TARLAC STATE UNIVERSITY - COLLEGE OF BUSINESS AND ACCOUNTANCY
TAXATION 2020
CAPITAL ASSETS AND ORDINARY ASSETS,
CAPITAL GAINS TAX
Capital Assets- are properties held by the taxpayer (whether or not connected with
his business) but do not include:
1. Stocks in trade, item of properties primarily for held for sale in the ordinary
course of his trade or business or items to be included in the inventory
account at the end of the year. Be it noted that items included in the
inventory depends upon the nature or operations of the business.
2. Personal property used in business and subject to allowance for
depreciation.
3. Real property used in trade or business whether subject or not subject to
depreciation
Transactions Subject to Capital Gains Tax (Sale, Exchange and other Disposition)
1. Sale of domestic stocks held as capital assets, sold directly to buyers are
subject to 15% capital gains tax based on net capital gains.
2. Sale of real properties held as capital assets are subject to 6% capital gains
tax based on Selling Price, Fair Value as determined by the city or municipal
assessors office or Zonal Value as determined by the CIR whichever is higher.
Sales, Exchange and other Disposition of Domestic Stocks Directly to Buyers
1. Domestic stocks includes preferred stocks, common stocks, stock rights,
stock options, stock warrants and unit of participation in any association,
recreation or amusement club.
2. Other disposition includes foreclosure of property, pacto de retro sale (sale
with a right to repurchase), and conditional sales and voluntary buy- back of
shares by the issuing corporation.
3. Other disposition does not includes issuance of stock by a corporation,
exchange of stocks for services, redemption of mutual funds, worthlessness
of stocks, redemption of stocks for cancellation by issuing corporations and
gratuitous transfers.
SOURCES: RA 8424; RA 10963; INCOME TAXATION, BANGGAWAN; INCOME TAXATION, BALLADA; CPA REVIEWER IN TAXATION, AMPONGAN
Tax Implication on Sale of Domestic Stocks
1. Not traded in stock exchange (directly to buyers)
Tax Base: Net Capital Gain
Tax Rate: 15%
Except if the seller is a foreign corporation, the applicable tax rate is the old
tax rates (not amended by TRAIN Law):
5% for the first P100, 000 net capital gain
10% in excess of P100, 000 net capital gains
2. Traded shares (in local stock exchange) – the sale is exempt from income tax,
but subject to Other Percentage Tax (Stock Transaction Tax) of 6/10 of 1 %
of selling price.
Sale of Real Property (Capital Assets)
Tax Base: whichever is higher between:
 Selling Price
 Fair Market Value by the Commissioner of Internal Revenue
(Zonal Value)
 Fair Market Value as determined by the City or Provincial
Assessor (Assessed Value)
Exemptions:
A. Exempt Under the NIRC: Capital gains realized from sale of Principal
Residence if the following requisites are followed:
a. The proceeds are utilized in acquiring new principal residence within 18
calendar months from the date of sale.
b. Commissioner is notified within 30 days from the sale.
c. The exemption can be availed of once in every 10 years.
d. The 6% CGT due on the presumed capital gains shall be deposited in
interest bearing account with an authorized bank under an escrow
agreement.
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 TARLAC STATE UNIVERSITY - COLLEGE OF BUSINESS AND ACCOUNTANCY
TAXATION 2020

Installment Payment of the Capital Gains Tax

The following formulas are useful if in case the whole amount of selling price is not 1. When domestic stocks are sold in installment, the capital gains tax may be also
utilized: paid in installment If the selling price exceed P1, 000 and the initial payment
does not exceed 25% of the selling price.
Capital Gains Tax due= Unutilized Portion X Should be capital gains tax
Selling Price 2. When real property is sold, the 6% capital gains tax maybe paid in installment if
under the payment terms, the initial payment do not exceed 25% of the selling
Cost basis = Utilized Portion X Cost of the old principal residence price. The initial payment refers to the collections in the year the sale is made.
Selling Price
Deadline of Filing for Capital Gains Tax Return (Domestic Stocks)
If the whole amount of proceeds is used to acquire new principal residence: 1. BIR Form 1707 shall be filed within 30 days after each sale, exchange and
other disposition of stocks. If qualified for payment under installment
Cost basis= Cost of the old residence method, the tax is due within 30 days after each installment.
+ Cost of the new residence 2. The annual capital gains tax return (BIR Form 1707-A) shall be filed on or
- Selling price of the old residence before the 15th day of the fourth month following the close of the taxable
year of the taxpayer.
B. Alternative Taxation Rule: The tax liability if any on gains from sale or other
dispositions of real property to the government or any of its political Deadline of Filing for Capital Gains Tax Return (Real Properties)
subdivisions or agencies or to GOCC shall be determined either under The 6% CGT will be filed through BIR Form 1706 and is due within 30 days
Section 24 (A) or 6% based on gross selling price or FMV whichever is higher from the date of sale or exchange.
at the option of the taxpayer.
Documentary Stamp Tax on Sale, Exchange and Disposition of Domestic Stocks
C. Exempt under Special Laws- sale of land pursuant to Comprehensive and Real Properties.
Agrarian Reform Program and Sale of Socialized housing unit by National 1. The sale of domestic stocks is subject to a documentary stamp tax of P1.50
Housing Authority. for every P200 of the par value of the stocks sold.

Tax Free Exchanges (Gains and Losses arising from the following are not subject to
Capital Gains Tax and Regular Income Tax)
1. Shares issued solely in relation with plan of Merger or Consolidation
2. Initial Acquisition of Corporate Control
SOURCES: RA 8424; RA 10963; INCOME TAXATION, BANGGAWAN; INCOME TAXATION, BALLADA; CPA REVIEWER IN TAXATION, AMPONGAN
However, shares of stocks in their original issuance are taxed at P2.00 for
every P200 par value or fractional part thereof.
2. The sale of real property capital asset is subject to a documentary stamp tax
on the gross selling price or fair value, whichever is higher. The
documentary tax is P15 for every P1, 000 and fractional parts of the tax
basis thereof. However, if the government is a party to the sale, the basis
shall be the consideration paid.
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