Capital Gains Taxation

Asset Classification Rules:

Ordinary Asset Capital Asset

Property used/for use in the business
Real property for sale/ used in the business
Property purchased for future use
Real property classified as being used in the
business but have not been used for 2 years
Real properties of an exempt corporation
used in its operations

1. If purpose changes later, character of the asset remains unchanged

2. Discontinuance of use of property does not change its character
3. For real properties subject to involuntary transfer, its involuntariness shall have no effect
on its classification
4. Change of a business from real estate to non-real estate shall not change the
classification of ordinary assets previously held.

Gains on the: Tax Rates

Sale, exchange, and other disposition of domestic stocks 15%
directly to buyer
Sale, exchange, and other disposition of real property in the 6%
Philippines

*Other dispositions include:

1. Foreclosure of property in settlement of debt
2. Pacto de retro sales- sales with buyback agreement
3. Conditional sales
4. Voluntary buy back of shares by the issuing corporation- redemption shares
which may be re-issued and not intended for cancellation

If acquired: Tax basis of Stocks

By purchase Cost of the property
By devise, bequest, or Fair value at time of death of decedent
inheritance
By gift Lower of the Fair market value at time of gift and
the bass in the hands of the donor or last preceding
owner by whom it was not acquired by gift
For inadequate Amount paid by the transferee
consideration
Under tax-free exchanges Substituted basis of the stocks
The two-tiered system used in the old law is retained only for foreign corporations.

NIRC
Net gain up to P100,000 5%
Net Gain above P100,000 10%8

Tax compliance in the old law:

1. Transactional Capital Gains tax- capital gains or losses are reported after each sale, or
exchange
Form: BIR form 1707
Deadline: 30 days after sale or exchange
2. Annual Capital Gains Tax
Form: BIR form 1707-A
Deadline: 15th day of the fourth month following the close of each taxable year