INCOME TAXATION UNIT 2 – PRELUDE

RECALL: CLASSIFICATION OF TAXPAYERS (Check your book for more infos)

INDIVIDUALS CORPORATIONS
RC DC
NRC RFC
RA NRFC
NRA-ETB
NRA-NETB

How these types of taxpayers are being classified from one another? – Check your book for
more info
**REMEMBER THEIR TAXABILITY
Taxable on WORLD INCOME – RC and DC
- Subject to DOUBLE TAXATION
Taxable ONLY on Philippine Income – NRC, RA, NRA-ETB, NRA-NETB RFC, NRFC
Taxable in Philippine Income – all the basic classifications of taxpayers

INCOME TAX SCHEMES

- Tax imposition of income subject to tax
1. Final Income Tax
2. Capital Gains Tax – Form of final tax w/o w/holding
3. Regular Income Tax
---- Check your book for more information about this
INCOME TAX TREATMENT – mutually exclusive from one another
Q: Kapag naka-earn ka ng income, anong mangyayari sa income mo?
1. Exempt
2. Final Tax
3. Regular Income Tax

*Lahat ng income na hindi exempted at final tax, they will be totaled and will be subjected
to RIT.
Final Tax is known as the special tax treatment

Treatment for Individuals under RIT

 Subject it to Section 24A which is known as the TAX TABLE. Tax table is progressive
Chinecheck if nalagpasan yung 250,000--- tax rate is still 0%
Treatment for Corporations under RIT
  There’s a specific percentage to follow under CREATE law.
The percentage is currently at 20% (for specific domestic corporations) OR 25%
(for other dc, other corporations)
Other taxpayers na ang treatment ay same with corporate taxpayers---Partnership, Joint
venture, Taxable Co-ownership.

Above can be taxed as corporations.

DIFFERENCE between GROSS INCOME and TAXABLE INCOME.

GROSS INCOME TAXABLE INCOME

Gross of everything, of an income that
should be subjected to regular income tax
Tax Liabilities
 Net of Allowable Deduction –
Certain deductions allowed in our
tax code and certain special laws
that could reduce the amount of
GROSS INCOME to minimize our TAX
BURDEN.

Under REGULAR INCOME TAX, we are using ITR or Income Tax Return.
- Annual tax return is filed to BIR. Nandito na kasi yung total ng mga income na hindi
naexempt at hindi naisubject sa final

FINAL TAX – Special Tax Treatment

- Has specific rates on certain transactions, on certain individuals, on certain income
- MEMORIZE PERCENTAGE GRR

Q: Kapag ba RC, lahat ng income pwedeng isubject sa lahat ng income tax treatment? How
about corporations? O lahat ng taxpayers ay pwede masubject sa lahat ng tax treatment?

TAXPAYERS WHO CAN BE SUBJECTED TO ANY INCOME TAX TREATMENT

*RC *NRA-ETB
*NRC *DC
*RA *RFC
NRA-NETB & NRFC – no regular income tax treatment
- most of their taxes are taxed at 25%
- they may be exempted as well pero at few transactions lang
- no regular source of income within the Philippines.
If they will earn income in the Philippines, those are just casual transactions. Walang
established entity, hindi nag-stay sa Philippines. FINAL TAX ang treatment, almost all of
their income/ Final withholding tax. 25%

Concept of withholding- ikakaltas na yung 25%. Kung sino yung nagpurchase ng goods sa
taxpayers, sila ang magreremit sa BIR. Ginagawa para makakolekata pa rin ang govt. sa mga
taxpayers na ito and will not occur a loss.

FINAL INCOME TAXATION – tax on certain passive income.

- Withholding of tax prior the receipt of payee.

If PAYOR is making payment to the PAYEE, payor is required by law to deduct a certain
percentage from that payment.

Deduct certain percentage = withholding of tax

-full and final settlement of tax obligation related to the income

Upon the collection of that certain percentage, it will be remit to the government.

INCOME RECEIVED by the payee is now called NET OF APPLICABLE TAX.

Wala ng obligation si payee na bayaran yung tax in the future and include this related
income sa income tax return niya.

Payor who deducted will be the one who will be PRIMARILY LIABLE to remit that percentage
to BIR.

Final withholding of tax is the most favored tax scheme.

Q: Lahat ba ng payor can withhold tax from the payments?
NOT EVERYONE IS OBLIGED TO WITHHOLD TAXES. Yung mga registered entity lang
ang pwede.
Withholding tax is one of the ways of the govt to collect taxes efficiently.

Passive income
- not usually earned on a regular basis
- receiving that income without active participation.
- MOST PI treatment is subjected to FIT
- must be domestically earned (Kapag hindi not domestic, malalabag yung International
Comity)
NOT DOMESTIC – will be subjected to RIT
E.g. of certain passive income (D.R.I.P)

Active Income - these are being earned but with the effort being exerted through the
earning process.
E.g Compensation Income, Business Income, Professional Income
- not subjected under Final Income Tax
- they are subjected to RIT

CONCEPTS TO REMEMBER ABOUT FINAL INCOME TAX

 FIT, IS A TAX WITHHOLDING AT SOURCE
 IMPOSED IN THE TERITTORY OF THE JURISDICTION OF THE TAXING AUTHORITY
 FIT ON CERTAIN PASSIVE INCOME
 NRA-NETB AND NRFC, FIT IS 25%

CERTAIN PASSIVE INCOME – INTEREST INCOME ON BANK DEPOSITS

Why do we earn interest income on bank deposits?
We are the one who lends to the bank.
Less than 1% ang interest
Just for safe keeping, kaya walang reklamo thou kaunti lang ang interest

1. LOCAL CURRENCY DEPOSITS- General deposits

DEPOSIT SUBSTITUTES – fund ng bank na kinukuha from not less than 20 depositors
at a time, to raise fund for the use of the bank. One time collection of deposits from
investors or depositors.
- Minsan may indicated interest rate

2. LONG TERM DEPOSITS

3. FOREIGN CURRENCY DEPOSITS

LOCAL CURRENCY DEPOSITS-DEPOSIT SUBSTITUTES
Bank deposits – any form of deposits na mayroong interest will be subjected to FIT.
- consider the term of the contract.
Short-term deposits – less than 5 years, 20% - individual & corporation
XPT: NRA-NETB & NRFC – exempt sa 20% dahil sa may Final Tax Rate na sila na 25%
(Check summary notes)
(For the illustration, check p. 139 of your book- Illustration 2&3)

LONG-TERM DEPOSITS – duration of the deposit is at least 5 years

- sa individuals malaki ang effect nito, dahil sa they are already exempt from final tax.
- Inexempt ang individuals, nang dahil sa govt want to encourage individuals to save
money.
- Corporation is not exempted nang dahil sa they already have savings.
XPT: NRA-NETB and NRFC – 25% hindi exempted sa FTR kahit na individual pa sila.
XPT: DC and RFC hindi sila masasubject sa FIT, pero subjected sila under RIT
(For the illustration, check p. 139 of your book – Illustration 1)

**Pre-termination of long-term deposits or investment of individuals – pertaining to

deposits na nakinabang si individual.
Time deposits, can be terminated by the depositor anytime that he wants. Kapag may
agreement with bank, magkakaroon ng charges or penalties si depositor.
- Any exempted interest income from tax will be taxed with new rates.
Things to consider: Holding Period
Less than 3 years – 20%
3 to less than 4 years – 12%
4 to less than 5 years – 5%

This will be subject to past or previous interest income received by the depositor that wasn’t
subjected to any FIT.
(For the illustration, check p. 143 and 144 of your book – Illustration – long term deposits
and Illustrations 1&3)

FOREIGN CURRENCY DEPOSITS

- Deposits in the bank that are in foreign currency
- Subjected to 15% on RESIDENTS ONLY (residents citizen, resident alien, resident
foreign corporation)
XPT: NON-RESIDENTS
Including NRA-NETB and NRFC-Exempt
 - Walang classification ng short-term or long-term
(For the illustration, check p. 145-146 of your book – Illustration, scenario 1-3)

ROYALTIES – compensation or amount being given to individuals or entities who has the ITR
on certain assets or properties.
TYPES OF ROYALTIES
1.Active – mag-eexert siya ng effort to get royalties
2.Passive – upon the creation of property, the creator wala na siyang gagawin kung hindi
ang maghintay na lang ng royalties
E.g BOOKS, MUSICAL COMPOSITIONS, MEDICINES, VACCINES, LITERARY WORKS
(For illustration, check p. 152 on your book)

CLASSIFICATION OF ROYALTIES
IN GENERAL – 20%
BOOKS, LITERARY WORKS AND MUSICAL COMPOSITIONS – 10%
CINEMATOGRAPHIC FILMS AND SIMILAR WORKS – 20%
-Hiniwalay dahil sa Non-residents are being taxed not 20%, but 25%
XPT: NRAs (ETB and NETB) and NRFC – 25%
-The right to use those foreign films, should be subjected to final tax.

PRIZES AND WINNINGS

PROBLEMS***
- We use prize interchangeably with winnings
- There’s no exact distinguishing factor between these two
- MAIN PROBLEM: In taxation, we have diff tax rate imposition for prizes and
winnings.
Prizes: based on effort, but not continuous
Winnings: No effort exerted, based on chances

PRIZES
- Under this, kinacategorize ang amount ng prize.
Threshold:
 10,000 and below
Will be subjected under RIT for both individuals and corporation
XPT: NRA-NETB and NRFC – 25% FT
  Above 10,000
Individuals 20%, RIT corporation
XPT: NRA-NETB and NRFC 25% FT.
Few exemption requirements:
1. Prizes and awards in recognition
Noble Awards - walang effort to enter the contest
No future obligation to render services
2. Prizes and awards in sports association
Olympics and Non-Professional Games
Professional game, not exempt

Sports competition should be sanctioned by an accredited sports association for the

prizes to be exempted.

Other rewards, kahit nanalo and coming from other entities, they came from
donation

WINNINGS – Categorize into THREE

 In General
Individual 20%, RIT corporation
XPT: NRA-NETB and NRFC 25% FT
 PCSO and LOTTO Winnings above 10,000
20% Individual and Corporation
XPT: NRA-NETB and NRFC 25% FT
 PCSO and LOTTO Winnings 10,000 and below
EXEMPT Individual and Corporation
XPT: NRA-NETB and NRFC 25% FT
(For the illustration, check p. 153-154 of your book)

Final income tax on winnings, per ticket basis

DIVIDENDS
- An income being divided and distributed to shareholders or owners of a certain
company or entity
Forms of Dividends: TAXABLE
1. CASH DIVIDENDS
2. PROPERTY DIVIDEND
-not usual na ibinibigay nang dahil sa the distribution of property is difficult.
3. SCRIP DIVIDEND
-Those declared as cash dividend pero uutangin din ng company.
-They will be not received by the shareholder for quite period of time nang dahil sa
company will give a certification, na uutangin muna nila at may specific interest rate
naman
-cash dividend turned somehow into loan for the company
 4. LIQUIDATING DIVIDEND
-Company is into the dissolution or liquidation step already.
-Return of capital, sometimes, even amount sa liquidating dividend sobra sa ininvest
kaya may ROC na dapat maitax
-not tax as a dividend. Not considered as a dividend subject to FIT

5. STOCK DIVIDEND
-mere increase in stock or shareholding of owner or shareholders of company
Wala pang realized benefit

#4 and 5 are EXEMPT BUT CAN BE TAXABLE IF

 Subsequent cancellation and redemption – nagdeclare ng stock dividend tas
pinalitan ng cash dividend
 Substantial alteration in ownership of corporation – baka hindi talaga niclose yung
corporation, nagkaroon lang ng change in ownership

Sino ang nagdedeclare ng Dividends? The CORPORATIONS

- DC, NRFC, RFC = nakabase ang dividends sa income ng companies or corporation
Sino ang nakakareceive ng Dividends? THE INDIVIDUALS
- RC, NRC, RA, NRA-ETB, NRA-NETB
- Corporation can also receive dividends because they can be a shareholder of other
corporations.

DC RFC – nakabase sa situs NRFC

10% RIT RIT RC
10% RIT NRC
10% RIT RA
20% RIT NRA-ETB
10% 25% 25% NRA-NETB
10% EX RIT RIT DC
EX RIT RFC
*15% 25% NRFC

EXEMPTED: DC & RFC

- These dividends are intercorporate dividends
- Minimize Double Taxation
**15% NRFC – Tax sparring
- There is a reciprocity between two nations.
- Still using 25% kapag hindi inindicate kung reciprocity or tax sparing

OTHER TYPE OF TAXPAYER THAT ARE CONSIDERED AS CORPORATE TAXPAYER

1. Taxable Partnership
2. Joint Ventures
3. Taxable Co-Ownership
#2 and 3 – kapag sila ang nagdeclare, it is not called dividends but income distribution

Corporation dividends – owners/shareholders ang makakuha

Partnership, Co-ownership - Joint Venture
Partnership – Taxable Co-ownership

Kapag nagdistribute sila ng income, makakareceive din yung mga partners, which are also
owners.
Distribution of income of these partnerships is like the dividend distribution of a
corporation.
**TAX IMPOSITION FOR THE INCOME DISTRIBUTION OF THE OTHER TAXPAYERS IS THE
SAME AS DOMESTIC CORPORATION, EXEMPT INTERCORPORATE DIVIDENDS. 10%, 10%

**DC or OC, can be a partner in a partnership, before the revised corporation code, merong
provision na hindi pwedeng maging partner ng isang partnership ang corporation.

Partnership – MUTUAL TRUST

(For more understanding, check pages. 148, 151 of your book for the Illustrations)

OTHER ITEMS UNDER SPECIAL LAWS that are also subjected to FWT related to dividends
1. Dividends on TAX-FREE CORPORATE COVENANT BONDS
-these are bonds issue by corporation for them to be able to raised certain funds
- uutang sila, magbibigay sila bonds na may certain rate. Yun yung magiging
dividends nung makakareceive or nung nagpaurtang sa isang corporation
-not tax free
30% - INDIVIDUALS, EXEMPTED – CORPORATION

2. Dividends from REAL ESTATE INVESTMENT TRUST

-company na nagpupull ng investments from public and other corporation, other
entities afterwards yung nakuha nila will be invested to other real estate companies.
- Will be tax same on Dividends from DC

3. Dividends from COOPERATIVES TO MEMBERS

-Exempted from Income Tax kapag exempted din yung cooperative sa income tax.

INFORMER’S REWARD
 - Cash reward being given to person na naging way for the bir to know who violates
the NIRC, or for the BOC to know and to make seizure of the smuggled goods.
- Must have proofs
- Cash reward is tax at 10%
- The reward you will be getting is based on the 10% of the revenue collected by the
BIR or 10% of the value smuggled and collected by BOC
10% or 1M or whichever is lower.
**That 10% in 1M will be withhold by the BIR

REQUISITES OF TAX INFORMER’S REWARD:

 Definite sworn information which is not yet In the possession of the BIR
 The information furnished lead to the discovery of fraud upon internal revenue laws
or provisions thereof.
*nag-eevade ng tax, hindi nagbibigay ng tamang tax, hindi nagdedeclare ng info
needed by BIR for faithful and correct tax filing and payment
 Enforcement results in recovery of revenues, surcharges, and fess and/or conviction
of the guilty party or imposition of any fine or penalty.
 The informer must not be a:
*BIR official or employee
*Other public official or employee
*Relative within the 6th degree of consanguinity of those officials or employee in a
and b
- dapat walang connection

(For the Illustration, check p. 154 in your book – last illustration)

CAPITAL GAINS TAXATION – another form of FIT, or income being earned by individuals
and corporation
- No withholding: Kung sino man yung nag-earn ng income he/she is the one who is
primarily liable to file and pay to BIR.
Separate treatment of other income that will be subjected to RIT
- These are a tax on capital gains. ----- Applies to capital asset
***CLASSIFICATION > Those subjected to CGP are only those certain items of Capital Asset
 Businesses or entities that are into business can have OA or CA
 Professionals may have both at the same time
 Kapag wala kang income kung hindi compensation income, all your assets are Capital
Asset

1. ORDINARY ASSET
-assets used in business, but not all business
> Inventory
> Supplies
> PPE
 2. CAPITAL ASSET
-any asset other than ordinary assets
-asset not used in business
-assets used in business but are not necessarily important in the operation of
business

**Not all the time ay may AR ang business

**Not all business need na mag invest, cause mag-ooperate naman kahit wala
yun
**Intangible Assets are also Capital Asset

ASSET CLASSIFICATION IS RELATIVE.

- It will be based on NATURE of and USAGE by the business
Not all stocks are investments. **

OA and CA are used in different transactions. (Sales, Exchange, and other dispositions)
How do we treat OA and CA under Taxation?

Ordinary Asset, kapag nagkaroon ng Sales, Exchange, and other disposition

- GAIN (Ordinary Gain)
Taxable in full
Ordinary Asset, tinrade
- LOSS (Ordinary Loss)
Deductible in full

Treated using this formula:

GROSS INCOME
LESS: DEDUCTION

TAXABLE INCOME
OA gains and losses, treated under RIT

Capital Asset
Treated under EXEMPT, FT(CGT), RIT
Items being tax under Capital Gains Tax,
1. Income related to the sale of DOMESTIC STOCKS sold directly to buyer
2. Income related to the sale of REAL PROPERTIES located in the Philippines
Principle that are common on 2 items: BASED ON TERRITORIALITY RULE
How do we treat these items of Capital Assets, Domestic Stock and Real Properties, and tax
these under CGT.

GAIN LOSS
DOMESTIC STOCKS 15% on net capital gain NOT DEDUCTIBLE
REAL PROPERTIES 6% on Selling Price, Assess NOT DEDUCTIBLE
Value, or Zonal Value,
whichever is higher

Under RP, kahit wala pang kinita, it will be still tax at 6%.
When there’s a sale on properties, there is income kahit wala talaga.

Selling Price
- Price related to the purchase of goods or services
Assessed Value
- The Fair Market Value
- Being indicated or specified by Municipality.
Zonal Value
- Value indicated or specified by BIR.
- Only applies to land

**All other assets not considered as DS, RP are capital assets, but these assets are subjected
under RIT

DOMESTIC STOCKS sold directly to buyer

- We need to know if it is held as capital asset (Non-dealer)

Another mode of disposing Domestic Stocks (Capital Assets)
- Sold through the PHILIPPINE STOCK EXCHANGE
-Will be taxed at 6/10 of 1% on Selling Price (stock transaction
tax)
-not subjected to CGP

(For illustration, check p.178 to 179 of your book)

CLASSIFICATION OF STOCKS
Domestic Stocks
- These are stocks of domestic corporation
*Preferred Stocks
*Common Stocks
*Stock Rights
*Stock Options
*Stock Warrants
*Unit of Participation to different associations

Kapag binenta, nagkaron ng sales, exchange, and other dispositions, pwedeng ma-subect on
15% on net capital gain

Items on Exchanges (Can be seen on summary notes)

1. Tax Free Exchanges – exempted from any income tax imposition
-Ibig-sabihin, kapag nagkaron ng ganitong transactions, kahit na magkaroon ng
increase in benefit, increase in wealth, in value, magkakaroon pa rin ng TAX FREE
EXCHANGE

 Kung sakaling related sa Merger or Consolidation

Merger: Combination of two Corporation
Consolidation: There’s a new corporation arises
 Initial Acquisition of Corporate Control
Dapat may Acquisition and corporate control

Other Dispositions
Foreclosure of property in settlement of debt
- DS ginamit na collateral for a certain debt. Kapag hindi nabayaran, it is considered as
OD subject to CGT.
Pacto de retro sales
- Sale with a right of repurchase
Conditional Sales
- Sales that must satisfied a certain condition for it to be perfected.
Voluntary buy back not intended for cancellation
- Corporation issuing the DS, pero nakalagay doon ay redeemable. Pwedeng bilhin ulit
ni Corporation.
- Pag binili ng corporation mapupunta lang sa Treasury share, masasubject sa CGT
Items not included**
Hindi ka talaga nagbenta ng stocks dito. The corporation selling the
Issuance of Stock
stocks, hindi siya nagbebenta for INCOME PURPOSES, but for Ownership
Exchange of stock for services Purposes.

Redemption of shares in a mutual fund

 - Included in RIT
Worthlessness of stocks
Redemption of shares for cancellation (corporation)
- Hindi na siya papasok as TS ng corporation, hindi na mababenta ulit.
Gratuitous Transfer of Stocks
- Will be subjected to Transfer Taxation
How to compute the Net Gain?
Selling Price
Less: Basis of stocks disposed
Selling Expenses
Documentary stamp tax
NET CAPITAL GAIN (LOSS) – subjected to 15%
(For illustration, check p. 180 of your book. First illustration)
Basis of stocks
Acquired by:
Purchase – Cost of Property
**bracket: Gratuitous Transfer
By Devise, Request, Inheritance – FV of property at Time of Death
By Gift – FV at time of gift or Basis of Preceding Owner who acquired it not by gift
(whichever is lower)
For Inadequate Consideration – amount paid by the transferee
- Kung magkano lang yung binayaran
- Kung inadequate, may portion na hindi binayaran. Presumption is: will be tax under
Transfer Taxation and not Income Taxation
Under Tax-Free Exchange
- At the time na itatransfer na ang domestic stock na exempted nung unang
acquisition, masasubject na sa CGT, BUT the basis is Substituted Basis.
(For illustration, check p. 180 of your book)
- Kapag nagkaron ng purchase, may mga bumibili na hindi lang one time.
What if previously, nakabili na ng iba pang shares si Mrs. chuchu at 10 times na including the
new purchase? Kapag binenta ano ang cost basis? (Check Illustration 2 on page 181 for
more understanding)
Different costing to that:
Specific Identification
Moving Average Method
First-In, First Out
By Gratuitious Transfer
(For Illustration, check p.182 Illustration 3)
Basis of stocks if Mrs. Lipa na yung magbebenta ng stocks.
DONATION – as is donation while leaving
BY gift: FV at time of gift or Basis of Preceding Owner (na hindi naacquire yung property
through gift)
2,500,000 – at time of gift

400,000 – preceeding owner.

INHERITANCE – donation because of death

- Considering the FV at time of death
2,500,000

Computing for Net capital Gain (Loss) and CGT

(Check last illustration on you book on page 183)

NATURE OF CGT
- Universal Tax
Kahit na ang sale ay executed outside the Philippines, since it is domestic
stock, subjected pa rin sa CGT

- Annual Tax
Annually we compute how much is the total domestic stocks sold directly to
the buyer which are subjected to 15% of net capital gains

Within 30 days upon sale, exchange, and other disposition, kailangan nakapagfile na
at nakapagbayad na kay BIR. TRUE

Pero, nagkakaroon ng amendment return or refund, adjustment return kapag

magkaiba yung computation ng per transaction basis and total annual.

Transaction – we have to pay and file to BIR

Annually – We check kung magkano talaga ang total

ILLUSTRATION – sales of shares of stock of a domestic corporation held as capital assets

THRU A LOCAL STOCK EXCHANGE TAX TREATMENT

SALE 1: SELLING PRICE OF P300,000 AND A COST OF PT 6/10 of 1% 1,800
P280,000
SALE 2: SELLING PRICE OF P600,000 AND A COST OF PT 6/10 of 1% 3,600
P700,000
DIRECTL TO BUYERS: (PER TRANSACTION BASIS) BIR FORM
Y 1707
SALE 3: SELLING PRICE OF P300,000 AND COST OF CGT 28,500
P110,000
SALE 4: SELLING PRICE OF P250,000 AND COST OF CGT 7,500
P200,000
SALE 5: SELLING PRICE OF P320,000 AND COST OF CGT 0
P350,000
TOTAL 36,000
DIRECTL TO BUYERS: (ANNUALIZED CAPITAL GAINS BIR FORM 1707
Y RETURN) (A)
SALES 3 TOTAL SELLING PRICE P870,000, TOTAL COST ANNUAL 31,500
TO 5 P660,000
REFUND/ADJUSTMENT PAYMENT 4, 500

***Sales 3 to 5, SP are added, TC are added

REAL PROPERTIES – must be held as capital assets and located in the Philippines
- Can be assessed on 6% on SP/AV/ZV whichever is higher
ILLUSTRATIONS:
#1
Panday is not engaged in real estate business. He sold a 1000 square meter residential land
for P300,000 on March 15, 2018. The land was acquired by purchase on March 5, 2016 for
P120,000. After acquisition, the land was fenced at a cost of P30,000. A commission of 5% of
the sale price was paid to the sales agent.
**Kapag silent kung saang place, matic na Philippines.
Capital Gains Tax Due – P300,000 X 6% = P18,000
#2
Samson sold his residential house to Delia for P5,000,000. Its FMV when he inherited it was
P6,000,000 although its present FMV is P8,000,000.
Capital gains tax due – P8,000,000 x 6% = P480,000

**Capital Asset can be subjected to RIT, CGT, and can be exempt

Final Tax(CGT) – 6%
Kailan nagkakaroon ng RIT on sale of properties located on the Philippines, held as Capital
Asser.
A: If there are Sale to Government or GOCC
If you are the owner of the land you HAVE the option to pay CGT or used RIT
If RIT ang pipiliin, it will be tax under TAX TABLE (for individuals)
 - Kapag nasubject sa RIT, the option is on the end of the seller. Kung sino si Taxpayer.
Siya magdedecided kung sa 6% or RIT.
Kapag RIT, kapag lugi ka, your losses could be subjected to deductions
Kapag inadd yung income mo sa other income na meron ka, if hindi lumagpas sa 250,000,
0% pa rin ang tax mo.
Capital Assets that are exempted from 6% CGT
1. Sale of Principal Residence (NIRC)
Requirements
- Within 18 months, dapat makapag-acquire ng new principal residence
- Kailangan manotify si BIR within 30 days BIR Form 1706 – being used to pay 6% CGT
on the sale of properties located in the Philippines subjected to CGT.
Kapag hindi nanotify si BIR, hindi ma-a-avail yung exemption
- Once every 10 years ang pag-avail ng exemption
- 6% should CGT deposited in an interest-bearing account under escrow agreement in
any BIR accredited banks.
If you did not satisfy the prior requirements, BIR can collect immediately.
Bank will not let you withdraw unless may authorization ng BIR.
- Whole amount of SP must be utilized
Pag binenta ang bahay, yung SP na maacquire mo dapat buo.
Yung portion na hindi na utilized, will be subjected to CGT

CGT due = Unutilized SP/ Total SP X CGT should be.

May part na exempt, may part na subjected under CGT
ILLUSTRATIONS:
Gordon sold his principal residence at a selling price of P5M but with a FMV of P6M. The
property sold was acquired for P3M. He purchased his new principal residence at a cost of
P7M.

Capital Gain Tax Due – 0

If 4,000,000 lang ang new principal residence – CGT DUE

CGT should be – whichever is higher, May assessed value which is 6M
6MX6%= P 360,000 – CGT SHOULD BE

CGT DUE= 1M/5M X 360,000

= 72,000

**COST BASIS OF NEW RESIDENCE

Whole Amount of SP is Utilized
 -regardess if you will utilized the SP, basta nagkaron ng Sale and nag-acquire ng PR,
mapapalitang ang cost basis
TAX BASIS- VALUE OF PROPERTY AS FAR AS TAXATION IS CONCERNED
Cost of OLD residence
Cost of NEW residence – cost basis is based on old residence
Less: SP of OLD residence
Cost basis of new residence

Binabawasan ang cost basis madalas sa tax, kasi dinededuct siya pag nagkaroon ng sales.
Kapag mas mababa ang cost basis, mas Malakai yung amount na matatax.

Whole Amount of SP is not utilized:

Cost basis = Utilized SP/Total SP X Cost of OLD residence
Kinukuha yung pinambili sa new PR, anong percentage lang siya nung old

ILLUSTRATION:
Gordon sold his principal residence at a selling price of P5M but with a FMV of P6M. The
property sold was acquired for P3M. He purchased his new principal residence at a cost of
(A) P7M / (B) P4M.
How much is the cost basis of the new principal residence?
A.) 7M - UTILIZED
Cost of OLD residence 3,000,000
Cost of NEW residence 7,000,000
SP of OLD residence (5,000,000)
Cost Basis of new residence 5,000,000
B.) 4M - UNUTILIZED
Cost Basis = 4,000,000/5,000,000 x 3,000,000 = 2,400,000

Other exempt items

Sale of Land: CARP
- May mga land na nabigay na sa benificiary then afterwards ibebenta. The title, may
notation sa likod na galing sa CARP and then the sale will not be subject to CGT
Sale of Socialized Housing: NHA
- How much binebenta yung Socialized Housing Unit
480k resident house and lot
150k residential house only
TAX ADMINISTRATION WHEN IT COMES TO CGT – ADMINISTRATIVE PROVISIONS
Tax rates applicable – 6% for real properties

15% for domestic stocks

BIR FORMS

- 1706 > must be filed to BIR within 30 days upon sales, exchange, or other disposition of this
real property
- 1707 > 30 days - DS
- 1707 (A) > at the end of the year we need to total all the net gains and net capital loss from
these transactions dealing with domestic stocks para alam natin kung meron bang
amendment, refund, and adjustment payment.
*Due: 15th day of the 4th month
*If individual ang taxpayer, April 15 th . Kapag corporation, they have the option to
use fiscal year. 15th day of the 4th month, from the close of taxable year of the taxpayer.

PAY AS YOU FILE SYSTEM

- AS YOU FILE, PAY THE TAX OBLIGATION.

- INSTALLMENT PAYMENT in some cases
Certain requirements:
DS: Initial Payment shall be 25% or less of the selling price
Selling Price must be greater than P1,000
RP: Initial Payment shall be 25% or less of the selling price

Initial Payment Illustration

Selling Price is actually all the consideration received by the seller + mortgage assumed

**Mortgage – Actual obligation attached to the property if assumed.

Initial Payment – 25% or less of the selling price

- The down payment + all the considerations received during the year of the transaction
(Initial payment)+ Excess of Mortgage Assumed over the Cost

If the two stated above are satisfied in DS, and RP, can pay the CGT in installment.

CGT x Installment Payment/ Contract Price

Installment Payment – kung magkano ang consideration na nareceive during certain year

Contract Price this is selling price less mortgage assumed + excess of mortgaged assumed over cost

- All considerations without the mortgage assumed

Every Installment payment, kailangan palaging nag-a-update kay BIR (30 days within sales,
exchange, or other dispositions)

ILLUSTRATION #1

The following land held as capital assets were sold in installment basis in year 2017
Installment Payments LOT 1 LOT 2 LOT 3
2017 600,000 900,000 2,000,000
2018 500,000 800,000 1,500,000
2019 400,000 700,000 1,000,000
2020 400,000 600,000 1,000,000
Cost of the Property 2,000,000 2,000,000 4,500,000
Mortgage Assumed 0 2,400,000 4,000,000

LOT 1 –600,000(Initial Payment)/1,900,000 (SP) = 31.57% ---cannot avail installment payment CGT =
1.9M X 6% = 114,000

LOT 2 – 1,300,000 (Initial Payment)/5,400,000 (SP) = 24.07% --- will be taxed at CGT, payment will be
installment CGT = 5.4M X 6% = 324, 000

CGT X INSTALLMENT PAYMENT/CONTRACT PRICE

LOT 2 (For first year only)

324,000 X 1,300,000/3,400,000 = 123, 882

LOT 3 – 2,000,000 (Initial Payment)/9,500,000 (SP) = 21.05% ---- will be taxed at CGT, payment will
be installment CGT = 9.5M X 6% = 570,000

CGT X INSTALLMENT PAYMENY/CONTRACT PRICE

LOT 3 (For first year only)

570,000 X 2,000,000/5,500,000 = 207,273

DOCSTAMP TAX – being paid whenever there are transactions, especially if it’s a public document for
the Republic of the Philippines, to acknowledge that these transactions have happened and are legit.

- Binibili sa BIR, binabayaran because we have the privilege to have legit transactions.
- Having dealings related to DS and RP, pay Docstamp tax
DS: P1.50 per P200 PAR value shares of stocks
RP: P15 per P1000 SP/FV whichever is higher (basis 6%)
- Hindi lang talaga 6% (15/1000=1.5%) Kapag RP ang tinatransac held as capital asset and
located within the Philippines, yung Real Property ay 7.5% .
**Wag basta-basta imumultiply sa 7.5%
According to the provision, 15 for every 1000 or fraction thereof. If not divisible by 1000
yung certain fraction, another 15 pesos will be added.

When looking for the exact amount, get the fraction then add another P15.