BIR Ruling No. 190-12

March 21, 2012 BIR RULING NO. 190-12 RA No. 7279; BIR Ruling No. 130-10; BIR Ruling No. 040-10; BIR Ruling No. 344-11 Mercado Homeowners Association, Inc. Macopa Street, Golden Acres Subdivision Talon 5, Las Pias City Attention: Nancy V. Cabiling President Gentlemen : This refers to your letter dated January 12, 2011, requesting in effect, for a ruling that the sale of a parcel of land by Erlinda V. Mercado et al. to the Mercado Homeowners Association, Inc. and the subsequent transfer of title from Mercado Homeowners Association, Inc. to the 13 individual beneficiaries are exempt from the payment of capital gains tax pursuant to Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". CAcIES It appears that Erlinda V. Mercado is the registered owner of a parcel of land, identified as Lot No. 10 Block 26 of the Subdivision Plan Psd-66213 covered by Transfer Certificate of Title (TCT) No. (360259) (39650-A) T-32849-A issued by the Registry of Deeds for Province of Rizal. The aforesaid property is situated at Brgy. Pamplona, Las Pias with an area of three hundred fifty (350) sq.m. Mercado Homeowners Association, Inc.,on the other hand, is a homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB) with TIN 235-720-992-000. The parties executed a Deed of Absolute Sale whereby the owner transferred and conveyed the subject property to Mercado Homeowners Association, Inc. at an agreed price of Eight Hundred Forty Thousand Pesos (P840,000.00).For this purpose, Mercado Homeowners Association, Inc. secured a housing loan under the Community Mortgage Program (CMP),a financing assistance program of the Social Housing Finance Corporation (SHFC) a subsidiary of the National Home Mortgage Finance Corporation (NHMFC). The estate tax for the subject property have been paid as evidenced by the Certificate Authorizing Registration (CAR) issued by Revenue District No. 49- North Makati on November 12, 2008 (CAR2008-00048935). In reply, please be informed that pursuant to Sections 20 and 32 of RA No. 7279, pertinent portions of which state that: "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: (d) Exemption from the payment of the following: (2) Capital gains tax on raw lands used for the project; xxx xxx xxx. 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 of the aforestated property by Erlinda V. Mercado et al. to Mercado Homeowners Association, Inc. is exempt from the capital gains tax. ( BIR Ruling No. 130-10 dated December 1, 2010 ) TCDHIc However, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Sec. 20 of RA 7279. Accordingly, Erlinda V. Mercado et al. is liable to pay the documentary stamp tax on the documents 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. 130-10 dated December 1, 2010) It is, however, understood that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deed 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 RMO15-2003. (BIR Ruling No. 040-10 dated August 27, 2010) and that, considering the rules on valuation of real property, the actual selling price per sale transaction of the units in this case does not really exceed P400,000.00 for house and lot packages and P160,000.00 for lot only pursuant to Revenue Regulations No. 17-2001 and Revenue Memorandum Circular No. 36-2011. Thus, sale of a unit above the maximum amount shall be subject to the corresponding internal revenue taxes. Moreover, the transfer of the lots from the said association to the individual members (see Annex for the masterlist of qualified beneficiaries) thereof is not subject to either the capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, or the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended, considering that the said transfer/transaction is merely a formality to finally effect transfer of titles of the real properties to the member-beneficiaries who actually bought the same. Such lack of consideration does not, likewise, render the transfer subject to the donor's tax imposed under Section 99 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 belongs to themselves (member-beneficiaries). Furthermore, the deed to be executed by Mercado Homeowners Association, Inc. to effect the aforesaid transfer in favor of its individual members is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. 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. ( BIR Ruling No. 344-11 dated September 13, 2011 ) Finally, upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificates of Title of the land to be issued in the name of the beneficiary association of the socialized housing program shall be caused to be annotated by the Register of Deeds having jurisdiction over the properties, to the effect, that the said properties shall be used for socialized housing pursuant to RA No. 7279. 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. DIETcH Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue ATTACHMENT Mercado Homeowners Association, Inc. Macopa Street, Golden Acres Subdivision Talon 5, Las Pias City Name of Beneficiary Blk. No. Lot No. Total Area (sq.m.) 1 Camposano, Novie C. 26 10A 26.73 2 Camposano, Susan A. 26 10B 26.73 3 Cabiling, Nancy V. 26 10C 26.73 4 Ruben, Ramil L. 26 10D 26.73 5 Murillo, Fabian R. 26 10E 26.73 6 Brimbuela, Mia A. 26 10F 26.73 7 Pahayac, Jose T. 26 10G 26.73 8 Quinto Jr.,Ramon T. 26 10H 26.73 9 Aleman, Ma. Grace O. 26 10I 26.73 10 Sapin, Jay M. 26 10J 26.73 11 Castillo, Dandy C. 26 10K 26.73 12 Maso-ay, Amor V. 26 10L 26.73 13 Yecyec, Rosalie C. 26 10M 29.27