Swap of land for Stocks - Tax-Free Exchange

February 18, 1993 BIR RULING NO. 071-93 SWAP OF LAND FOR STOCKS TAX-FREE EXCHANGE 21 (e) 347-92 071-93 Mr. Faustino R. Catapang, Sr. 48 Osmea Avenue General Santos City This refers to your letter dated December 10, 1992, in effect, requesting for a ruling that the sale of your real property located at Barrio Makar, General Santos City to the Doa Estrella Community Association, Inc., a non-stock, non-profit community organization duly registered with Securities and Exchange Commission (SEC) in accordance with the Community Mortgage Program (CMP) initiated by the National Housing Authority is exempt from capital gains tax pursuant to Section 32(a) and (b) of R.A. 7279, which was approved on March 24, 1992 and published in March 28, 1992 issue of the Philippine Times Journal and Malaya , newspapers of general circulation. cdta 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 property being sold to the Doa Estrella Community Association, Inc. is covered by TCT No. T-34650 of the Registry of Deeds of General Santos City; that the said transactions was certified by the Housing and Urban Development Coordinating Council 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 Doa Estrella Community Association, Inc. and the actual occupants and target clientele whose financial capacity belong to the lowest 30-50% of the income bracket; that the real property sold and bought by the association will in turn be given to the qualified beneficiaries under the CMP to be paid by such beneficiaries at a monthly amortization to the Association at the cost of P38,000.00 per lot; that the plan of the property and corresponding areas to be sold are actually occupied by the beneficiaries and identified; and that the area occupied and sold to the said beneficiaries constitute almost 65% of the entire property and 35% thereof is not occupied. 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, otherwise known as the Urban Development and Housing Act of 1992. Such being the case, the sale of your real property to the Doa Estrella Community, Association, Inc. is exempt from the capital gains tax and the expanded withholding tax except the 35% unoccupied portion thereof. However, it is observed that documentary stamp tax 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, you are liable to pay the documentary stamp tax on the document conveying the property to the Association under the CMP as imposed under Section 196 of the Tax Code, as amended, based on the actual consideration paid by the association to you as the landowner. JOSE U. ONG Commissioner of Internal Revenue