Sale of Land under CMP Exempt from Capital Gains Tax

March 10, 1993 BIR RULING NO. 099-93 SALE OF LAND UNDER CMP EXEMPT FROM CAPITAL GAINS TAX 21 (e), 24 45-93 099-93 Mr. Francisco P. Nial President, Panindigan Ng Mga Maralitang Nagkakaisa HOA, Inc. (PAMANA) 65 Kaliraya Street, Tatalon Quezon City This refers to your letter dated October 19, 1992 requesting confirmation of your opinion in behalf of the landowner, Mr. Simeon Castro, that the sale of his real properties all located at Sta. Lucia, San Bartolome, Novaliches, Quezon City to the Paninindigan ng mga Maralitang Nagkakaisa Homeowners Association, Inc., a non-stock, non-profit community organization duly registered with Home Insurance and Guaranty Corporation, in accordance with the Community Mortgage Program (CMP) initiated by the Foundation for the Development of 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 in the extent of the total amount paid by NHMFC to the landowner; that in the instant case, the properties being sold to Paninindigan ng mga Maralitang Nagkakaisa Homeowners Association, Inc. are covered by TCT Nos. 5631, 5635, 5632, 5633 and 5634 all issued by the Registry of Deeds of Quezon 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 above transaction is in accordance with the Community Mortgage Program of the government, and the plan of the properties and the corresponding areas to be sold are actually occupied by the beneficiaries and identified, covering the entire properties sold. aisadc In reply, please be informed that pursuant to Section 32(b) 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: casia 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 owners shall be exempt from capital gains tax pursuant to the aforequoted provisions of R.A. 7279. Such being the case, the sale of real properties by Mr. Simeon Castro located at Sta. Lucia, San Bartolome, Novaliches, Quezon City to the Paninindigan ng mga Maralitang Nagkakaisa Homeowners Association, Inc. is exempt from the payment of 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 32 of R.A. 7279. Such being the case, the landowner is 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 the landowner. JOSE U. ONG Commissioner of Internal Revenue