BIR Ruling [DA-309-00]

August 21, 2000 BIR RULING [DA-309-00] 24 (D) (1); 174-90 DA-309-2000 Ms. Evangeline D. Guzman 66-Q C. Jose Street Malibay, Pasay City M a d a m : This refers to your letter dated February 18, 2000 requesting on behalf of your daughter, Mary Ann D. Guzman, an installment buyer of Phase 4, Block 4, Lot 14S of Parkview Homes Subdivision, for a ruling as to whether or not she is liable to pay capital gains tax on her transfer of her rights over said realty to Ms. Gloria R. Pizarro. Documents submitted show that your daughter, Mary Ann D. Guzman, bought on installment a residential duplex located at Block 4, Lot 14S, Parkview Homes Subd., Brgy. San Valley, Paraaque City from Cityland, Inc. with an area of 103 square meters; that the purchase price of the lot exclusive of interest is P1,283,223.30 and a down payment of P128,372.35 with a monthly installment inclusive of interest of P25,110.70 from November 26, 1999 to October 26, 2000; that your said daughter has paid for the first three (3) months of the installment; and that your daughter would like to transfer her rights over the said property in favor of Gloria R. Pizarro. Based on the foregoing representations and documents submitted, you are now requesting for a ruling as to whether your daughter's transferring her rights over the said property in favor of Gloria R. Pizarro will subject her to the capital gains tax. caTIDE 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 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 assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and Trusts. It is clear from the above provision that sale of right over real property is not contemplated thereunder considering that right over real property although classified under the Civil Code as real property, the same, however, may or may not always be located in the Philippines, as when the owner of such right resides abroad. Moreover, a Deed of Transfer of Rights over a real property is not a Deed of Absolute Sale over real property, because what is conveyed by the seller is not the title over the property itself but just the rights pertaining to such property. Thus, the contemplated sale of your daughter, Mary Ann D. Guzman, of her rights over the said property she bought from Cityland, Inc. in favor of Gloria R. Pizarro is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. (BIR Ruling No. 170-90 dated September 10, 1990) It is, however understood that any gain derived by the assignor from and as a consequence of such transfer is subject to income tax. Moreover, the Deed of Assignment of rights to be executed for the purpose is not likewise subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997 since in a Deed of Assignment of rights over real property what is being conveyed or assigned is not the real property itself but the right pertaining to such real property. (BIR Ruling No. 174-90 dated September 10, 1990) However, the acknowledgment thereof, is subject to the P15.00 documentary stamp tax imposed under Section 188 of the Tax Code of 1997. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group