Switch of Awards by NHA Not Subject to Capital Gains Tax but the Deed Giving Effect to Such Award is Subject to Documentary Stamp Tax

May 31, 1991 BIR RULING NO. 097-91 21 (e) 000-00 097-91 Gentlemen : This refers to your letter dated January 24, 1991 seeking exemption from payment of capital gains tax and documentary stamp tax on the swap of lot awards which your office effected vis-a-vis two of your clients. You represented that the National Housing Authority (NHA for brevity) originally awarded two lots with three areas of one hundred ten (110) square meters and eighty-three square meters and fifty-eight decimeters (83.58) each to Ms. Monina G. Cortes and Ms. Elizabeth D. Guce, respectively; that Ms. Cortes was awarded lot #9 Block 99 valued at eighty-four thousand nine hundred and thirty-one pesos (P84,931.00) while Ms. Guce was awarded lot #2, Block 95, also of Phase II C2, Karangalan Village, Pasig, valued at fifty-six thousand eight hundred and thirty-four pesos (P56,834.00); that pursuant to said original awards, the awardees paid their corresponding equities to NHA; that thereafter, a TCT was issued in the name of Ms. Elizabeth Guce which TCT, however, was delivered as collateral to the NHA because of the mortgage constituted in favor of the latter; that in the meanwhile, Ms. Cortes was notable to get her TCT because of subsequent financial difficulties on her part; that while Ms. Guce has fully paid the sum of P56,834.00 for her lot award and was already given the corresponding TCT for the 83.58 sq. m. lot, she has, however, agreed in effect, to nullify her ownership thereon upon her agreement with the NHA and Ms. Cortes to get instead the 110 sq. m. lot originally awarded to the latter; that the NHA, upon the request of the parties involved, thus swapped the lot awards of Ms. Guce and Ms. Cortes so that the former got lot #9 while the latter got the smaller lot #2; that with this agreement, the NHA still retains ownership over the two lots until both parties would be able to pay in full for their respective new lot awards and got the corresponding TCT therefor; that in relation to the swap of lots awards, previous equities paid by the awardees were credited correspondingly by the NHA pursuant to the change made and further installment payments shall be reflected accordingly; that the change of lots awards did not entail any material or monetary consideration except for the payment of equity to NHA by the awardees; that the transfer certificates of title, although issued in the names of the awardees shall continue to be in NHA's possession until such time when the lots shall have been fully paid for as to merit the release of said TCT to the awardees, and finally that the taxable swap or exchange under Section 21 (e) would be after the parties would have fully paid therefore, upon which time both parties would be deem to be already the owners of the properties exchanged or swapped. In reply, please be informed that this Office finds the switch of awards by NHA not to be subject to capital gains tax. Under Section 21 (e) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sale, by the individuals, shall be taxed at the rate of 5% based on the gross selling price of the fair market value prevailing at the time of sale, which ever is higher. We find that the provision of law referred to does not find application in the case at hand because while there was a swap or shifting in the awards there was NO consideration involved, and the parties did not gain from such exchange, because whatever down payments were made for the original awards were credited to the respective parties account for the lots, as swapped. Parenthetically, it may be stated that the matter of transferring the certificates of title already in the names of the lot awardees, although technically making the latter owners of the properties, is resorted to only for administrative expediency. It is a scheme resorted to by government to aid the low-salaried government employees in their purchase of small residential lots for their families while at the same time protecting itself from default of payments by any of these lot awardees. The deed giving effect to the switch of lots awards by the NHA is, however, subject to documentary stamp tax of P3.00 pursuant to Sec. 188 of the Tax Code, as amended. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner