Sale of Real Property under CMP Exempt from Capital Gains Tax

May 3, 1993 BIR RULING NO. 178-93 SALE OF REAL PROPERTY UNDER CMP EXEMPT FROM CAPITAL GAINS TAX 21 (e) 122-93 178-93 Mr. Abdul Alim Mohsin Izrael Dinas, Zamboanga del Sur This refers to your letter, dated April 2, 1993, in effect, requesting for a ruling that the sale of your real property located at Banale, Pagadian City, to Muslim Village Homeowners Association, Inc., a duly registered non-stock, non-profit community organization, in accordance with the Community Mortgage Program (CMP) initiated by the Minsupala Welfare and Livelihood, Inc. is exempt from capital gains tax pursuant to Section 32 (b) of R.A. 7279, otherwise known as the Urban Development and Housing Act of 1992. aisadc It appears that the Community Mortgage Program (CMP) is a mortgage financing program of the National Home Mortgage Finance Corporation (NHMFC) which assists legally organized associations of underprivileged and homeless citizens to purchase and develop a tract of land under the concept of community ownership; that through a Letter-Guaranty by said government financing institution the landowner executes a Deed of Sale to the Association which stands as the borrower and debtor to the extent of the total amount paid by NHMFC to the landowner' that in the instant case, the property being sold to Muslim Village Homeowners Association, Inc. is covered by TCT No. T-6737 issued by the Registry of Deeds of Pagadian City; that the said transaction was certified by the National Home Mortgage Finance Corporation as an approved project under the Community Mortgage Program (CMP) of the government. Field verification conducted in this case disclosed that the registered members of the Muslim Village Homeowners Association, Inc. are qualified beneficiaries of the Community Mortgage Program of the government; that they are the actual occupants of the portion of the property subject to the sale covering only 30,840 sq. meters of the entire property (51,166 sq. m.) in the account of the said community association, who will stand as the buyer-borrower, whose members in turn, will pay the association thru monthly amortization. In reply, please be informed that pursuant to Section 32 of R.A. No. 7279, pertinent portion of which reads: "Sec. 32. Incentives . To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: cdt xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax; and xxx xxx xxx the landowners who sell their property to the Tenant's Association pursuant to the Community Mortgage Program are exempt from the payment of capital gains tax and from the expanded withholding tax Revenue Regulations No. 1-90. Upon the sale thereof, the capital gains realized by the owner shall be exempt from capital gains tax pursuant to the aforequoted provision of R.A. 7279. Such being the case, the sale of your real property located at Banale, Pagadian City, to Muslim Village Homeowners Association, Inc., which is actually occupied by the members/beneficiaries to the extent of 30,840 sq. meters is exempt from the capital gains tax and the expanded withholding tax. However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause under Sections 20 and 32 of R.A. 7279. Such being the case, you are liable to pay the documentary stamp tax on the document conveying the property to the Association under the CMP as imposed under Sec. 196 of the Tax Code, as amended, based on the actual consideration paid by the association to you. VICTOR A. DEOFERIO, JR. Deputy Commissioner of Internal Revenue