BIR Ruling No. 162-15

May 20, 2015 BIR RULING NO. 162-15 Sec. 32, RA No. 7279; BIR Ruling No. 109-13 River View Homeowners Association, Inc. Katangkungan I, Basak, Prado, Cebu City Attention: Meracil P. Fernandez President Gentlemen : This refers to the letter of Ma. Ana R. Oliveros, President of Social Housing Finance Corporation (SHFC) dated July 28, 2014, endorsing the sale transaction between Luz E. Navarro, et al. and River View Homeowners Association, Inc. for exemption from the payment of Capital Gains Tax and other taxes in accordance with the Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted disclose that Luz E. Navarro (TIN: 429-034-141-000) married to Constantino Navarro, Alfredo Espadilla (TIN: 140-166-726-000) married to Norma Cuevas, Asila Espadilla (TIN: 191-258-310-000), Jose Espadilla (TIN: 186-769-188-000), Fe Espadilla (TIN: 253-269-533-000) and Nilo Espadilla (TIN: 103-730-967-000) (hereinafter referred to as Landowners) are the registered owners of a parcel of land, identified as Lot No. 4903 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title (TCT) No. 77495 issued by the Registry of Deeds for the City of Cebu. The aforesaid property is situated at Basak, Prado, Cebu City with an area of Nine Hundred Thirteen square meters (913 sq.m.), more or less. River View Homeowners Association, Inc. (TIN: 428-776-412-000), on the other hand, is a homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB). On June 24, 2014, the parties executed a Deed of Absolute Sale whereby the Landowners, thru their Attorney-in-Fact, Nilo Espadilla, transferred and conveyed above described property to River View Homeowners Association, Inc. at an agreed price of Two Million Four Hundred Sixty Five Thousand One Hundred Pesos (P2,465,100.00) under Community Mortgage Program (CMP) of the SHFC. Pursuant to the certification issued by SHFC, the subject property covered by TCT No. 77495 actually comprises a CMP Project and shall be proportionately distributed to the association's qualified member-beneficiaries. 1 For this purpose, River View Homeowners Association, Inc. secured a housing loan under the CMP, a financing assistance program of the SHFC, a subsidiary of the National Home Mortgage Finance Corporation (NHMFC). Documentary Stamp Tax (DST) due on the sale has been paid on July 7, 2014. In support of its request, River View Homeowners Association, Inc. has completely submitted on August 1, 2014 the following documents: 1) SHFC letter application for tax exemption; 2) Certification of the President of the SHFC that the subject properties actually comprise a CMP project; 3) Certified true copy of the Letter-Guaranty; 4) Certified true copy of the Deed of Absolute Sale to the Community Association; 5) Certified true copy of the Articles of Incorporation of the Community Association; 6) Certified true copy of the Masterlist of Qualified Beneficiaries duly certified by the SHFC; 7) Certified true copies of the TCT and Latest Tax Declaration of the Properties Sold to the Community Association; 8) Certified true copy of the Location Plan of the Lot Sold to the Community Association; 9) TIN ID/BIR Certificate of Registration of the seller and the Homeowners Association; and 10) Other pertinent documents. In reply, please be informed that pursuant to Section 32 of RA No. 7279, pertinent portions of which state that: "Sec. 32. Incentives. To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax; and" the landowners who sold their properties for use in a socialized housing project are exempt from the payment of capital gains tax. Such being the case, the sale by the landowners to River View Homeowners Association, Inc. of the subject property covered by TCT No. 77495 is exempt from the capital gains tax. Upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificate of Title of the land to be issued in the name of the Homeowners Association shall be annotated by the Register of Deeds having jurisdiction over the property, to the effect that the said properties shall be used for socialized housing pursuant to RA No. 7279. (BIR Ruling No. 109-13 dated March 21, 2013) However, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Sec. 20 of RA 7279. Accordingly, the landowners are liable to pay the documentary stamp tax on the document conveying the afore-stated property 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. (BIR Ruling No. 109-13 dated March 21, 2013) It is, however, understood that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deeds to effect transfer of the land titles in the name of the buyer without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR). The CAR shall only be issued after the submission of the requirements provided under RMO 15-2003. (BIR Ruling No. 109-13 dated March 21, 2013) Notwithstanding the foregoing, the Bureau of Internal Revenue shall conduct verification and post-audit that the actual occupants of the property transferred under the CMP are qualified beneficiaries and therefore, the seller is entitled to exemption from capital gains tax or income tax imposed under the Tax Code of 1997. 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 ANNEX River View Homeowners Association, Inc. Katangkungan I, Basak, Prado, Cebu City Blk. Lot No. Total Area Name of Beneficiary No. (sq.m.) 1 Mahilum, Nicodemos P. 1 2 25.29 2 Mahilum, Constancio P. 1 3 25.29 3 Suerto, Airies L. 2 1 30.11 4 Mantalaba, Alejandro Jr. S. 2 2 30.11 5 Narciso, Monina F. 2 3 28.91 6 Narciso, Nove J. 2 4 26.50 7 Sumaguingon, Joel S. 3 1 31.32 8 Tutor, Jaclyn P. 3 2 30.11 9 Tutor, Ricardo G. 3 3 33.73 10 Esgana, Reynaldo C. 3 4 28.91 11 Matus, Teddy Q. 3 5 25.29 12 Quilaton, Victor G. 3 6 32.52 13 Romero, Mildred M. 3 7 24.09 14 Fernandez, Meracil P. 3 8 30.11 15 Prescillas, Nenita G. 3 9 30.11 16 Mioza, Esterlita T. 3 10 28.91 17 Barriga, Ian T. 3 11 30.11 18 Cabaron, Ruben R. 4 1 31.32 19 Villareal, William M. 4 2 32.52 20 Cabunillas, Rolando P. 4 3 32.52 21 Tibay, Rosemarie C. 4 4 33.73 22 Cabaog, Charwin M. 4 5 27.70 23 Desuyo, Rodrigo O. 4 6 26.50 24 Vicoy, Edna L. 5 1 33.73 25 Panerio, Romeo V. 5 2 33.73 26 Narciso, Ethel M. 5 3 30.11 27 Mirasol, Dayline S. 5 4 30.11 28 Java, Beverly C. 5 5 24.09 29 Villareal, Ernesta C. 5 6 28.91 30 Cardente, Jayme A. 5 7 28.91 31 Romeo, Rito C. 5 8 27.70 Footnotes 1. See Annex for the masterlist of qualified beneficiaries.