BIR Ruling [DA-047-02]

March 15, 2002 BIR RULING [DA-047-02] Ms. Rosemarie M. Lim Unit 2-6 Greenhaven Parkhomes 319 Santolan Road, Quezon City M a d a m : This refers to your letter dated December 26, 2001 and January 17, 2002 requesting in effect for exemption from the payment of capital gains and documentary stamp taxes on the cancellation of TCT Nos. 298809, 298810 and 298815 and the eventual distribution/transfer of titles to the individual unit buyers of townhouses. Documents submitted disclosed that the parcels of land covered by TCT Nos. 298809, 298810 and 298815 of the Registry of Deeds of Quezon City, including the improvements existing and to be constructed thereon have been converted to the condominium form of ownership known as "Greenhaven Parkhomes Condominium Corporation"; that townhouse units where constructed thereon; that by virtue of a request to the Office of the Registry of Deeds of Quezon City; Condominium Certificate of Title (CCT) were issued to each of the townhouse units constructed, in favor of the owner-developer, Group Developers, Inc.; that it is your representation that you bought a townhouse unit from said real estate developer; that as a buyer of a townhouse unit, you automatically become a member of Greenhaven Parkhomes Condominium Corporation, having a proportionate interest over the parcel of land where your townhouse unit is constructed; that since the foregoing real estate development was registered as a condominium corporation, you and fourteen (14) other pioneering buyers of townhouse units were issued CCTs instead of a Transfer Certificate of Title (TCT) covering the individual townhouse unit; that buyers of townhouse units subsequently constructed by Group Developers, Inc. in parcels of land adjacent to the above real estate development were issued TCTs thereby having a definite title to the land where their townhouse units are erected; that they are, likewise, members of Greenhaven Parkhomes Condominium Corporation; that in a general meeting held on August 5, 2000, majority of the unit owners/members of the condominium corporation approved the transfer and partition of TCT Nos. 298809, 298810 and 298815 to you and to the other fourteen (14) pioneering townhouse unit buyers; that the Housing and Land Use Regulatory Board (HLURB) approved the alteration of plan and the subdivision and distribution of the aforementioned parcels of land proportionately to each of the townhouse unit owner; that the CCTS issued to you and the fourteen other buyers shall be cancelled in lieu of the new TCTs; that the distribution/partition of the aforementioned three parcels of land to you and to the fourteen other buyers of townhouse units is not intended to dissolve or terminate the existence of the condominium corporation; rather, it is made in order to effectively transfer the foregoing properties proportionately to you and to the fourteen other buyers as these lots really belong to you, and further, for the purpose of updating and complying with your real estate taxes for the land on which your respective units occupied; and that the condominium corporation will continue the management of the common areas and facilities such as the parks and playground, sports facilities and the roads within the subdivision. In reply, please be informed that a final tax of six percent (6%) is imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price or fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, of such lands and/or buildings. In the instant case, however, there will be no taxable transfer that will take place in the distribution or partition of the three (3) parcels of land covered by TCT Nos. 298809, 298810 and 298815 of the Registry of Deeds of Quezon City by the Greenhaven Parkhomes Condominium Corporation in your favor and of the fourteen other buyers of townhouse units as this distribution or partition will be made only to effect the transfer of the lots where your respective townhouse units are erected that in reality are owned by you as the pioneering buyers of townhouse units who were issued CCTs covering the townhouse units only, instead of TCTs covering your respective lots and townhouse units. Moreover, the transfer of said parcels of land without any monetary consideration in your favor and of the other fourteen buyers as the real owners thereof, in effect, will define the areas in the subdivision that belong to the condominium corporation or which are commonly owned by its members. Based on the foregoing, it is the opinion of this Office that the distribution or partition of the three (3) parcels of land covered by TCT Nos. 298809, 298810 and 298815 of the Registry of Deeds of Quezon City by the Greenhaven Parkhomes Condominium Corporation in your favor and of the fourteen other buyers of townhouse units is not subject to the six percent (6%) capital gains tax imposed under Section 27(D)(5) of the Tax Code of 1997. On the other hand, Section 185 of Revenue Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations provides that conveyances of realty, not in connection with a sale, to trustee or other persons without consideration are not taxable. Such being the case, the distribution or partition of the aforementioned three (3) parcels of land without monetary consideration and not in connection with a sale transaction is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group