Requirements and Procedures of Final Capital Gains Tax for Onerous Transfer of Real Property Classified as Capital Assets (Taxable and Exempt)

Final Capital Gains Tax for Onerous Transfer of Real Property Classified as Capital Assets (Taxable and Exempt)

TAX FORM

BIR Form 1706 – Final Capital Gains Tax Return (For Onerous Transfer of Real Property Classified as Capital Assets -Taxable and Exempt)

DOCUMENTARY REQUIREMENTS

1) One original copy and one photocopy of the Notarized Deed of Sale or Exchange

2) Photocopy of the Original Certificate of Title; Transfer Certificate of Title; or Condominium Certificate of Title in case of a condo unit

3) Certified True Copy of the tax declaration on the lot and/or improvement during nearest time of sale

4) “Certificate of No Improvement” issued by the Assessor’s office where the property has no declared improvement, if applicable or Sworn Declaration/Affidavit of No Improvement by at least one (1) of the transferees

5) Copy of BIR Ruling for tax exemption confirmed by BIR, if applicable

6) Duly approved Tax Debit Memo, if applicable

7) “Sworn Declaration of Intent” as prescribed under Revenue Regulations 13-99, if the transaction is tax-exempt

8) Documents supporting the exemption

Additional requirements may be requested for presentation during audit of the tax case depending upon existing audit procedures.

PROCEDURES

File the 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 property is located. In places where there are no AAB, the return will be filed directly with the Revenue Collection Officer or Authorized City or Municipal Treasurer.

One-Time Transaction (ONETT) taxpayers shall mandatorily use the eBIRForms in filing all of their tax returns. They may opt to submit their tax returns manually using the eBIRForms Offline Package in the RDO where the property is located or electronically through the use of the Online eBIRForms System. (Sec. 3(2) RR No. 6-2014)

TAX RATES

For real property - 6%.

 

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).

DEADLINE

Within 30 days after each sale, exchange, transfer or other disposition of real property.

 

SOURCE: http://www.bir.gov.ph/index.php/tax-information/capital-gains-tax.html#cgt2 

Dealings in Property

Dealings in property refers to the disposal through sale or exchange of ordinary assets or capital assets. 

Under the tax code, the following are ORDINARY ASSETS:

1.       Stock in trade of the taxpayer or other property of a kind which would properly be      included in the inventory of the taxpayer properly held by the taxpayer primarily for    sale such as:

      a.       Merchandise inventory

      b.      Real estate held or being sold by real estate dealers.

      c.       Securities held or being sold by dealers in securities.

2.       Properly used in trade or business subject to depreciation (property, plant and                equipment).

3.       Real property used in trade or business by the taxpayer (including real property held    for rent).

Capital assets

·         Include all other property held by the taxpayer, whether or not connected with      his trade or business not included in the definition or ordinary assets above.

Examples:

-   Stock and securities held by taxpayers other than dealers in securities.

-   Interest in partnership and joint venture

-   Goodwill

-   Real property not used in trade or business (i. e., residential house and lot)

-   Investment property

Property classification of an asset as capital or ordinary is important because of the special tax rules or gains and losses from sales or exchanges of capital assets which do not apply to gains and losses from sale or exchanges of ordinary assets.

“Gains and Losses from dealings in property”

Difference between the amount of value received by the taxpayer over the determined value of the property he has disposed of arising from sale, and/or exchange of assets. Gains and losses may be classified as capital gain (loss) or ordinary gain (loss).

DEFINITION OF TERMS

Capital gain – Gain from the sale, exchange, or other disposition of capital asset

Ordinary gain – Gain realized from the sale or exchange of ordinary asset including gains from performance of services and business.

Capital loss – Loss from the sale, exchange, or other disposition of capital asset.

Ordinary loss – Loss incurred from the sale or exchange of ordinary asset. (It also means the excess of deductions over the gross income of a taxpayer during a taxable year, or net operating loss).

Net Capital Gain – Excess of the gains from sales or exchanges of capital assets over the losses from such sales or exchanges.

Holding Period – Length of time the asset was held by the taxpayer. It covers the period from the date of acquisition to the date of sale or exchange.

Net Capital Loss – Excess of the losses from sales or exchanges of capital assets over the gains from such sales or exchanges

Dealers in Securities – All persons, who for their own account are engaged in the sale of stocks, bonds, exchanges, bullions, coined money, bank notes, promissory notes, or other securities as licensed by the SEC.

TAX IMPLICATIONS

a       Subject to percentage taxes.

1.       Sale, barter, or exchanges of shares of stocks listed or traded through the local stock          exchange. – ½ of 1% of the gross selling price or gross value in money of the shares of  stock sold.

2.       Shares of stock sold or exchange through initial public offering.

 -          On sale, exchange, or other disposition through initial public offering of shares of         stocks in closely held corporation, based on the gross selling price or gross value in     money of the shares of stock sols, etc., in accordance with the proportion of the             shares of stock sold, etc., to the total outstanding shares of stock after listing in the       local stock exchange.

Up to 25%                                                   4%

Over 25% but not over 33 1/3%                   2%

Over 33 1/3                                                 1%

b      Subject to final income tax – CAPITAL GAINS TAX:

1.       Capital gains from the sale of shares of stock not traded in the stock exchange

Not over P100,000                                                    5%

Over any amount in excess of P100,000                   10%

2.       Capital gains from the sale in excess of P100,000

Based on gross selling price or fair market value

Whichever is higher                                                   6%

c        Subject to REGUAR INCOME TAX – all other capital asset transactions

Tax RULES on capital gains and losses:

1.       The transaction must involve property classified as capital asset.

2.       The transaction must arise, generally, from sale or exchange.

3.       Net capital gain is added to ordinary gain, however, if the result is a net capital loss, such loss can only be deducted from the net capital gain.

Individual Taxpayers              
                                               

1-       Percentage to be recognized based on holding period            

(the length of time the asset was held by the taxpayer                 

·         100% - if capital asset has been held for 12 months or less

·        50% - if capital asset has been held for more than 12 months

2-       Capital Losses shall be allowed only to the extent of capital gains                                           

                                                                                                              

3-       Net Capital loss carry over is allowed                                             

  

·         If any taxpayer other than a corporation, Sustains in any taxable year a net capital

loss (in an amount not in excess of the net income for such year, shall be treated in

the succeeding year as a short term capital loss (100% deductible form of capital gain).

·         The net income referred to is BEFORE Personal exemptions

4-       Capital losses are deductions only from capital gains                       

 

Corporations

1. Percentage to be recognized of the holding period

2. Capital losses shall be allowed to the extent of capital gains.

3. Net Capital loss carry is NOT allowed.

4. Capital losses are allowed only to the extent of capital gains.

Any loss sustained by a domestic or any trust company from sale of bonds, debentures, notes, or certificate or other evidences of indebtedness issued by any corporation, including those issued by the government is considered as these are subject to final capital gains taxes.