Benjamin V. Aquino

October 13, 2009 BIR RULING [DA-(I-034) 597-09] 24 (D) (2); 56; RR 14-2000; DA-334-98; DA-088-2002; DA(I-033)530-2009 Benjamin V. Aquino No. 9, Sitio Jasmin Street Niugan, Malabon City Sir : This refers to your letter dated March 5, 2009 requesting for exemption from the payment of capital gains tax on the expropriation sale of your principal residence situated at No. 11, Sitio Jasmin Street, Niugan, Malabon City pursuant to Section 24 (D) (2) of the Tax Code of 1997, as amended. Documents submitted disclosed that you are the registered owner of a parcel of land with improvements thereon and covered by Transfer Certificate of Title (TCT) No. T-131287 of the Register of Deeds of Caloocan City with Tax Declaration (TD) No. B-014-02128 (Land) and TD No. B-014-03879 (Improvement) of Malabon City; that the said property was expropriated under the KAMANAVA flood control project of the Department of Public Works and Highways through a court order issued by the Regional Trial Court of Malabon, Branch 74; that the said Court in its Order dated November 3, 2007, ordered the Land Bank of the Philippines, South Harbor Branch, Port Area, Manila to pay you, as one of the defendants, the amount of P2,088,620.00 less the amount of P125,317.20 for capital gains tax and P31,329.30 for documentary stamp tax; that after payment of said taxes, you received the net amount of P1,931,973.50; that a Certificate Authorizing Registration was issued to you after payment of aforesaid taxes for the expropriation; that you have constructed your new principal residence and that the full amount of P2,088,620.00 was fully utilized in the construction of your new principal residence; and that upon advice from outside sources, you now applied for a tax refund/credit of the taxes paid. In reply, please be informed that under Section 24 (D) (2) of the Tax Code of 1997, as amended, capital gains presumed to have been realized from the sale or disposition of 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. 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 in order to determine the taxable portion for the purpose of computing the tax prescribed under Section 24 (D) (1) of the Tax Code of 1997, thereon. ATcaID On the other hand, paragraph (3) of Section 56 of the Tax Code of 1997, as amended, provides viz. : "SEC. 56. Payment and Assessment of Income Tax for Individuals and Corporations. (A) Payment of Tax. (1) . . . (2) . . . (3) Payment of Capital Gains Tax. The total amount of tax imposed and prescribed under Sections 24(C), 24(D), 27(E)(2), 28(A)(8)(c) and 28(B)(5) (sic) 1 shall be paid on the date the return prescribed therefor is filed by the person liable thereto: Provided, That if the seller submits proof of his intention to avail himself of the benefit of exemption of capital gains under existing special laws, no such payments shall be required: Provided, further, That in case of failure to qualify for exemption under such special laws and implementing rules and regulations, the tax due on the gains realized from the original transaction shall immediately become due and payable, and subject to the penalties prescribed under applicable provisions of this Code: Provided, finally, That if the seller, having paid the tax, submits proof of intent within six (6) months from the registration of the document transferring the real property, he shall be entitled to a refund of such tax upon verification of his compliance with the requirements for such exemption ." (Emphasis provided) From the foregoing, and since you have already submitted proof of intent to avail the exemption provided under Section 24 (D) (2) of the Tax Code of 1997, as amended, within the prescribed period, and having fully utilized the proceeds of the sale or disposition of your old principal residence in the construction of your new principal residence as required by law and have notified the Commissioner of the same within the prescribed period, the proceeds from the expropriation sale of your property, therefore, is exempt from the 6% capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended. (BIR Ruling Nos. DA-334-98 dated July 21, 1998 and DA(I-033)530-2009 dated September 10, 2009) . Accordingly, you are likewise entitled to a refund of the capital gains tax you paid for the expropriation sale of your principal residence. 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. AHSaTI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. The correct Section numbers should read as Sections 24 (C), 24 (D), 25 (A) (3), 25 (B), 27 (D) (2), 27 (D) (5), 28 (A) (7) (c), 28 (B) (1) and 28 (B) (5) (c).