CAPITAL GAINS TAX

Capital Gains Tax is a tax imposed on the

gains presumed to have been realized by
the seller from the sale, exchange, or
other disposition of capital assets
located in the Philippines, including
pacto de retro sales and other forms of
conditional sale.
WHAT IS PACTO DE RETRO SALE?

It means sale with stipulation for repurchase.

WHAT IS MEANT BY CAPITAL ASSET?
Capital asset means property held by the taxpayer
(whether/not connected with trade/business), but does
not include –
 Stock 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;
 property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or business;
 property used in the trade or business of a character
which is subject to the allowance for depreciation ; or
 real property used in trade or business of the taxpayer.
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.
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”.
WHO ARE CONSIDERED ENGAGED IN THE REAL
ESTATE BUSINESS?

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. They refer
collectively to real estate dealers, real
estate developers and/or real estate
lessors.
REAL ESTATE:
DEALER DEVELOPER LESSOR
any person engaged any person engaged any person engaged
in buying and selling in the business of in the business of
or exchanging real developing real leasing or renting real
properties and properties into properties and
holding himself out subdivisions, or holding himself out
as a full or part-time building houses on as a lessor of real
dealer in real estate. subdivided lots, or properties being
constructing rented out or offered
residential or for rent.
commercial units,
townhouses and
other similar units
and offering them for
sale or lease.
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.
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
WHAT IS THE BASIS OF VALUATION OF PROPERTY?
Gross Selling Price, Zonal Value (FMV by Commissioner) or Assessed
Value (FMV by Prov’l./City Assessor) whichever is higher.
If there is no zonal value-GSP or FMV (tax declaration) wc/ever is
higher .
If there is improvement - FMV per latest declaration at the time of
sale /disposition, duly certified by the City/Municipal Assessor shall
be used. No adjustments, provided tax declaration bears upgraded
FMV
If tax declaration was issued 3 or more years prior to sale or
disposition, the seller/transferor shall be required to submit a
certification from City/Municipal Assessor, otherwise, the taxpayer
shall secure latest tax declaration.
For shares of stocks - based on net capital gains realized from
sale/barter/exchange/disposition of shares of stocks in a domestic
corporation, considered as capital assets not traded thru LSE.
CGT TAX RATES:

 Real Properties – 6%
 For shares of stocks not traded in PSE on
Capital Gains:
• not over P100,000 – 5%
• excess of P100,000 – 10%
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.
WHO/WHAT ARE CONSIDERED EXEMPT FROM
PAYMENT OF FINAL CGT?
 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
 Individual/non-individual exchanging real property
solely for shares of stocks resulting in corporate
control
 A government entity or GOCC selling real property
 If the disposition of the real property is gratuitous
 Where the disposition is pursuant to the CARP law
WHO ARE CONDITIONALLY EXEMPT FROM THE
PAYMENT OF FINAL CGT?
Natural persons who dispose their principal residence,
provided :
 proceeds of the sale been fully utilized in acquiring or
constructing new principal residence within 18 months
from the date of sale or disposition;
 historical cost or adjusted basis of the real property sold
or disposed will be carried over to the new principal
residence ;
 The Commissioner has been duly notified, thru return,
within 30 days from the date of sale or disposition;
 Exemption was availed only once every ten (10) years;
no full utilization of the proceeds -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%
CGT 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 RDO, 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.
WHEN IS THE DATE OF SALE OR DISPOSITION OF
A PROPERTY ?

This refers to the date of notarization of the

document evidencing the transfer of said
property.
WHAT IS AN ESCROW?

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.
WHAT IS CAR?

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.
UP TO WHEN A CAR IS VALID?

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.
CGT RETURNS:

Final Capital Gains Tax for Onerous Transfer of Real

Property Classified as Capital Assets (Taxable and
Exempt)
BIR Form 1706 – Final Capital Gains Tax Return (For
Onerous Transfer of Real Property Classified as
Capital Assets -Taxable and Exempt)
Tax Rates: For real property - 6%.
Deadline: Within 30 days after each sale, exchange,
transfer or other disposition of real property.
Capital Gains Tax for Onerous Transfer of Shares of Stocks
Not Traded Through the Local Stock Exchange
BIR Form 1707 - Capital Gains Tax Return (For Onerous
Transfer of Shares of Stocks Not Traded Through the Local
Stock Exchange)
Tax Rates:
For Shares of Stocks Not Traded in the Stock Exchange
- Not over P100,000 - 5%
- Any amount in excess of P100,000 - 10%
Deadline: Within 30 days after each sale, exchange,
transfer or other disposition of shares of stocks or real
property.
In case of installment sale, the return shall be filed within
30 days following the receipt of the first down payment
and within 30 days following the subsequent installment
payments. Only one return shall be filed for multiple
transactions within the day.
Annual Capital Gains Tax for Onerous Transfer of Shares of
Stocks Not Traded Through the Local Stock Exchange
BIR Form 1707 - Capital Gains Tax Return (For Onerous
Transfer of Shares of Stocks Not Traded Through the Local
Stock Exchange)
Tax Rates:
For Shares of Stocks Not Traded in the Stock Exchange
- Not over P100,000 - 5%
- Any amount in excess of P100,000 - 10%
Deadline:
Individual Taxpayers – On or before April 15 of each year
covering all stock transactions of the preceding taxable
year
Corporate Taxpayers – On or before the fifteenth (15)
day of the fourth (4) month following the close of the
taxable year covering all transactions of the preceding
taxable year
Related Revenue Issuances
RR No. 2-98, RR No. 4-99, RR No.13-99, RR No.
7-2003 and RR No. 17-2003

Codal Reference
Sec. 24C, Sec. 24D, Sec. 27D(2), Sec. 27D(5),
Sec. 28(A)(7)(c), Sec. 28(B)(5)(c) and Sec. 39A of
the National Internal Revenue Code (NIRC)