BIR Ruling [DA-127-02]

July 25, 2002 BIR RULING [DA-127-02] 24 (D); 196; DA-328-2000 Mrs. Adelina C. Artadi 6434 Satinwood St., Marcelo Green Village Paraaque City M a d a m : This refers to your letter dated March 28, 2001 requesting for a ruling as to whether capital gains tax, documentary stamp tax and any other tax are due relative to the dissolution of co-ownership between two (2) co-owners in equal shares of 2 parcels of land and all the improvements existing thereon. Documents submitted disclosed that you and your sister, Miss Alicia M. Castell, are co-owners in equal shares of 2 residential lots, together with all the improvements thereon, located at Phase V, Marcelo Green Village, a small subdivision in Paraaque City; that one (1) lot covered by Transfer Certificate of Title (TCT) No. 93994 consisting of an area of 240 square meters, has improvements thereon consisting of a CHB G.I. bungalow residential house with a floor area of 88 sq.m., service area of 9 sq.m., carport of 27.50 sq.m. and fence of 37.50 sq.m.; that the zonal value of the aforesaid parcel of land is P1,200,000.00 at P5,000.00 per sq.m., while the improvements existing thereon have market value totalling P653,490.00, or a combined total value of P1,853,490.00; that the other lot is evidenced by TCT No. 82258 with an area of 240 square meters; that the subject property has no existing improvement whatsoever and is similarly valued at P1,200,000.00; that you decided to dissolve your co-ownership over the subject properties and executed an Extra-Judicial Deed of Partition and Dissolution of Co-ownership of Real Properties; and that you have agreed and covenanted unto yourselves for the dissolution of the co-ownership over the above-quoted properties and to distribute and assign the properties in a pro-rata balancing schemes as follows: (1) Alicia Mayor Castell shall receive the real property covered by TCT No. 93994, together with all the improvements thereon, but shall revert the amount of P326,745.00 to the co-ownership; (2) Adelina Castell Artadi shall receive the real property covered by TCT No. 82258, but shall receive the amount of P326,745.00 from the co-ownership; In reply, please be informed that under Section 24(D)(1) of the Tax Code of 1997, 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 Tax Code of 1997, whichever is higher, is imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines classified as capital asset including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trust. Considering that there is no sale, exchange or disposition of property in the above-mentioned transaction but merely a partition of the properties among the co-owners which properties rightfully belong to them and without any consideration, the same is not subject to income tax and consequently to the capital gains tax imposed under Section 24(D) of the Tax Code of 1997. Moreover, the partition of the said properties among the co-owners is not subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997, but only to the documentary stamp tax of P15.00 prescribed under Section 188 of the same Tax Code. ( BIR Ruling No. DA-328-2000 dated August 28, 2000 ) 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 & Inspection Group