Swap of Land for Stocks - Tax-Free Exchange

February 15, 1993 BIR RULING NO. 064-93 SWAP OF LAND FOR STOCKS TAX-FREE EXCHANGE 21 (e) 24 45-93 064-93 Mrs. Corazon A. Francisco and Erlinda F. Zinampan #18 B. Mariano Street Sta. Ana, San Mateo, Rizal This refers to your letter dated December 29, 1992, in effect, requesting for a ruling that the sale of real property located at Bgy. Silangan, Quezon City by Felipe Francisco and Gregorio Francisco, represented by you as Attorneys-in-fact, to Bona Homeowners Association, Inc., a duly registered non-stock, non-profit community organization in accordance with the Community Mortgage Program (CMP) initiated by the Home Insurance and Guaranty Corporation (HIGC) is exempt from capital gains tax pursuant to Section 32(b) of R.A. 7279, otherwise known as the Urban Development and Housing Act of 1992. cdtech It appears that the Community Mortgage Program (CMP) is a mortgage financing program of the National Home Mortgage Finance Corporation (NHFC) which assists legally organized associations of underprivileged and homeless citizens to purchase and develop a tract of land under the concept of community ownership: that through a Letter-Guaranty by said Government Financing Institution the landowner executes a Deed of Sale to the Association which stands as the borrower and debtor to the extent of the total amount paid by the NHMFC to the landowner; that in the instant case, the property being sold to Bona Homeowners Association, Inc., is covered by TCT No. RT-37298 issued by the Registry of Deeds of Quezon City; that the said transaction was certified by the National Home Mortgage & Finance Corporation as an approved project under the Community Mortgage Program (CMP) of the government. Field verification conducted in this case disclosed that the beneficiaries are registered members of the Bona Homeowners Association, Inc., and the actual occupants on the said property sold under the CMP; that the said property sold and bought by the association will in turn be given and paid by the qualified members/beneficiaries under the CMP, who were landless and less privileged, thru monthly amortization to the association; that the plan of the property and corresponding areas to be sold actually occupied by the beneficiaries and identified, covering the entire property sold. In reply, please be informed that pursuant to Section 32 R.A. No. 7279, pertinent portion of which reads: "Sec. 32. Incentives. To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives cd xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax; and xxx xxx xxx the landowners who sell their property to the Tenant's Association pursuant to the Community Mortgage Program are exempt from the payment of capital gains tax and from the expanded withholding tax under Revenue Regulations No. 1-90. Upon the sale thereof, the capital gains realized by the owner shall be exempt from capital gains tax pursuant to the aforequoted provision of R.A. 7279. Such being the case, the sale of real property located at Bgy. Silangan, Quezon City by Felipe Francisco and Gregorio Francisco to Bona Homeowners Association, Inc. is exempt from the capital gains tax and the expanded withholding tax. However, it is observed that documentary stamp is not one of the taxes covered by the tax exemption clause under Sections 20 and 32 of R.A. 7279. Such being the case, the landowners, represented by you, are liable to pay the documentary stamp tax on the document conveying the property to the Association under the CMP as imposed under Sec. 196 of the Tax Code, as amended, based on the actual consideration paid by the association to them (landowners). JOSE U. ONG Commissioner of Internal Revenue