CAPITAL GAINS TAXATION

ORDINARY ASSETS v. CAPITAL ASSETS

Ordinary assets:
- Used (or sold) in a normal course of business.
- Subject to regular income tax.

Capital assets:
Assets other than ordinary assets.
 CAPITAL GAINS TAX ON REAL PROPERTY

“A final tax of six percent (6%) based on the gross

selling price or current fair market value as determined
in accordance with section 6(E) of this code, whichever
is higher, is hereby imposed upon capital gains presumed
to have been realized from the sale, exchange, or other
disposition of real property located in the Philippines,
classified as capital assets, including pacto de retro sales
and other forms of conditional sales, by individuals,
including estates and trusts.” [Sec. 24 (d) (1), NIRC]
 AUTHORITY OF THE COMMISSIONER TO PRESCRIBE
REAL PROPERTY VALUES

“The commissioner is hereby authorized to divide the

Philippines into different zones or areas and shall, upon
mandatory consultation with competent appraisers both
from the private and public sectors, and with prior notice
to affected taxpayers, determine the fair market value of
real properties located in each zone or area. xxx.” [Sec. 6 (e),
NIRC]
 FAIR MARKET VALUE

“For purposes of computing any Internal Revenue Tax,

the value of the property shall be, whichever is the higher
of:
(1) the fair market value as determined by the
Commissioner; or
(2) the fair market value as shown in the schedule of
values of the provincial and city assessors.” [Sec. 6 (e), NIRC]
 Is it necessary for a taxpayer to
have a gain in selling capital asset
(real property) before a capital
gains tax will be imposed?
 PRESUMPTION OF GAIN

✓ Note that the tax base is the SP or FMV whichever

is higher.

✓ Even if the transaction resulted in net loss, CGT

must still be paid.

✓ Actual gain is immaterial.

 CERTIFICATE AUTHORIZING REGISTRATION

“No registration of any document transferring real

property shall be effected by the Register of Deeds
unless the commissioner or his duly authorized
representative has certified that such transfer has been
reported, and the capital gains or creditable withholding
tax, if any, has been paid.” [Sec. 58 (E), NIRC]
 FILING AND PAYMENT

✓ Generally, within 30 days from the date of sale or exchange.

✓ Installment payment: Within thirty (30) days following the receipt of

the first down payment or following each subsequent installment
payment, whichever is applicable.

✓ Foreclosure sale: Within 30 days from the expiration of the

redemption period. (ONE YEAR FROM AND AFTER THE DATE OF SALE)*

* GE Money Bank, Inc. v. Spouses Dizon, G.R. No. 184301, 23 March 2015
 FILING AND PAYMENT

BIR form 1706

https://www.bir.gov.ph/images/bir_files/old_files/pdf/3
0231706.pdf
SALE OF PRINCIPAL RESIDENCE
How do you understand the term
principal residence?
 PRINCIPAL RESIDENCE

“The term “principal residence” shall refer to the dwelling

house, including the land on which it is situated, where the
husband and wife or an unmarried individual, whether or not
qualified as head of family, and members of his family reside.
Actual occupancy of such principal residence shall not be
considered interrupted or abandoned by reason of the individual’s
temporary absence therefrom due to travel or studies or work
abroad or such other similar circumstances. Such principal
residence must be characterized by permanency in that it must be
the dwelling house in which, whenever absent, the said
individual intends to return.”[RR 14-2000]
 PRINCIPAL RESIDENCE

“Where the land is leased to the dwelling house owner, only

the dwelling house shall be treated as principal residence of
the dwelling house owner.”[RR 14-2000]
 SALE OF PRINCIPAL RESIDENCE

Primary domicile of the taxpayer (house and lot)

Exempt from 6% capital gains tax

 Requisites for tax exemption (Sale of principal residence)

✓ Seller must be citizen or resident alien

✓ It involves principal residence
✓ Proceeds of the sale is used in acquiring new principal
residence.
✓ Notification to avail tax exemption (within 30 days from sale)
✓ Reacquisition of new principal residence within 18 months
from the date of sale.
✓ Capital gains tax deposited in escrow account.
✓ Can be availed only once every ten (10) years.
 BASIS OF A NEW PRINCIPAL RESIDENCE

Proceeds fully utilized:

- Basis of old principal residence plus additional
cost incurred in acquiring new principal residence.

Proceeds not fully utilized:

- Basis of old principal residence x Percentage of
used proceeds
ILLUSTRATIONS
 Mr. Maoron purchased residential lot amounting to
P3,500,000. Later, when the fair market value of the
said property is 4,500,000, he sold it for P5,000,000.
After six (6) months from the date of sale, he used the
entire proceeds to acquire his principal residence.

Will he be required to pay capital gains tax? If so,

how much? If not, why not?
INSTALLMENT PAYMENT OF CAPITAL GAINS TAX
 W

Why is it important to allow installment

payment of capital gains tax?
 INSTALLMENT PAYMENT OF CGT

Initial payment does not exceed 25% of the selling

price.

Initial payment = all amounts collected in the year of

sale.
 W

How are you going to compute for the

CGT to paid if the initial payment exceeds
25% of SP?
THANK YOU!