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Chapter 6 - Capital Gains Tax

The document discusses capital gains tax, including the classification of ordinary and capital assets, the types of gains on property dealings, and the scope and rates of capital gains tax on domestic stocks and real property.

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Leonardo Wenceslao
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20 views19 pages

Chapter 6 - Capital Gains Tax

The document discusses capital gains tax, including the classification of ordinary and capital assets, the types of gains on property dealings, and the scope and rates of capital gains tax on domestic stocks and real property.

Uploaded by

Leonardo Wenceslao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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CAPITAL GAINS TAX

CHAPTER 6
CLASSIFICATION OF TAXPAYER’S PROPERTIES

ORDINARY ASSETS CAPITAL ASSETS


- USED IN BUSINESS - ANY ASSET OTHER THAN
ORDINARY ASSET
- ASSETS HELD FOR SALE - PERSONAL (NON-BUSINESS)
- ASSETS HELD FOR USE - BUSINESS ASSETS WHICH ARE:
1. FINANCIAL ASSETS
2. INTANGIBLE ASSETS

** RELATIVE CLASSIFICATION
ASSET CLASSIFICATION RULES

1. PROPERTY PURCHASED FOR FUTURE USE


2. DISCONTINUANCE OF THE ACTIVE USE OF THE PROPERTY
3. REAL PROPERTIES USED IN TRADE OF THE TAXPAYER – ORDINARY
ASSETS
4. A DEPRECIABLE ASSET – ORDINARY ASSET
5. REAL PROPERTIES OF EXEMPT CORPORATIONS – CAPITAL ASSETS
6. TRANSFER OF PROPERTY – DEPENDS UPON THE USAGE OF ACQUIRER
TYPES OF GAIN ON DEALINGS IN PROPERTIES

TYPE OF GAIN APPLICABLE TAXATION SCHEME


• ORDINARY REGULAR INCOME TAX
GAINS
• CAPITAL GAINS GENERAL RULE: REGULAR
INCOME TAX
EXCEPTION RULE: CAPITAL GAINS
TAX
SCOPE OF CAPITAL GAINS TAXATION

GAINS ON DEALINGS OF CAPITAL ASSETS TAX RATES


 DOMESTIC STOCKS 15% CGT
 REAL PROPERTY 6% CGT
 GAINS FROM OTHER CAPITAL ASSETS RIT
DOMESTIC STOCKS
• ARE EVIDENCE OF OWNERSHIP OR RIGHTS TO OWNERSHIP IN A DOMESTIC
CORPORATION
EXAMPLES:
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 CLUBS
DISPOSITION:
• FORECLOSURE OF PROPERTY IN SETTLEMENT OF DEBT
• PACTO DE RETRO SALES
• CONDITIONAL SALES
• VOLUNTARY BUY BACK OF SHARES / REDEMPTION OF STOCKS NOT FOR
CANCELLATION
XX DO NOT INLCUDE: XX
 ISSUANCE OF STOCKS
 EXCHANGE OF STOCKS
 REDEMPTION OF SHARES IN A MUTUAL FUND
 REDEMPTION OF STOCKS FOR CANCELLATION
 GRATUITOUS TRANSFER OF STOCKS
MODES OF DISPOSING DOMESTIC STOCKS

1. THROUGH THE PHILIPPINE STOCK EXCHANGE


(PSE) - SUBJECT TO STOCK TRANSACTION TAX OF
60% OF 1% OF THE SELLING PRICE
OR

2. DIRECTLY TO BUYER – SUBJECT TO CGT


NET GAIN

SELLING PRICE P XXX


LESS:
BASIS OF TAX DISPOSED P XXX
SELLING EXPENSES P XXX
DOCUMENTARY STAMP TAX P XXX____ P XXX____
NET CAPITAL GAIN (LOSS) P XXX
SELLING PRICE
• CASH SALE
= TOTAL CONSIDERATION RECEIVED
• PARTLY MONEY AND PARTLY PROPERTY
= SUM OF MONEY AND FAIR VALUE OF PROPERTY RECEIVED
• EXCHANGE
= FAIR VALUE OF PROPERTY RECEIVED
TAX BASIS OF STOCKS
• BY PURCHASE • BY GIFT
 SPECIFIC IDENTIFICATION • BY INADEQUATE
 MOVING AVERAGE METHOD CONSIDERATION
 FIFO  AMOUNT PAID BY THE
TRANSFEREE FOR THE PROPERTY
• BY DEVISE, BEQUEST OR
INHERITANCE • UNDER TAX-FREE EXCHANGES
 SUBSTITUTED BASIS OF STOCKS
 FAIR VALUE AT TIME OF DEATH
OF DECEDENT
CGT ON REAL PROPERTY TAX

A. PRESUMPTION OF CAPITAL GAINS


• THE 6% CGT APPLIES EVEN IF THE SALE TRANSACTION RESULTED TO A LOSS

B. NON-CONSIDERATION TO THE INVOLUNTARINESS OF THE SALE


• THE 6% CGT APPLIES EVEN IF THE SALE IS INVOLUNTARY OR FORCED BY
CIRCUMSTANCES

C. FINAL TAX
• THE 6% CGT SHALL BE WITHHELD BY THE BUYER AGAINST THE SELLING PRICE
SCOPE AND APPLICABILITY OF 6% CGT

LOCATION OF THE TAXPAYERS


PROPERTY INDIVIDUALS CORPORATIONS

WITHIN THE PHILIPPINES ALL INDIVIDUALS DOMESTIC CORPORATIONS


ONLY
OUTSIDE THE PHILIPPINES NOT APPLICABLE NOT APPLICABLE
EXEMPTIONS TO THE 6% CGT
1. ALTERNATIVE TAXATION RULE
• AN INDIVIDUAL TAXPAYER OF A REAL PROPERTY CAPITAL ASSET HAS THE
OPTION TO BE TAXED AT EITHER THE 6% CGT OR REGULAR INCOME TAX

2. EXEMPTION RULES
a) UNDER THE NIRC – SALE OF PRINCIPAL RESIDENCE
b) UNDER SPECIAL LAWS
a) SALE OF LAND UNDER COMPREHENSIVE AGRARIAN REFORM PROGRAM
b) SALE OF SOCIALIZED HOUSING UNITS BY THE NATIONAL HOUSING AUTHORITY
DEADLINE OF PAYMENT

• USE BIR FORM 1706


• DUE DATE:
• WITHIN 30 DAYS FROM THE DATE OF SALE OR EXCHANGE
• FOR FORECLOSURE SALES = WITHIN 30 DAYS FROM EXPIRATION
OF APPLICABLE STATUTORY REDEMPTION PERIOD
• FOR INSTALLMENTS = 30 DAYS UPON THE RECEIPT OF THE
INSTALLMENT
DOCUMENTARY STAMPS ON THE SALE OF
CAPITAL ASSETS

FOR DOMESTIC STOCKS:


P 1.50 FOR EVERY P 200.00 OF THE PAR VALUE OF THE STOCKS SOLD

FOR REAL PROPERTIES:


P15 FOR EVERY P1,000 OF GSP OR FMV**
** GROSS SELLING PRICE OR FAIR MARKET VALUE (WHICHEVER IS HIGHER)
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 TAX PRESUMED GAIN ACTUAL GAIN

NATURE OF THE TAX FINAL TAX SELF-ASSESSED TAX

FREQUENCY OF PER TRANSACTION TRANSACTIONAL AND ANNUAL


PAYMENT TAX
ILLUSTRATIONS

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