CAPITAL GAINS TAX
Classification of an asset, either as capital
- Income from sale of capital assets,
specifically from sale of shares of
stocks of a closely held corporation
(shares of domestic corporation not
listed in the local stock exchange)
and real properties located in the
Philippines are subject to capital
gains tax (CGT).
Ordinary asset vs. Capital asset
For taxation purposes, assets are classified
either as ordinary or capital assets. Under
Section 39 of the Tax Code, as amended,
the following are ordinary assets:
1. Stock in trade of the taxpayer or other
property of a kind which would property be
included in the inventory of the taxpayer if
on hand at the close of taxable year.
2. Property used in trade or business
subject to depreciation. 3. Real property
held by the taxpayer primarily for sale to
customers in
the ordinary course of trade or business.
4. Real property used in trade or business
of the taxpayer
- Capital assets include all other
property held by the taxpayer
(whether or not connected with his
trade or business) not included in
the definition of ordinary assets
above. Generally, assets not used or
held for sale in the ordinary course
of business (ie., personal assets) are
classified as capital assets.
or ordinary is important because of the
special tax rules on gains and losses from
sale or exchanges of capital assets which
do not apply to gains and losses from sale
or exchanges of ordinary assets.
Gain on sale of ordinary assets are
commonly known as ordinary or regular
income that are subject to basic income tax
or graduated tax rate as provided for under
Section 124(A) of the Tax Code. On the
other hand, gain on sale of capital assets
are classified as capital gains subject to the
following taxes:
1. Capital Gains Tax (CGT) if pertaining to
the following:
a) Capital gain on sale of shares of stocks
of a closely-held
domestic corporation is subject to a capital
gains tax of 15%.
REQUISITES:
● The shares of stock sold, bartered or
exchanged must be from a domestic
corporation.
● The transaction must be not through
the local stock exchange (the shares
are not listed and traded in the local
stock exchange). Hence, the sale is
made directly to the buyer.
● The seller should not be a dealer in
securities (the shares are held as
capital asset)
The transaction should result to a capital
gain based on computation shown below: REQUISITES:

(regardless of whether the transaction

resulted to a gain or loss)
● The land and/or building must be a
capital asset; and
● It must be located in the Philippines.

NOTE
Sale of shares of stock of a domestic
corporation through the local stock
exchange is not subed to income tax but to
a busness tea of 10 of 1% (also known as
Stock Transaction Tax) under Sec. 127 of
the Tax Code

Sale of shares of stock by a dealer in

securities such as brokerage firms,
regardless of whether the shares were sold
directly to a buyer or through the local stock
exchange is subject to basic income tax and
Value-added tax

b) Sale of real properties classified as

capital assets located in the Philippines is
subject to six percent (6%) capital gains tax
(CGT) imposed under Section 124(D) of the
Tax Code, as amended.

Section 24(D)(1) of the Tax Code

provides that sale, exchange, or other
disposition of real property subject to capital
gains tax shall include pacto de retro sales
and other forms of conditional sales, by
individuals, including estates and trusts.