Exemption from the Payment of the 5% Capital Gains Tax

May 5, 1989 BIR RULING NO. 098-89 21 (e) 540-88 098-89 Gentlemen : This refers to your letter dated April 15, 1989 requesting a ruling as to whether your company and/or the landowners with whom you have a joint venture agreement are subject to the capital gains tax on the sale of subdivision lots. It is represented that the landowner shall authorize your company to develop his land, from your own resources, into subdivision lots which your company shall sell to the general public; and that the share of the landowner shall be 50% of the gross proceeds of the sale of the subdivided lots. In reply thereto, please be informed that 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 sales, by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Such being the case, and since the lots referred to are being held primarily for sale to customers in the ordinary course of the trade or business of your company and/or the landowners in joint venture with you, the sale of the same is therefore, exempt from the payment of the 5% capital gains tax. However, gains derived by the joint venture from the aforementioned sale of said lots are subject to the 35% tax imposed under Section 24(a) of the Tax Code, as amended, in relation to Section 20(b) of the same Code. Moreover, gains derived by the landowner from its share of the gross proceeds of the sale shall be subject to income tax under Section 21(a) of the Tax Code, as amended. This serves as an authority for the Revenue District Officer concerned to issue Certificate Authorizing Transfer of Title to real property insofar as the aforementioned lots are concerned. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner