BIR Ruling [DA-345-03]

October 7, 2003 BIR RULING [DA-345-03] Sec. 27 (D) (5); 398-93 Ministry of Natural Resources Employees Association (MINREA) Parks and Wildlife Diliman, Quezon City Attention: Mrs. Teofila C. Causapin President Gentlemen : This refers to your letter dated October 1, 2002 requesting for exemption from the payment of capital gains tax on the transfer/distribution of residential/farm lots to the individual members of the Ministry of Natural Resources Employees Association (MINREA). It is represented that MINREA is a non-stock, non-profit association duly registered with the Securities and Exchange Commission; that on June 2, 1982, a Deed of Conditional Sale was executed by and between MINREA and Elena de Ocampo whereby a parcel of land covered by TCT No. N-263304 of the Registry of Deeds of the Province of Rizal with an area of 257,315 square meters was sold by Elena de Ocampo to MINREA through installment basis; that the installment payments were coming from the contributions of the members of MINREA who in turn will be given sizable lots of 500 square meters valued at P6,000.00; that MINREA secured a Land Use Clearance from then Ministry of Human Settlements for farmlot/housing and to reforest the adjacent Marikina Watershed Reservation; that a scheme of subdivision plan was prepared by then Bureau of Lands; that after full payment of the consideration to Elena de Ocampo title to the above-mentioned property was transferred to MINREA under TCT No. 199523 of the Registry of Deeds of the Province of Rizal; that MINREA engaged the services of a private land surveyor to conduct the individual lot survey and the respective lot assignment to the individual members/lot owners/beneficiaries; that the individual lots were titled in the name of MINREA; that you are now contemplating of transferring or distributing the titles to the individual lot owners, hence, this request for exemption from the payment of capital gains tax. EHCcIT In reply, please be informed that under Section 27(D)(5) of the Tax Code of 1997, a final tax of six percent (6%) is imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the Code, whichever is higher, of such lands and/or buildings. The transfer of titles from MINREA to its individual members is not a barter, exchange or other disposition of realty that would warrant the imposition of the capital gains tax imposed in the above-mentioned provision of law nor to the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, considering that the said transfer/transaction is merely a formality to finally effect transfer of titles of the real properties to the member-beneficiaries who actually bought the same. Such lack of consideration does not, likewise, render the transfer subject to the donor's tax imposed under Section 99 of the Tax Code of 1997, since there is no intention on the part of the association to donate said properties to said members considering that the members of the association could not donate properties the ownership of which belongs to themselves (member-beneficiaries). Furthermore, Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26)provides that "conveyances of realties not in connection with a sale, to trustees or other persons without consideration are not taxable". Accordingly, the deed to be executed by MINREA to effect the aforesaid transfer in favor of its individual members are not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. ( BIR Ruling No. 398-93 dated October 11, 1993 ) 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group