5% Capital Gains Tax on the Sale of Real Property by Individuals Acting as Trustees

June 13, 1989 BIR RULING NO. 126-89 53 (b) 000-00 126-89 Gentlemen : This refers to your letter dated March 9, 1989 requesting clarification whether the sale of real property by individuals acting as trustees of San Miguel Corporation Retirement and Death Benefit Plan (an employee's trust) is subject to the capital gains tax. It is represented and ascertained from documentary evidences that San Miguel Corporation Retirement and Death Benefit Plan (Plan) is an employee's trust which forms part of a pension/gratuity plan set up by the Management of San Miguel Corporation (SMC) for the exclusive benefit of the employees; that said Plan is confirmed to have complied with the requirements of R.A. 4917 for a reasonable plan and as such, is exempt from income tax pursuant to Section 53(b) of the Tax Code; that the Plan owns a parcel of land covered by TCT No. 51981, which is registered in the name of the trustees designated by the President of SMC; that by virtue of a Deed of Absolute Sale executed on January 6, 1989, same property was sold for and in behalf of the Plan by its trustees to J.E. de Leon Real Estate Corporation; and that said sale by the trustees was held subject to capital gains tax as indicated in the 1st Indorsement of the Revenue Regional Director dated January 20, 1989. In reply, please be informed that pursuant to Section 21(e) of the Tax Code, capital gains presumed to have been realized from the sale, exchange or other disposition of real property in the Philippines classified as capital asset by individuals, including estates and trust , are subject to the 5% capital gains tax based on the gross selling price or fair market value prevailing at the time of sale, whichever is higher. Under Section 53(a) of the same Code, the tax imposed by Title II (Tax on Income) which includes the capital gains tax imposed under Section 21(e) shall apply to income of any kind of property held in trust . However, pursuant to Section 53(b) also of the Tax Code, the tax imposed on the income of any kind of property held in trust shall not apply to employee's trust which forms part of a pension, stock bonus or profit sharing plan of an employer for the benefit of some or all of his employees. Accordingly, in the instant case, since the Plan is an employees' trust and inasmuch as the sale of the real property in question is not a sale by the trustees in their individual capacity but for and in behalf of the Plan which owns said property, gains derived from the aforesaid sale of its property is not subject to the capital gains tax imposed by Section 21(e) of the Tax Code, in accordance with Section 53(b) of the same Code. cdt Very truly yours, (SGD.) JOSE U. ONG Commissioner