Income Tax and 5% Creditable Withholding Tax on the Sale of a Portion of a Property

March 30, 1990 BIR RULING NO. 049-90 50 (b) 000-00 049-90 Gentlemen : This refers to your letter dated February 12, 1990 requesting exemption from the payment of capital gains tax of the sale of a portion of your property consisting of an unimproved 714-square meter lot covered by TCT No. T-3849. cd It is represented that you are a duly registered non-stock, non-profit corporation which serves as the homeowners association of Empalico Homes (Employees Association of the Philippine American Life Insurance Company); that you are selling a portion of your property consisting of an unimproved 714-square meter lot covered by TCT No. T-3849; and that the reasons for your aforesaid request for exemption finds support in the following: (1) that you are a non-stock, non-profit entity created and existing as the homeowners association of Empalico Homes and (2) that the proceeds from the sale shall be used solely to finance the rehabilitation of your deteriorating water system, extension of your perimeter fence along the creek for security reasons and maintenance of the subdivision. In reply, please be informed that your request cannot be granted for lack of legal basis. This Office has consistently ruled that a homeowner's association organized for non-profitable purposes falls within the purview of Section 26(h) of the Tax Code, as amended; hence, income received by it as such shall not be taxed under Title II of the said Code. However, the income of whatever kind and character of such organization from any of its properties, real or personal, or from any of its activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax imposed under the same Code. (Section 26, Tax Code) Such being the case, should the sale of your aforementioned property materialize, the gain you derived therefrom is subject to income tax and consequently to the 5% creditable withholding tax imposed under Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90 implementing Section 50(b) in relation to Section 24(a), both of the Tax Code, as amended, based on the gross selling price or the total amount of consideration or its equivalent. For this purpose, the term "Gross selling price" means the consideration stated in the sales documents or the fair market value/zonal value, whichever is higher. (Revenue Memorandum Circular No. 7-90) Very truly yours, (SGD.) JOSE U. ONG Commissioner