Correct Basis for the Computation of Capital Gains Tax Due on Sales of Real Properties

March 20, 1992 BIR RULING NO. 101-92 21 (e) 000-00 101-92 Mr. Marte J. Felix No. 11, 13th Avenue Murphy, Quezon City S i r : aarino and the Spouses Ulysses J. Felix, and Nenita V. Felix by the Spouses Jose C. Felix and Catalina J. Felix of their realty situated at Quezon City, covered by TCT No. 26964 on December 14, 1989 for and in consideration of P240,000 and on the sale in favor of the Spouses Miguel Piso and Virginia Felix Piso and spouses Fulgencio Maynigo and Gloria Felix Maynigo likewise by the spouses Jose C. Felix Jr. and Catalina Felix of their realty situated at Quezon City, covered by TCT No. 269379 on December 13, 1989 for and in consideration of P160,000, since you did not then have enough money despite of exerting efforts to secure such amount that would settle your tax obligation with this Office; that a fire broke out in your neighborhood on March 7, 1990 burning your house; that you were of the belief that the land title of the properties sold were among the important documents burned which eventually turned out to have been only misplaced since you found the same on January, 1991; that five months thereafter, you went to Revenue Region 4B to settle your said tax obligation arising from the said sale; that you were required by the said Office to present the original or photo copies of the title; that since you, at the time, had only the Deed of Absolute Sale, you were forced to wait for the release of the reconstituted title by the Register of Deeds of Quezon City; that the reconstituted title was issued only on November 6, 1991; that upon your receipt of the said reconstituted title, your requested for a computation of the capital gains tax due on said sales from said BIR Office; and that your requested computation was based on the current zonal value of the properties sold which you could not afford. Based on the foregoing representation, and on the document submitted in support thereof, you now request for a ruling to the effect that the basis of the computation of the capital gains tax due on the aforesaid sales made by spouses Jose Felix, Jr. and Catalina Javier Felix on December 13 and 14, 1989 of their real properties covered by TCT Nos. 269379 and 26964 shall be the consideration per Deed of Sale or the 1989 zonal value thereof or P800.00 per square meter. In reply, 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 (zonal value) prevailing at the time of sale, whichever is higher. From the foregoing provision of the Tax Code and based on documents submitted, it is clear that the tax base to be used in computing the capital gains tax on the sale made by the spouses Jose C. Felix, Jr. and Catalina J. Felix of their real properties covered by TCT Nos. 269379 and 26964 on December 13 and 14 1989, respectively shall be the gross selling price of fair market value or zonal value of the property sold whichever is higher, and prevailing at the time of such disposition and not at the time, when the documents relative to the said transaction were presented to this Office for capital gains tax purposes (Rule 2 (a), RMC No. 43-91) Moreover, for failure to file a return and pay the capital gains tax within 30 days from the said sale (Sec. 24, Tax Gain), the taxpayers are subject to the 25% surcharge and 20% interest imposed under Sections 248 and 249 of the Tax Code, as amended. iatdc Very truly yours, JOSE U. ONG Commissioner of Internal Revenue