BIR Ruling [DA-412-05]

October 4, 2005 BIR RULING [DA-412-05] Section 24 (D) (1) & R.A. 7279 BIR Ruling No. 398-93 and DA-126-2005 Permaline Bagong Lipunan Community Association Nangka, Marikina City Attention: Mr. Melito P. Arellano President Gentlemen : This refers to your letter dated June 19, 2005 requesting exemption from the payment of capital gains tax (CGT) on the transfer of several parcels of land in favor of member-beneficiaries of the community association. As represented, PML Nangka Community Association, Inc. ("Association") is a non-stock, nonprofit community organization duly registered with the Ministry of Human Settlements/Home Financing Corporation under Registration No. 04-030 dated April 2, 1981. The subject properties are located at Nangka, Marikina City and covered by Transfer Certificates of Title Nos. 457801 to 457950 with a total area of 150 square meters. The Association served as facilitator and through May Bliss sa PAGIBIG administered by the National Home Mortgage Finance Corporation (NHMFC), acquired by virtue of a loan the above properties which you subdivided and distributed to your member-beneficiaries. In reply, please be informed that the transfer in favor of the individual member-beneficiaries of the above-described subdivided property is not subject to either the CGT imposed udder Section 24(D)(1) of the Tax Code of 1997 or creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended, implementing Section 57(B) of the same Code, considering that the said transfer of the property is without any consideration since it is merely a formality to finally effect the transfer of the said property from the Association to the member-beneficiaries who actually bought the same. In other words, the Association is in fact transferring the ownership of the property to the member-beneficiaries who actually own the same. It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the actual selling price per sale transaction of the lots in this case does not really exceed PhP150,000.00 or PhP180,000.00, (now PhP225,000.00 per HUDCC Memorandum No. 02, Series of 2002 dated October 21, 2002) as the case may be, for each qualified beneficiaries. Moreover, the said transfer is not subject to the donor's tax imposed under Section 99 of the Tax Code of 1997, considering that the Association could not donate a property the ownership of which belongs to the transferees (member-beneficiaries) themselves. Section 185 of Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations, implementing Title VII of the Tax Code, provides that conveyances of realties not in connection with a sale, to trustees of other persons without consideration are not taxable. Accordingly, the deed to be executed by the Association to effect the aforesaid transfer in favor of its member-beneficiaries is not subject to the documentary stamp tax imposed under now 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 PhP15.00 pursuant to Section 188 of the same Code. 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 as null and void. CDHAcI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service