BIR Ruling [DA-126-A-00]

February 29, 2000 BIR RULING [DA-126-A-00] 24 (D); 27-93; 8-95 Ms. Carla Adelaine S. Delmo 30 K-4th Kamuning, Quezon City M a d a m : This refers to your letter dated November 28, 1999 requesting on behalf of Remedios Delmo and Remedios Famador, for a ruling on the tax consequence of their exchange of properties for the correction of an erroneous relocation survey. It is represented that R. Famador owns a parcel of land located at Barangay Dontogan, along Sto. Tomas Road, Km 7 at Baguio City, that it has a total land area of 1,000 square meters and is subdivided into three parcels, as follows: TCT No. Area (sq. m.) 46849 333 46850 334 46851 333 that on December 29, 1995, R Famador executed a Deed of Absolute Sale whereby she sold the lot having an area of 333 square meters covered by TCT No 46851 to R Delmo and at that time, the seller pointed to the buyer the area and boundaries of TCT No 46851 as evidenced by the existing and visible monuments, that the Revenue District Office of Baguio issued a Certificate Authorizing Registration (CAR) on January 19, 1996 after the payment of capital gains tax of P13,653.00 and documentary stamp tax of P4,120 00, that TCT No. 46851 was cancelled and replaced by TCT No 64476 to reflect the change of ownership from R. Famador to R. Delmo, that Mrs. Delmo conducted a relocation survey based on the meters and bound shown by R. Famador to construct a residential house, that upon completion of the house of R. Delmo, R. Famador instructed a different surveyor to conduct a relocation survey for the future construction of her own house, that unfortunately, it was discovered that the residential house of R. Delmo does not conform to the technical description as stated in TCT No. 64476 because the house constructed by R. Delmo encroaches over portions of areas of TCT Nos. 46849 and 46850 owned by R. Famador; that this encroachment proved that there was an error in the relocation survey earlier made, that both parties accepted that it is no longer feasible to move the house of R. Delmo to the designated area as stated in TCT No. 64476, that to resolve the problem, they agreed to relocate and readjust the boundaries of the respective TCT's; that TCT Nos. 46849,. 46850 and 64476 have to be amended to reflect the actual positions of the respective properties of R. Famador and R. Delmo; that a relocation, consolidation and subdivision of the properties as described in the TCT's were made; that the properties of R. Famador have a total land area of 667 square meters which were originally covered by TCT Nos. 46849 and 46850 were replaced and cancelled; that TCT Nos. 71045, 71046 and 71047 were issued in her name with a land area of 134,239 and 294 square meters, respectively or a total land area of 667 square meters; and that the 134 square meter portion of the consolidated-subdivided property of R. Famador was to be swapped with that of the 134 square meter portion of the property registered in the name of R. Delmo. CcSTHI In reply, please be informed that Section 24 (D) of the Tax Code of 1997 provides that 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 the same Code, whichever is higher, is imposed upon the 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 . . ." Such being the case, parties to an exchange of real properties located in the Philippines classified as capital assets are subject to the 6% capital gains tax based on the fair market value as determined in accordance with Section 6(E) of the Tax Code of 1997, of the properties exchanged. Considering, however, that since the exchange transaction between R. Famador and R. Delmo with respect to the 134 square meter portion of their respective properties, is without any monetary consideration, and that the execution of the Deed of Exchange is merely to correct the above-described mistake in conducting the location survey, the exchange of properties between Mrs. Remedios Famador and Mrs. Remedios Delmo is not subject to the capital gains tax imposed under Section 24 (D) of the Tax Code of 1997. Furthermore. such exchange of real properties is not likewise subject to the documentary stamp tax imposed under Section 195 of the Tax Code of 1997 since the transaction does not involve any monetary consideration. It is, however, subject to the documentary stamp tax of P15.00 on the notarial acknowledgment pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling Nos. 027-93 dated January 15, 1993; 008-95 dated January 16, 1995) 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)