BIR Ruling No. 030-12

January 16, 2012 BIR RULING NO. 030-12 R.A. 7279; BIR Ruling [SH-(024) 221-09] Benjamin Hills Homeowners' Association, Inc.,Phase II Km. 14, Upper Panacan Bunawan, Davao City Attention: Elvira H. Licos President Gentlemen : This refers to your letter dated June 22, 2010, endorsed by the BIR Revenue Region No. 19, requesting for a ruling that the sale of a parcel of land by Mr. Pedro P. Acosta to Benjamin Hills Homeowners' Association, Inc., Phase II, is 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". Documents submitted show that Mr. Pedro P. Acosta is the owner of a parcel of land located at Barrio Panacan, Davao City. The subject property is covered by Transfer Certificate of Title (TCT) No. T-404981 issued by the Registry of Deeds for the City of Davao and consisting of an area of four thousand seven hundred seventy eight (4,778) square meters. Benjamin Hills Homeowners' Association, Inc.,Phase II ("Association"),with Tax Identification No. (TIN) 287-321-163-000, on the other hand, is a legal association of underprivileged and homeless citizens registered on December 10, 2004 with the Housing and Land Use Regulatory Board. On May 13, 2010, a Deed of Absolute Sale was executed by and between Mr. Pedro P. Acosta and the Association, whereby Mr. Acosta transfers in favor of the Association a portion of the lot with an area of four thousand four hundred forty eight (4,448) sq. m. at an agreed price of P1,556,212.76. The Association had 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),whereby 2,371.01 sq. m. of the property, as certified by Atty. Fermin T. Arzaga, President of SHFC, as a CMP Project shall be proportionately distributed to the association's twenty (20) qualified members listed in the masterlist of beneficiaries, a copy of which is hereto attached as Annex "A". EIAHcC 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 underprivileged and homeless, the following incentives shall be extended to the private sector: (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 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 Mr. Pedro P. Acosta to Benjamin Hills Homeowners' Association, Inc., Phase II, is exempt from the capital gains tax. It is to be made clear however, that the actual area covered by the CMP Project under RA 7279 is only 2,371.01 sq. m., as per attached Certification of the President of the SHFC, and not the entire 4,778 sq. m. of the lot. SHAcID Furthermore, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Sec. 20 of RA 7279. Accordingly, Mr. Pedro P. Acosta is liable to pay the documentary stamp tax on the documents conveying the 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. It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the selling price per sale transaction for each qualified beneficiary does not exceed the price selling of P400,000.00 for house and lot packages and P160,000.00 for lots only, pursuant to Revenue Regulations No. 17-2001. Moreover, any transfer of the real property from the said association to the individual members 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 property to the member-beneficiaries who actually bought the same. 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 property to the members considering that the members of the association could not donate properties the ownership of which belongs to themselves (member-beneficiaries). DASEac Furthermore, the deed to be executed by Benjamin Hills Homeowners' Association, Inc., Phase II, 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. 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. ( BIR Ruling [SH-(024) 221-09] dated March 19, 2009) 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 ANNEX A Masterlist of Beneficiaries and Loan Apportionment Name of Association: Benjamin Hills Village Homeowners Association, Inc. Phase 2 Name of Originator: Peoples Urban Settlement and Housing (PUSH, INC.) Location: Km. 14, Panacan, Davao City No. Name of Members Lot Allocation Date of Monthly Total Cost Share in Individual Monthly Amortization Blk Lot Area S.O.S Total Birth Income (A) Loan (B) Equity (A-B) Principal/ M.R.I. Total No. No. Interest 1 Timik, Jason V. 1 1 90 36.77 126.77 6/27/70 5000 88,742.33 80,000.00 8,742.33 515.44 32.80 548.24 2 Napoles, Lorenzo L. 1 2 80 32.69 112.69 4/19/61 9500 78,882.08 78,882.08 508.24 32.35 540.59 3 Bukles, Antonieta U. 1 3 80 32.69 112.69 9/12/66 5000 78,882.08 78,882.08 508.24 32.35 540.59 4 Napoles, Bruce J. 1 4 80 32.69 112.69 4/2/72 6000 78,882.08 78,882.08 508.24 32.35 540.59 5 Rubia, Rudy S. 1 5 80 32.69 112.69 3/7/67 8500 78,882.08 78,882.08 508.24 32.35 540.59 6 Rubia, Alicia S. 1 6 80 32.69 112.69 4/4/69 5000 78,882.08 78,882.08 508.24 32.35 540.59 7 Tan, Rolando P. 1 10 80 32.69 112.69 12/23/68 9000 78,882.08 78,882.08 508.24 32.35 540.59 8 Antona, Lolita D. 1 11 80 32.69 112.69 5/19/62 8000 78,882.08 78,882.08 508.24 32.35 540.59 9 Sotto, Michelle Jane G. 1 12 80 32.69 112.69 12/16/74 7000 78,882.08 78,882.08 508.24 32.35 540.59 10 Sotto, Lilian G. 1 13 80 32.69 112.69 7/7/65 6500 78,882.08 78,882.08 508.24 32.35 540.59 11 Licos, Roland Clyde H. 2 1 82 33.51 115.51 7/18/83 6500 80,854.13 80,000.00 854.13 515.44 32.80 548.24 12 Licos, Laurie Vie H. 2 2 78 31.87 109.87 10/6/84 5500 76,910.02 76,910.02 495.53 31.55 527.08 13 Licos, Elvira H. 2 3 78 31.87 109.87 4/10/60 7000 76,910.02 76,910.02 495.53 31.55 527.08 14 Tesoro, Anabel D. 2 5 78 31.87 109.87 4/1/74 9000 76,910.02 76,910.02 495.53 31.55 527.08 15 Arabilla, Alberto, Jr. N. 2 6 78 31.87 109.87 12/29/64 5000 76,910.02 76,910.02 495.53 31.55 527.08 16 Madalogdog, Ranel D. 2 11 78 31.87 109.87 4/23/75 9500 76,910.02 76,910.02 495.53 31.55 527.08 17 Madalogdog, Eleanor D. 2 12 78 31.87 109.87 3/17/72 9500 76,910.02 76,910.02 495.53 31.55 527.08 18 Taniacao, Orlando D. 2 14 78 31.87 109.87 10/29/75 9500 76,910.02 76,910.02 495.53 31.55 527.08 19 Ferrer, Sara Jane T. 2 17 75 30.65 105.65 12/5/73 8000 73,951.95 73,951.95 476.47 30.35 506.82 20 Ferrer, Welson U. 2 18 75 30.65 105.65 1/17/82 7000 73,951.95 73,951.95 476.47 30.35 506.82 Grand Total CMP 1,588.00 648.87 2,236.87 1,565,809.20 1,556,212.76 9,596.46 10,026.69 638.30 10,664.99 Grand Total Equity 9,596.46 Grand Total CP 1,804.00 737.13 2,541.13 1,778,790.80 Grand Total CMP+CP 3,392.00 1,386.00 4,778.00 3,344,600.00 ======= ====== ====== ==========