BIR Ruling [DA-499-05]

December 12, 2005 BIR RULING [DA-499-05] 24 (D) (1); 196; 188 DA-194-2000 Mr. Pablo Coronel Sta. Lucia Grand Mall Building, Marcos Hi-way Cainta, Rizal S i r : This refers to your letter dated December 1, 2005, requesting in behalf of your clients for exemption from capital gains tax and documentary stamp tax on the Deed of Exchange executed in order to replace the real property sold since the same was not fit for residential purposes. It is represented that Primo T. Murillo and Djhoanna C. Murillo are the registered owners of six (6) parcels of land covered by Transfer Certificates of Title Nos. 354861, 354862, 354863, 354864, 354865 and 354866 with an aggregate area of nine hundred thirteen (913) square meters, more or less, all of the Register of Deeds of Marikina City, situated in Langhaya, Antipolo City; that these parcels of land were purchased from Sta. Lucia Realty & Development, Inc.;that when your clients started occupying the land, they found out that the land was not fit for residential purposes; that due to landslides caused by poorly compacted soil composition, it was hazardous to the health and lives of the residents of the area; that Sta. Lucia Realty & Development, Inc. is the owner of two (2) parcels of land with an aggregate area of four hundred eighty (480) square meters covered by Transfer Certificates of Title Nos. 94776 and 94778 both of the Register of Deeds of Quezon City situated at Capitol District, Quezon City; that after a series of conferences and negotiations, Sta. Lucia Development, Inc. offered the two parcels of land as replacement for the six parcels of land earlier purchased by the Murrillo's; that an agreement was reached and that the parties agreed to swap and exchange the above mentioned properties without any consideration through the execution of a Deed of Exchange dated May 27, 2003. In reply, please be informed that since the exchange transaction is without any monetary consideration, and considering further that the execution of the Deed of Exchange is merely to replace the property earlier sold with one fit for residential purposes, the same is not subject to the capital gains tax, imposed under Section 24(D)(1) of the Tax Code of 1997, nor to the withholding tax imposed under Revenue Regulations No. 2-98. Furthermore, the said exchange of real properties is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgement to the said deed is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA 068-98 dated March 2, 1998) This ruling is issued on the basis of the foregoing representations. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. DCATHS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service