Sale of Real Property Considered as Capital Assets is Subject to 5% Capital Gains Tax

June 17, 1991 BIR RULING NO. 107-91 21 (e) 000-00 107-91 Gentlemen : This refers to your letter dated January 2, 1991 requesting for confirmation of the advise you have given your client, Mrs. Elisa CuUnjieng-Bayot, that the land and building owned by her are capital assets and therefore, will be subject to 5% capital gains tax in the event that she disposes of them. cdta Records and investigation disclosed that Mrs. E.C. Bayot receive on December 27, 1967, by way of liquidating dividend from the CuUnjieng Hermanos, Inc., a lot located at Claro M. Recto Avenue corner Roman Street and covered by TCT No. 91033 of the Registry of Deeds of Manila; that in addition, Mrs. E.C. Bayot acquired the building thereon with its three (3) tenants who were using the building as their residence and/or place of business; that as the lessor of the building, your client obtained a real estate dealer's license even though she was residing in the Philippines; that the rentals charged by her were considerably less than the prevailing rates in adjacent buildings in the area, being intended merely to cover the tax payments and the maintenance expenses of the building; that she took up permanent residence in the Philippines upon her return in October, 1990; that she terminated all leases and ejected her tenants from the building because of her intention to set-up home for the aged; that subsequently, she had the building demolished so much so that presently, it is now just a vacant lot which is neither used for trade or business of the taxpayer nor for lease to anyone; that the taxpayer has no other real property in her name; and finally, that because of several offers to purchase her lot, Mrs. E.C. Bayot now seriously considers the alternative of selling the land. In reply, please be informed that Section 21 (e) of the Tax Code, as amended, subjects to a 5% capital gains tax the sale of real property located in the Philippines which is classified as capital assets. The term "Capital Assets" as negatively defined in Section 33 of the Tax Code, as amended, means property held by the taxpayer (whether or not connected with his trade or business), but does not include (1) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or (2) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or (3) property used in the trade or business, of a character which is subject to the allowance for depreciation provided in subsection (f) of section twenty-nine, or (4) real property used in the trade or business of the taxpayer. Considering all the foregoing, it is the opinion of this Office as it hereby holds that the sole property of Mrs. E.C. Bayot is deemed a capital asset because the property does not fall under any of the exceptions stated in Section 33 cited in the above. Such being the case, the said property shall, upon its sale, be subject only to a 5% capital gains tax under Section 21 (e) of the Tax Code, as amended. Very truly yours, (SGD.) JOSE U. ONG Commissioner