BIR Ruling No. 025-12

January 12, 2012 BIR RULING NO. 025-12 RA No. 7279; BIR Ruling No. 130-10; BIR Ruling No. 040-10; BIR Ruling No. 367-11; BIR Ruling No. 005-11 San Miguel Homeowners Association, Inc. Sudlon, Maguikay, Mandaue City Attention: Mr. Rodel A. Borromeo President Gentlemen : This refers to your letter dated April 5, 2010, endorsed by Revenue Region No. 13-Cebu City, requesting in effect, for a ruling that the sale of a parcel of land by Lawinia P. Basubas to the San Miguel Homeowners Association, Inc. and the subsequent transfer of title from San Miguel Homeowners Association, Inc. to the 47 individual beneficiaries are exempt from the payment of capital gains tax pursuant to Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". It appears that Lawinia P. Basubas with Tax Identification No. (TIN) 105-318-039-000 is the registered co-owner of a parcel of land, identified as Lot No. 569-D of the Subdivision Plan Psd-07-01-001792 covered by Transfer Certificate of Title (TCT) No. MR-4734 T (63866) issued by the Registry of Deeds for Mandaue City. The aforesaid property is situated at Brgy. Maguikay, Mandaue City with an area of one thousand nine hundred fifty four (1,954) sq.m..San Miguel Homeowners Association, Inc.,on the other hand, is a homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB),Region 7, Cebu City with TIN 264-558-194-000. The registered officers and members of San Miguel Homeowners Association, Inc. are presently occupying the lot (Subject Property) for dwelling/residential purposes. On April 5, 2010, the parties executed a Deed of Sale whereby the owner transfer and convey one thousand six hundred forty five (1,645) sq.m. of the subject property to San Miguel Homeowners Association, Inc. at an agreed price of Three Million Two Hundred Ninety Thousand Pesos (P3,290,000.00) at Two Thousand Pesos (P2,000.00) per sq.m. For this purpose, San Miguel Homeowners Association, Inc. secured a housing loan under the Community Mortgage Program (CMP),a financing assistance program of the Social Housing Finance Corporation (SHFC) a subsidiary of the National Home Mortgage Finance Corporation (NHMFC). In reply, please be informed that pursuant to Sections 20 and 32 of RA No. 7279, pertinent portions of which state that: "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 underpriviledged and homeless, the following incentives shall be extended to the private sector: (d) Exemption from the payment of the following; (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" the landowners who sold their properties for use in a socialized housing project are exempt from the payment of capital gains tax. Such being the case, the sale of the aforestated property by Lawinia P. Basubas to San Miguel Homeowners Association, Inc., in so far as the one thousand six hundred forty five (1,645) sq.m. out of one thousand nine hundred fifty four (1,954) sq.m. is exempt from the capital gains tax. (BIR Ruling No. 130-10 dated December 1, 2010) However, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Sec. 20 of RA 7279. Accordingly, Lawinia P. Basubas is liable to pay the documentary stamp tax on the documents conveying the afore-stated property imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realty or its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. (BIR Ruling No. 130-10 dated December 1, 2010) It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after the submission of requirements provided under RMO 015-2003 and after it is established upon proper verification by the Revenue District Officer (RDO) concerned that the estate tax return and estate tax due (if any) from the net estate of Martin B. Basubas (deceased husband of the seller Lawinia P. Basubas) have been duly filed and paid; and that, considering the rules on valuation of real property, the selling price per sale transaction of the house and lot package in this case does not really exceed P400,000.00 for each qualified beneficiaries per HUDCC Resolution No. 1-2008 dated December 11, 2008 and P160,000.00 for lots only pursuant to Revenue Regulations No. 17-2001. Moreover, the transfer of the lots, comprising the one thousand six hundred forty five (1,645) sq.m. out of one thousand nine hundred fifty four (1,954) sq.m., from the said association to the individual members (see Annex for the masterlist of qualified beneficiaries) thereof is not subject to either the capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, or the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended, considering that the said transfer/transaction is merely a formality to finally effect transfer of titles of the real properties to the member-beneficiaries who actually bought the same, unless the Association collects another fee or other monetary consideration for such transfer from the qualified beneficiaries, in which case, the same shall be subject to the payment of appropriate taxes. (BIR Ruling No. 367-11 dated October 5, 2011 and BIR Ruling No. 005-11 dated January 19, 2011) Such lack of consideration does not, likewise, render the transfer subject to the donor's tax imposed under Section 99 of the Tax Code of 1997, since there is no intention on the part of the association to donate said properties to the members considering that the members of the association could not donate properties the ownership of which belong to themselves (member-beneficiaries). (BIR Ruling No. 367-11 dated October 5, 2011 and BIR Ruling No. 005-11 dated January 19, 2011) Furthermore, the deed to be executed by San Miguel Homeowners Association, Inc. to effect the aforesaid transfer in favor of its individual members is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 367-11 dated October 5, 2011 and BIR Ruling No. 005-11 dated January 19, 2011) Finally, upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificates of Title of the land to be issued in the name of the beneficiary association of the socialized housing program shall be caused to be annotated by the Register of Deeds having jurisdiction over the properties, to the effect, that the said properties shall be used for socialized housing pursuant to RA No. 7279. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue ATTACHMENT San Miguel Homeowners Association, Inc. Sudlon Maguikay, Mandaue City Name of Beneficiary Blk. No. Lot No. Total Area (sq.m.) 1 Borromeo, Rodel A. 1 1 34.9999 2 Sarmento, George G. 2 34.9999 3 Banagaso, Rosalina M. 3 34.9999 4 Pananganan, Joel M. 4 34.9999 5 Arcipe, Julius M. 5 34.9999 6 Buro, Delia B. 6 34.9999 7 Libaton, Ricky C. 7 34.9999 8 Salgarino, Nilo P. 8 34.9999 9 Cabusao, Albert E. 9 34.9999 10 Ruiz, Patricia G. 2 1 34.9999 11 Laguda, Ma. Annabelle E. 2 34.9999 12 Tagnipes, Danilo I. 3 34.9999 13 Cal, Jesus R. 4 34.9999 14 Pepito, Mera M. 5 34.9999 15 Santiago, Henry V. 6 34.9999 16 Erona, Ricardo G. 7 34.9999 17 Monsteclaros, Zosimo Jr. S. 8 34.9999 18 Bacolod, Catherine P. 9 34.9999 19 Conde, Jinifer P. 10 34.9999 20 Linamas, Victoria A. 11 34.9999 21 Pekitpekit, Ildefonsa B. 12 34.9999 22 Ganaton, Lorena A. 13 34.9999 23 Lempio, Babylin M. 14 34.9999 24 Candol, Rolando B. 15 34.9999 25 Gungob, Dianila B. 3 1 34.9999 26 Aranas, Paulino C. 2 34.9999 27 Aranas, Emily D. 3 34.9999 28 Mangoba, Jonathan S. 4 34.9999 29 Cabildo, Hilario R. 5 34.9999 30 Navarroza, Diosdado L. 6 34.9999 31 Suero, Artemio M. 7 34.9999 32 Tibay, Genelito B. 4 1 34.9999 33 Tibay, Joy B. 2 34.9999 34 Orbien, Irenea R. 3 34.9999 35 Pianar, Dario P. 4 34.9999 36 Espinido, Yoyen C. 5 1 34.9999 37 Dinglasa, Liezel D. 2 34.9999 38 Arias, Tammysyr A. 3 34.9999 39 Mahilom, Sergio Jr. A. 4 34.9999 40 Flores, Annabelle G. 5 34.9999 41 Tero, Rolando D. 6 34.9999 42 Galo, Anabel P. 7 34.9999 43 Monleon, Rosalinda B. 8 34.9999 44 Bongo, Vivian O. 9 34.9999 45 Entrampas, Jocelyn N. 10 34.9999 46 Mercader, Helen S. 11 34.9999 47 Canete, Samuel F. 12 34.9999