BIR Ruling [DA-152-01]

May 9, 2001 BIR RULING [DA-152-01] 24 (D); 39 (A) (1); # 232-92 Roldan Law Office No. 47, P. Oliveros St., Barangka Mandaluyong City Attention: Atty. Cesar B. Roldan Legal Counsel Gentlemen : This refers to your letter dated July 9, 2001 requesting in behalf of your client, Ms. Francisca Rosa T. Baluyot, for reconsideration of the ruling issued by the Regional Director of Revenue Region No. 6, Manila relative to your request for exemption from the payment of capital gains tax on the sale of your client's real property. It is represented that on April 27, 2001 you filed a request for exemption from payment of capital gains tax with the BIR's Revenue District Office, Sta. Cruz, Manila relative to the sale of your client's parcel of land, pertinent portion of your letter-request dated March 26, 2001 is quoted as follows: Dear Sir: Please be informed that my client, Ms. Francisca T. Baluyot is the registered VENDOR of a certain parcel of land a non-capital asset and should not be assessed of any Capital Gain Tax. Said parcel of land subject of sale is a real property not used in trade or business and sold by her and not Real Estate Broker and the same was an isolated transaction. xxx xxx xxx that the Legal Division of Revenue Region No. 6, Manila denied your request and held that the property of your client is unquestionably a capital asset, subject to the 6% capital gains tax; and that on June 14, 2001, you filed a motion for reconsideration with the same Office and was still denied stating that after verification with the ITS, it was discovered that your client has registered with RDO 31 only recently as a one-time taxpayer but without registration to the effect that she was indeed engaged in business or in the practice of her profession proving that the subject property she sold is a capital asset and not an ordinary asset and therefore subject to 6% capital gains tax. In reply, please be informed that real properties are classified as capital asset and ordinary asset for purposes of imposing the tax in the event of sale, exchange or other disposition of real properties. The term "capital assets" means property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Section 34(F) of the 1997 Tax Code; or real property used in trade or business of the taxpayer. [Section 39(A), 1997 Tax Code] The term "ordinary asset", on the other hand, refers to real properties used in trade or business of the taxpayer or those which are enumerated under Section 39(A) of the 1997 Tax Code as exception from the definition of capital asset. Accordingly, the real property sold by your client is a capital asset. Hence, 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 1997 Tax Code, whichever is higher, shall be 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 assets , including pacto de retro sales and other forms of conditional sales, by individuals; including estates and trusts. The said sale shall likewise be subject to the documentary stamp tax imposed under Sec. 196 of the 1997 Tax Code. We, therefore, affirm the ruling issued on June 22, 2001 by the Regional Director of Revenue Region No. 6, Manila. This constitutes our final decision on the matter. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO R. GUEVARA Deputy Commissioner Legal and Inspection Group