Capital Gains tax
for being used in business by a taxpayer
Ordinary Assets- assets used in business
 Business is habitual engagement in a
commercial activity involving the
regular sale of goods or services for a
profit
Basically, Ordinary Assets are:
 Assets held for Sale- such as inventory
 Assets held for use- such as supplies
and items of property plant and
equipment
Capital Assets – any asset other than ordinary
asset
Basically Capital Assets are:
 Personal(Non Business Assets of a Tax
Payer)
 Business Assets of any taxpayers which
are:
 Financial Assets- such as cash,
receivables, prepaid expenses, and
investment
 Intangible Assets- such as patent,
copyrights, leasehold right, franchise
right
Assets classification rule:
 A property purchased for future use I
business is an ordinary asset even
though his purpose is later thwarted by
circumstance beyond the taxpayers
control
 Discontinuance of the active use of the
property does not change its character
previously established as business
property
 Real property used, being used , or have
been previously used, in trade of the
taxpayer shall be considered ordinary
assets
 Properties classified as ordinary assets
engaged in the real estate business are
automatically converted into capital
assets upon showing of proof that the
same have not been used for 2 years
prior to consummation of the taxable
transaction involving such property
 A depreciable assets is an ordinary
assets 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
operations are considered capital assets
Gains on dealing with
Tax rates
capital assets
Gain on sale, exchange,
and other disposition of
domestic stocks directly to
15% Capital Gains Tax
buyer
Sale, exchange and other
disposition of real property 6% Capital Gains Tax
in the Philippines
Gain from other Capital
Assets Regular Income Tax
Capital gain on sale, exchange, and other
disposition of domestic stocks directly to buyer
 Treasury share premium are not subject
to capital gain tax(pp172)
 Gratuitous transfer of stocks are subject
to transfer tax not to income tax
 Gain by the investor on redemption or
redeemable preferred share shall be
subject to regular income tax
MODE OF DISPOSING DOMESTIC STOCKS
Through Philippine Stock Exchange(PSE)
Directly to buyer
Through Philippine Stock Exchange(PSE)
Not subject to Capital Gains tax but subject to
stock transaction tax of 60% of 1% of the selling
price effective Jan 1 2018. The old law imposed
a rate of 50% of 1% on the selling price. (pp173)
Directly to buyer
Nature of CGT
Universal Tax-
Annual Tax
Net Gain is determined as follows(pp.174)
Selling price
Less:
Basis of Stock disposed
Selling expenses
Documentary stamp tax on the sale
Net Capital Gain (Loss)
What is the tax basis of stocks?(pp. 175-178)
 If Acquired by purchase , tax basis is the
cost of the property which will be
determined by the following methods in
descending order of priority
 Specific identification
 Moving Average method
 Fifo
 If acquired by devise, bequest, or
inheritance, the tax basis is the fair
value at the time of the death of the
decedent
 If acquired by gift lower of the FV at the
time of gift and the basis in the hand of
the donor or the preceding owner by
whom it was not acquired by gift
 If acquired for inadequate
consideration the tax basis is the
amount paid by the transferee for the
property
 If acquired under tax free exchanges,
the tax basis is the substituted basis of
the stocks
Tax rates
NIRC Train law
Net Gain up
5%
to 100k
Excess net 15%
gain of above 10%
100k
Foreign corporation- 5-10% CGT
Individuals and domestic- 15% CGT
Deadline of the Transactional Capital gains tax
return (BIR form 1707) shall be filled 30 days
after each sale
Deadline of the annual capital gains tax return
(BIR form 1707-A) shall be filled 15th day of the
4th month following the close of the taxable
year
Instalment payment of Capital gains tax
When domestic stock is sold in instalments the
capital gains tax may also in instalment if:
A .selling price exceeds 1,000: and
B . initial payment does not exceed 25% of the
selling price
Tax Free Exchanges
Merger or Consolidation – the gain or losses on
share- for -share swap pursuant to a plan of
merger consolidation will not be recognized for
taxation purposes.
Initial Acquisition of Control- no gain or loss
shall be recognized if the property is transferred
to a corporation by a person in exchange for the
stock units of participation is owned more than
51% of the shares
Exchange not solely for stocks- 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
property received
 Transferee Transferor The Capital gain tax shall be withheld by
The original Basis of Substituted basis of the buyer against the selling price of the
the property, stock the transferred seller and remit to the government
or securities to be property in the hands Exemption to the 6% Capital Gains Tax Under
transferred of the transferees NIRC
Less: (a) money The sale exchange and other disposition of a
received if any The original basis in principal residence for the reacquisition of a
(b) the FMV of the the basis of the
new principal residence by individual taxpayers
other property transferor
is exempt to 6% capital gain tax
received
Requisite of Exemption
Add: (a) the amount
treated as a dividend  The seller must be a citizen or resident
of the shareholder ,if Plus the amount of citizen
any gain recognized to  The sale involves the principal residence
(b) the amount any the transferor on the of the seller-taxpayer
gain that was transfer  The proceeds of the sale is utilized in
recognized on the acquiring a new principal residence
exchange if any  The BIR is duly notified by the taxpayer
of his intention to avail the tax
Sale, exchange and other disposition of real exemption within 30 days of the sale
property in the Philippines through a prescribed return
 Subject to a tax 6% of the selling price Capital Gain tax Exemption under special laws
or the fair value, whichever is higher 1. Sale of land pursuant to Comprehensive
Under the NIRC the Fair value of real property is Agrarian Reform Program
whichever is higher of the 2. Sale of socialized housing units by the
a.) Zonal Value, which is the value prescribed National Housing Authority
by the Commissioner Of Internal Revenue for Payment of the 6% Capital Gain Tax in
real properties for purposes of enforcement of instalment
internal revenue laws, and  Initial payment must not exceed 25% of
b.) Fair market value as shown in the schedule the selling price
of market values of the Provincial and City Requisite
Assessors  Without Mortgage
 With mortgage not in excess of cost
Nature of the 6% Capital Gain
 With mortgage in excess of cost
 Presumptions of Capital Gain
 Initial Payment exceeds 25% of selling
The 6% capital gains tax applies even if
price
the sale transaction resulted to loss.
DEADLINE FOR PAYMENT OF THE CAPITAL
Gain is always presumed to exist.
GAIN TAX
 Non Consideration to the
30 days from the sale of date or exchange
involuntariness of the sale
The capital Gain tax is applied even if
DOCUMENTARY STAMP TAX ON THE SALE OF
the sale is involuntary or is forced by
CAPITAL ASSETS
circumstances
Stock- 1.50 for every 200 of the par value of the
stock sold
 Final Tax
Real property- 15 for every 1000 fractional parts