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.
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.
