Sale of Land Initiated by Institute for Urban Poor Exempt from Capital Gains Tax

March 10, 1993 BIR RULING NO. 097-93 SALE OF LAND INITIATED BY INSTITUTE FOR URBAN POOR EXEMPT FROM CAPITAL GAINS TAX 21 (e), 24 45-93 097-93 Sea Horse Realty Corporation #1172 Pasong Tamo, Makati Metro Manila Attention: Mr . Chi Sing Dy Go President This refers to your letter dated January 28, 1993 requesting in effect, a confirmation of your opinion that the sale of your real properties located at 1772 Interior Tramo St., Pasay City to Nagkakaisang Homeowners ng Veloso Compound Association, Inc., a duly registered non-stock, non-profit community organization in accordance with the Community Mortgage Program (CMP) initiated by the Institute for the Urban Poor 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. 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 Nagkakaisang Homeowners ng Veloso Compound Association, Inc. are covered by TCT Nos. 128723 and 128724 issued by the Registry of Deeds of Pasay 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 Nagkakaisang Homeowners ng Veloso Compound 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 and identified, covering 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 wide implementation, participants in the CMP shall be granted with the following privileges or incentives: xxx xxx xxx (b) Properties sold under 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 your real properties located at 1772 Interior Tramo Street, Pasay City to Nagkakaisang Homeowners ng Veloso Compound 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, 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 you. cdtech JOSE U. ONG Commissioner of Internal Revenue