Tax Consequence of the Sale of Property Treated as Capital Asset

September 15, 1998 BIR RULING NO. 133-98 27 (D) (5)-000-00-133-98 Security Trading Corporation Security Trading Building 91 Sen. Gil J. Puyat Avenue Makati City Attention: Mr . Jose T . Ching President & General Manager Gentlemen : This refers to your letter dated August 13, 1998 stating that your company, a duly registered domestic corporation bought sometime in 1977 a piece of land located in the hinterlands of Antipolo, Rizal from the National Development Company, a government-owned and controlled corporation; that since its acquisition, the said property has never been used for agricultural or for any other business purposes; that it has never been leased to anybody; that no improvement or additional investment has ever been introduced thereon; that in short, your company has held and treated this property as a capital asset; that in fact, you have been paying the realty tax on the said land regularly without deriving any benefit from it; and that to further aggravate your situation, there are hundreds of squatter families allegedly occupying the accessible portion thereof, thus prompting your company to decide on selling the said property to any individual or entity that might be interested in buying it in its present condition. Based on the foregoing representations and documents submitted and in case you can find an interested and willing buyer of the property, and before you go through with the sale thereof, you are now requesting for a ruling on the following: "1. That subject property not being used in business and just held as a capital asset is correctly treated as such; "2. That the sale thereof shall be subject to the new capital gains tax of six percent (6%) based on the gross selling price or fair market value thereof, whichever is higher; and "3. That the capital gains tax to be paid thereon is a final tax, and that the gain presumed to be realized from the sale thereof is no longer includible in the other items of gross income in computing the taxable income which is subject to the normal corporate tax rate. In reply, please be informed that under Section 27(D)(5) of the Tax Code of 1997, a final tax of six percent (6%) is imposed on the gains presumed to have been realized in the sale, exchange or disposition of lands and/or buildings which are not actively used in the business of a corporation which are treated as capital assets based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher. From the foregoing provision of the Tax Code of 1997, it is clear that the said property is being held by your company as capital asset since: 1) it is not used in its business; 2) it does not form part of its inventory; 3) it is not held for speculative purposes; and 4) it is not subject to depreciation. Accordingly, your queries are answered as follows: 1. That the said property not being used in business or just held as capital asset is correctly treated as capital asset. 2. That the sale thereof shall be subject to the new capital gains tax rate of six percent (6%) based on the gross selling price or the fair market value at the time of sale, whichever is higher. 3. That the six percent (6%) capital gains tax is a final tax and the gains presumed to be realized from the sale thereof is no longer includible in the other items of gross income in computing the taxable income which is subject to the normal corporate tax rate. prcd This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue