BIR Ruling

March 16, 1973 Messrs. Collas and Guerrero Attorneys-at-Law 508 A.I.U. Building Ayala Avenue Makati, Rizal Attention: Atty . Luis Ma . Guerrero Gentlemen : This refers to your letter dated March 1, 1973 requesting clarification of Presidential Decree No. 16 as amended, and as implemented by Revenue Regulation 7A-72, regarding exemption from tax of gains realized from the sale of capital assets, as applied to the facts as follows: "A house and a lot were purchased in 1951 and have a residual value of P140,000. It is contemplated to sell the house and lot today for P550,000, thereby leaving a capital gain of P410,000. The question is: Does one have to invest the entire gain of P410,000 or would one have to invest only 50% of the gain in order to avail of the tax exemption for the entire gain of P410,000.? "We believe that in order to avail of the exemption granted by said decree, it is necessary to invest only 50% of the gain, the balance of the gain being freely disposable." In reply, I have the honor to inform you as follows: Under Section 34(b) of the Tax Code, as amended by Presidential Decree No. 16 and 16A dated October 5, 1972, the entire proceeds of the sale and not merely the gain should be invested only a portion of the gain corresponding to the amount invested shall be exempt from income tax. Furthermore, Section 34-B of the Tax Code, was amended by Presidential Decree Nos. 16 and 16-A, the effect of which is that during the effectivity of the Decree which is one year from the date of promulgation on October 5, 1972, the tax on long-term capital gains prescribed by Section 34-B of the Tax Code (before the amendment) is suspended and has no force and effect. In other words, capital gains derived during the effectivity of the Decree will not be subject to tax on capital gains, provided that the conditions of the Decree are complied with. Accordingly, if the tax exemption in the Decree is not availed of, 100% of the capital gains derived will be subject to tax. This applies even if property has been held for more than 12 months. (Ruling dated January 5, 1973). Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue