BIR Ruling [DA-425-99]

July 22, 1999 BIR RULING [DA-425-99] 24 (D) (2) Mr. Carlito E. Chua Better Living Subdivision Barangay Don Bosco Paraaque City S i r : This refers to your letter dated March 1, 1999 requesting from exemption from the payment of capital gains tax on the sale of a parcel of land together with the improvements thereon, classified as your principal residence and situated at Better Living Subdivision, Barangay Don Bosco, Paraaque City, covered by Transfer Certificate of Title No. T-67791, although registered in the name of your minor child Marvin Neil Gomez E. Chua, represented by you and Nenet C. Gomez, in favor of Mr. Rex G. Rico, pursuant to Section 24(D)(2) of the Tax Code of 1997. It is represented that Marvin Neil Gomez E. Chua, represented by his natural parents, Spouses Carlito E. Chua and Nenet C. Gomez, is the registered owner of a parcel of land including improvements thereon situated at Better Living Subdivision, Barangay Don Bosco, Paraaque City; that the said property is your family's principal residence; that you sold said principal residence on March 1, 1999 in favor of Mr. Rex G. Rico with postal address at Switzerland Street, Better Living Subdivision, Paraaque, Metro Manila for and in consideration of P1,000,000.00; that you are intending to use the proceeds of the said sale to finance the acquisition of your family's intended new principal residence and that in support of your request, you submitted to this Office copies of the following documents: 1. Deed of Absolute Sale; 2. Transfer Certificate of Title No. 67791; 3. Corresponding tax declaration; 4. Sworn declaration of Intent as to the utilization of the proceeds of said sale; 5. Certification of the Barangay Captain of the place where your sold property is located to the effect that the same is your family's principal residence prior to the sale thereof; and 6. Other pertinent documents. In reply, please be informed that this Office is of the opinion that being the legal guardian of Marvin Neil Gomez E. Chua, you have the legal capacity to enter into a contract of sale of the property registered in his name in favor of Mr. Rex G. Rico. This finds support in Article 225 of the Family Code and Articles 220(5) of the Civil Code which provide: Article 225. The father, or in his absence or incapacity, the mother, shall be the legal guardian of the property of the unemancipated child without the necessity of a court appointment. . . . Article 220. . . . xxx xxx xxx (5) The parents exercising parental authority shall have the right and duty to represent them in all matter affecting their interest. SDHCac In addition, pursuant to Section 24(D)(2) of the Tax Code of 1997, capital gains presumed to have been realized from the sale or disposition of their principal residence by natural persons, the proceeds of which is fully utilized in acquiring or constructing a new principal residence within eighteen (18) calendar months from the date of sale or disposition shall be exempt from the capital gains tax imposed under Section 24(D)(1) of the same Code, provided, that the historical cost or adjusted cost basis of the real property sold or disposed shall be carried over the new principal residence built or acquired; and that the Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of her intention to avail of the tax exemption thus mentioned, and in which can only be availed of once every ten (10) years. EDCIcH The same Section further provides that if there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have been realized from the sale or disposition shall be subject to capital gains tax. For this purpose, the gross selling price or fair market value at the time of sale, whichever is higher, shall be multiplied by a fraction which the unutilized amount bears to the selling price inorder to determine the taxable portion for the purpose of computing the tax prescribed under Section 24(D)(2) of the Tax Code of 1997, thereon. From the foregoing, and since you have manifested your intention to fully utilize the proceeds of the sale or disposition of your son's property to buy another parcel of land including improvements thereon as your family's new principal residence within eighteen (18) calendar months reckoned from March 1, 1999 as required by law and have notified the Commissioner of the same within thirty (30) days from the sale or disposition of your property, the proceeds from the sale of your son's property in favor of Mr. Rex G. Rico is exempt from the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. The concerned Register of Deeds is, however, requested to annotate at the back of the subject certificate of title that the subject tax exemption shall be rendered null and void and that the entire process of the said sale shall be subject to the capital gains tax and the corresponding penalties thereto in case the seller failed to comply with all the conditions set forth under Section 24(D)(2) of the Tax Code of 1997. (BIR Ruling No. 097-98 dated June 24, 1998) 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. HacADE Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group