BIR Ruling No. 021-11

January 26, 2011 BIR RULING NO. 021-11 RA 7279; BIR Ruling No. 208-92; BIR Ruling No. 501-93; BIR Ruling No. S20-036-07 Villa San Isidro Homeowners Association, Inc. Purok 7, Barangay San Isidro Cabanatuan City Attention: Ms. Paulina P. delos Santos President Gentlemen : This refers to your letter dated March 17, 2010 requesting for a ruling that the sale of parcels of land by Leonila T. Mortel, with TIN 229-435-883-000, in favour of the Villa San Isidro Homeowners Association, Inc., is exempt from the payment of capital gains tax under Sections 19, 20, 31 and 32 of Republic Act (RA) No. 7279. Documents submitted disclosed that the Villa San Isidro Homeowners Association, Inc. is a community association duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 13886 dated March 16, 2007 with TIN 251-080-437-000; that Leonila T. Mortel is the owner of two (2) parcels of land located in Cabanatuan City covered by TCT Nos. T-109141 and T-126848 issued by the Registry of Deeds for Cabanatuan City; that in a Deed of Absolute Sale dated February 26, 2010, Leonila T. Mortel sold the above-mentioned properties to Villa San Isidro Homeowners Association, Inc. under the Community Mortgage Program (CMP) of the Social Housing Finance Corp. (SHFC) for and in consideration of P3,870,000.00; that pursuant to a certification issued by SHFC, properties covered by TCT Nos. T-126848 and T-109141 are actually a CMP Project and shall be proportionately distributed to the association's qualified member-beneficiaries; and that a Letter of Guaranty dated January 27, 2010 bearing LOG No. 0516 was issued by SHFC in consideration of the willingness of Leonila T. Mortel to sell the above-mentioned properties in favour of Villa San Isidro Homeowners Association, Inc. In reply thereto, please be informed that pursuant to Sections 20 and 32 of RA No. 7279, pertinent portion of which reads: aHcACI "Sec. 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: xxx xxx xxx (d) Exemption from the payment of the following: xxx xxx xxx (2) Capital gains tax on raw lands used for the project; xxx xxx xxx "Sec. 32. Incentives. To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax; and xxx xxx xxx" The landowner who sells its properties to the association pursuant to CMP is exempt from the payment of capital gains tax and from the expanded withholding tax under Revenue Regulations No. 17-2001. Such being the case, the sale to the Villa San Isidro Homeowners Association, Inc. is exempt from the capital gains tax and the expanded withholding tax. Upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificate of Title of the land to be issued in the name of the Homeowners Association shall be caused to be annotated by the Register of Deeds having jurisdiction over the property, to the effect, that the said property shall be used for socialized housing pursuant to RA No. 7279. (BIR Ruling No. 208-92 dated July 17, 1992 and BIR Ruling No. 501-93 dated December 22, 1993) However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause under Sections 20 and 32 of RA No. 7279. Such being the case, the landowner is liable to pay the documentary stamp tax on the document conveying the property to the Association under the CMP as imposed under Section 196 of the Tax Code, as amended, based on the consideration contracted to be paid for such realties or on their fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. (BIR Ruling No. 501-93 dated December 22, 1993 and BIR Ruling No. S-20-036-2007 dated April 11, 2007) aHIEcS The Revenue District Officer (RDO) shall issue the corresponding Certificate Authorizing Registration and/or Tax Clearance Certificate (CAR/TCL) only after the submission of the necessary and requisite documents stated in Section 5 of Revenue Regulations No. 17-2001, including proof of payment of the corresponding documentary stamp tax imposed under Section 196 of the Tax Code of 1997. Notwithstanding the foregoing, the Bureau of Internal Revenue shall conduct verification and post-audit that the actual occupants of the properties transferred under the CMP are qualified beneficiaries and therefore, the seller is entitled to exemption from the capital gains tax or income tax imposed under the Tax Code of 1997. (RR 17-2001) 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue