BIR Ruling [DA-255-04]

May 12, 2004 BIR RULING [DA-255-04] 24 (D) (1); DA509-98 dated Nov. 11, 1998 Ms. Nely Z. Tang No. 32 Madaling Araw St. Teresa Heights Subdivision Novaliches, Quezon City M a d a m : This refers to your letter dated October 14, 2002 requesting for exemption from the payment of capital gains tax/creditable withholding tax, documentary stamp tax and other taxes which may be due relative to the Deed of Reconveyance executed by Elmer Z. Tang in favor of Nely Z. Tang, as the true and beneficial owner of the property. It is represented that Elmer Z. Tang was authorized by Nely Z. Tang to purchase one (1) parcel of land located at Barangay Pasong Putik, Novaliches, Quezon City covered by TCT No. RT-123985(322494) issued by the Registry of Deeds for Quezon City containing an area of 480 square meters with the funds of Nely Z. Tang, being an overseas filipino worker (OFW) but the title to the said property was erroneously registered and issued in the name of Elmer Z. Tang; that on October 14, 2002, a Declaration of Trust and Deed of Reconveyance in favor of Nely Z. Tang was executed by Elmer Z. Tang acknowledging that he merely holds the property in trust for Nely Z. Tang; that by reason of the erroneous registration of the above-mentioned property in the name of Elmer Z. Tang, an implied trust is deemed by law to have been created; and that the Elmer Z. Tang agrees and acknowledges that the herein reconveyance is in full settlement and discharge of its obligation under the Declaration of Trust. ACTEHI In reply thereto, please be informed that Section 24 (D) (1) of the Tax Code of 1997 provides that a final tax of six percent (6%) is hereby imposed on the gains presumed to have been realized on 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. . . . . In the instant case, an implied trust is deemed created by law. The transfer of the aforesaid property in the name of Elmer Z. Tang, as Trustee, to Nely Z. Tang, as the Trustor, without monetary consideration by way of a Deed of Reconveyance is not subject to capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997 nor to the creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended. Moreover, Section 185 of Regulations No. 26 provides that conveyances of realty, not in connection with a sale, to trustees or other persons without consideration are not taxable. Accordingly, the Deed of Reconveyance executed by Elmer Z. Tang, as Trustee, in favor of Nely Z. Tang, as the true and beneficial owner, is not subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997 but the acknowledgment thereof is subject to the P15.00 documentary stamp tax prescribed in Section 188 of the said Code. (BIR Ruling No. DA509-98 dated November 11, 1998) Finally, the above transaction is not subject to donor's tax imposed under Section 99 of the Tax Code of 1997 as there is no intention to donate on the part of the parties. IN VIEW OF THE FOREGOING, the aforementioned real property may now be registered by the Registry of Deeds concerned in the name of Nely Z. Tang, as the true and beneficial owner of the aforesaid property. DcCHTa 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group