Final Tax on Capital Gains from Sale or Disposition of Real Property Effective September 7, 1979

September 13, 2004 BIR RULING NO. 011-04 CA No. 466 000-00 Mr. Francisco V. de Leon, Jr. 11 A. Esguera Street, Pinagbuhatan Pasig City S i r : This refers to your letter dated May 2, 2000 requesting for exemption from the payment of capital gains tax on the sale of real property by Mariano O. Francisco to Olimpio de Jesus that took place on December 10, 1923. It is represented and documents submitted disclose that on December 10, 1923, Mariano O. Francisco sold to Olimpio de Jesus five (5) dikes (pilapil) of Lot No. 4287, a sown land situated in Poblacion, Teresa, Rizal; that Olimpio de Jesus was not able to register the above properties in his name due to lack of funds; that he moved to San Carlos City, Negros Occidental and died there on October 19, 1940; that the documents pertaining to the properties owned by Olimpio de Jesus were discovered only in October, 1999, together with the documents of the properties owned by his deceased spouse, Patricia M. de Jesus, who died on June 17, 1932; that the heirs of Olimpio de Jesus are now in the process of settling the properties he and his wife left; that the abovementioned properties are not included in the list of properties to be partitioned since these properties are not yet registered in the name of Olimpio de Jesus and that the Registry of Deeds requires you to transfer it first in the name of the latter, hence, the filing of this request for a certificate of exemption from the payment of capital gains tax. In reply, please be informed that the imposition of a final tax on capital gains realized by individuals from the sale or other disposition of real property started only on September 7, 1979, pursuant to Batas Pambansa Blg. 37, as implemented by Revenue Regulations No. 8-79. Accordingly, the sale or transfer of properties whose deeds of conveyance were executed and acknowledged before a notary public prior to such date are not subject to the final tax on capital gains; however, the gains realized therefrom are subject to the regular income tax imposed on individuals. ( BIR Ruling No. 148-84 dated September 5, 1984 ) Such being the case, the gain derived by the seller, Mariano O. Francisco, on the sale of the above-mentioned properties in favor of the decedent, Olimpio de Jesus, on December 10, 1923, is not subject to the capital gains tax but subject to the income tax imposable at the time said transaction took place. SEDICa Moreover, the above-mentioned properties may be included in the estate of the late Olimpio de Jesus without the need of transferring the same in the name of the latter. Under Section 88 of Commonwealth Act No. 466, otherwise known as the "National Internal Revenue Code," the law applicable at the time of death of the herein decedent, the gross estate of the decedent shall be determined by including the value at the time of his death of all property , real or personal, tangible or intangible, wherever situated, . . . The term "property" as used in the above provision includes, among others, real properties over which the decedent had an existing interest at the time of his death. Applying the same to the instant case, this presupposes ownership by the herein decedent over the above-mentioned realties, although title thereto was not transferred to his name. As a consequence of the transmission of the above-mentioned properties of the decedent, together with the other properties comprising his estate, to his heirs as inheritance, an inheritance tax shall be imposed pursuant to Section 86 of CA No. 466. This inheritance tax, which accrued at the moment of death of the decedent, is measured as to any beneficiary by the value of such property at that time, regardless of its appreciation or depreciation, and notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary. ( Pablo Lorenzo vs. Juan Posadas, Jr. , G.R. No. 43082, June 18, 1937) Furthermore, the net estate of the late Olimpio de Jesus is subject to the estate tax imposed under Section 85 of CA No. 466. HSaEAD In addition to the taxes herein imposed, surcharges and interest shall be collected in accordance with Section 101 of CA No. 466. 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, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue