Swap of Land for Stocks - Tax-Free Exchange

February 18, 1993 BIR RULING NO. 069-93 SWAP OF LAND FOR STOCKS TAX-FREE EXCHANGE 21 (e), 24 45-93 069-93 Messrs. Francis F. Obaa and Agustin A. Lim 351 Ortigas Avenue Greenhills, Mandaluyong Metro Manila This refers to your letter dated January 6, 1993, in effect, requesting for a ruling that the sale of real properties located at Purok I, Zone 8, Cupang, Antipolo by Anastacio M. Obaa, Marta M. Obaa and Feal Development Corporation, represented by you as Attorney-in-fact and General Manager respectively, to Bo. Cupang Homeowners Association, Inc., a duly registered non-stock, non-profit community organization in accordance with the Community Mortgage Program (CMP) initiated by the National Housing Authority (NHA) 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. cdt It appears that the Community Mortgage Program (CMP) is a mortgage financing program of the National Home Mortgage Finance Corporation (NHMFC) 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 NHMFC to the landowner; that in the instant case, the properties being sold to the Bo. Cupang Homeowners Association, Inc. are covered by TCT Nos. 23793, 23795 and 93855 all issued by the Registry of Deeds of the Province of Rizal; that the said transactions were certified by the Housing and Urban Development Coordinating Council (HUDCC) 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 Bo. Cupang Homeowners Association, Inc. and the actual occupants on the said properties sold under the CMP; that the said properties sold and bought by the association will in turn be given and paid by the qualified members/beneficiaries under the CMP, whose financial capacity belong to the lowest 30-50% of the income bracket, at a monthly amortization to the association at the cost of P8,089.35 per lot; that the plan of the properties and corresponding areas to be sold are actually occupied by the beneficiaries and identified, who occupied almost 100% of the entire properties sold. In reply, please be informed that pursuant to Section 32 of 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: 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 properties located at Purok I, Zone 8, Cupang, Antipolo by Anastacio M. Obaa, Marta M. Obaa and Feal Development Corporation to Bo. Cupang Homeowners Association, Inc. is exempt from the capital gains tax and the expanded withholding tax. However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause under Section 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 properties 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