BIR Ruling No. 138-10

December 7, 2010 BIR RULING NO. 138-10 Section 20 of RA No. 7279; BIR Ruling No. 398-93; BIR Ruling No. DA-201-08; BIR Ruling No. DA-126-05; BIR Ruling No. SH-(042) 323-09; BIR Ruling No. DA-032-01 Morning Star Homes Christian Association San Jose, Bian Homeowners Association, Inc. 15 National Highway, Sto. Nio Bian, Laguna Attention: Timmy Richard T. Gabriel President Gentlemen : This refers to your letter dated December 7, 2009 requesting for a ruling that the acquisition of real properties located at Brgy. San Jose, Bian, Laguna by Morning Star Homes Christian Association San Jose, Bian Homeowners Association, Inc., under the Socialized Housing Project as approved by the Sangguniang Bayan of the Municipality of Bian, Laguna, is exempt from capital gains tax. cSTCDA Documents submitted to this Office show that following are registered owners of parcels of land with improvements, all located at San Jose, Dela Paz, Bian, Laguna: (1) Dr. Severino A. Yu, with Tax Identification Number (TIN) 150-923-660 Transfer Certificate of Title (TCT) Nos. T-61759 containing a total area of 5,220 square meters and T-30836 containing an area of 180 square meters; (2) Lorenzo A. Yu, with TIN 207-873-682 TCT No. T-61757 containing a total area of 5,220 square meters; and (3) Ramon A. Yu, with TIN 207-873-967 TCT No. T-61758 containing a total area of 5,220 square meters; that Morning Star Homes Christian Association San Jose, Bian Homeowners Association, Inc. ("Morning Star Homes" for brevity), on the other hand, is a homeowner's organization duly registered with the Housing and Land Use Regulation * Board (HLURB) with Certificate of Registration No. 14148 dated October 12, 2009, with TIN 283-783-076-000; that the Office of the Sangguniang Bayan, Municipality of Bian issued Municipal Resolution No. 144-(2009) granting legislative approval to the application of Morning Star Homes' President Timmy Richard T. Gabriel for Preliminary Approval and Location Clearance (PALC) of the National Governor of Morning Star Homes Christian Association, Inc., for their Socialized Housing Project under R.A. 7279 with a total land area of 15,840 square meters covered by TCT Nos. T-61757, T-61758, T-61759 and T-30836 located at Barangay San Jose, Municipality of Bian, Province of Laguna; that the Office of the Sangguniang Bayan, Municipality of Bian issued Municipal Resolution No. 144-A (2009) granting the Development Permit of the National Governor of Morning Star Homes Christian Association, Inc. for the said Socialized Housing Project; that Morning Star acquired the aforestated properties by virtue of a loan granted by the Home Development Mutual Fund as evidence by letter dated January 27, 2010 wherein Morning Star Homes' application for a PhP43.698 Million loan was approved under the terms and conditions of the Pag-IBIG Group Land Acquisition and Development (GLAD) Program; that through the Deeds of Absolute Sale dated June 24, 2010 executed between Morning Star Homes and the aforestated owners/sellers, the landownership shall be transferred to Morning Star Homes, who will distribute the parcels of land primary to the qualified members/beneficiaries in line with the Community Mortgage Program of the government for the homeless citizens; and that the HLURB recognized that the housing project is a community mortgage program under Republic Act No. 7279. In support of your request, you have submitted the following documents: 1) Duplicate original of the Deed of Sale to the Community Association; 2) Certified true copy of the Transfer Certificate of Title; 3) Certified true copy of the Latest Tax Declaration; 4) Certified true copy of the Articles of Incorporation & By-laws of the Community Association; 5) Masterlist of Qualified Beneficiaries; 6) Location Plan of the Lot Sold to the Community Association; 7) Evidence of payment of Documentary Stamp Tax based on the Actual Consideration of Sale stated in the document of sale; 8) Sworn declaration of the buyer that the raw land shall be used for socialized housing; 9) Tax Identification Number of the sellers and buyer; 10) Certification of LGU-Bian; 11) Letter of Guaranty by Home Development Mutual Fund (HDMF); 12) Subdivision Plan approved by the Land Registration Authority (LRA); 13) Certificate of Registration issued by the Housing and Land Use Regulatory Board (HLURB); and 14) Certification dated October 15, 2010 issued by the HLURB. In reply, please be informed that pursuant to Section 20 of RA No. 7279, pertinent portions of which state that: HTScEI "Sec. 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: xxx xxx xxx (d) Exemption from the payment of the following: xxx xxx xxx (2) Capital gains tax on raw lands used for the project; xxx xxx xxx." The landowners who sold their properties for use in a community mortgage project are exempt from the payment of capital gains tax. Such being the case, the sale of the aforestated properties by Dr. Severino A. Yu, Lorenzo A. Yu and Ramon A. Yu to Morning Star Homes Christian Association San Jose, Bian Homeowners Association, Inc. is exempt from the capital gains tax. However, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Sec. 20 of RA 7279. Accordingly, Dr. Severino A. Yu, Lorenzo A. Yu and Ramon A. Yu are liable to pay the documentary stamp tax on the documents conveying the properties imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realty or its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. The Revenue District Officer (RDO) shall issue the corresponding Certificate Authorizing Registration and/or Tax Clearance (CAR/TCL) only after the submission of the necessary and requisite documents provided under Revenue Memorandum Order (RMO) 15-2003. Notwithstanding the foregoing, the Bureau of Internal Revenue shall conduct verification and post-audit to determine that the project is indeed a CMP Project under RA 7279 and that the actual occupants of the properties transferred under the CMP are qualified beneficiaries and therefore, the seller is entitled to exemption from the capital gains tax or income tax imposed under the Tax Code of 1997. (Revenue Regulations 17-2001) Moreover, the transfer in favor of the individual member-beneficiaries of the said subdivided properties is not subject to either the capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended, or the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended, implementing Section 57 (B) of the same Code, considering that the transfer of said properties is without any consideration since it is merely a formality to finally effect transfer of the said properties to the member-beneficiaries who actually bought the same from the former owner through the Morning Star Homes Christian Association San Jose, Bian Homeowners Association, Inc. In other words, the transfer is without any consideration because the Association is in fact transferring the ownership of the properties which actually belong to the member-beneficiaries. aIHCSA Furthermore, the said transfer is not subject to the donor's tax imposed under Section 98 of the Tax Code of 1997, since there is no intention on the part of the association to donate said properties to the members considering that the members of the association could not donate properties the ownership of which belong to themselves. (BIR Ruling No. DA-201-08 dated March 27, 2008; DA-126-05 dated April 6, 2005; SH-(042) 323-09 dated May 20, 2009) Likewise, under Section 196 of the Tax Code of 1997, as amended, the deeds or documents subject to the documentary stamp tax imposed therein are those where the realty sold shall be granted, assigned, transferred or otherwise conveyed to a purchaser or purchasers or to any other person or persons designated by such purchaser or purchasers thereby excluding from its purview the instant case considering that no consideration is involved in said transaction upon which the tax imposed could be based. However, the notarial acknowledgment to said deeds of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997, as amended. (BIR Ruling No. 398-93 dated October 11, 1993 and DA-032-01 dated March 12, 2001) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue