tax
Frequency of payment Per transaction Transactional and annual tax
DOCUMENTARY STAMP TAX ON THE SALE
OF CAPITAL ASSETS
• Documentary stamp tax on the sale, exchange, and other dispositions of
domestic stocks directly to a buyer
• The sale of domestic stocks is subject to a documentary stamp tax of P1.50 for
every P200, or fractional parts thereof, of the par value of the stocks sold.
• Documentary Stamp Tax on the Sale of Real Properties
• The sale of real property capital assets is subject to a documentary stamp tax on
the gross selling price or fair market value whichever is higher.
• The documentary stamp tax is P15 for every P1,000 and fractional parts of the
tax basis thereof. However, if the government is a party to the sale, the basis
shall be the consideration paid.