Sale of Real Property under CMP Exempt from Capital Gains Tax

June 10, 1993 BIR RULING NO. 242-93 SALE OF REAL PROPERTY UNDER CMP EXEMPT FROM CAPITAL GAINS TAX 21 (e) 201-93 242-93 Urban Poor Affairs Office UPAO Building, City Hall Compound Quezon City, Metro Manila Attention: Mr . Zosimo I . Ampongan, Jr . Head This refers to your letter dated April 22, 1993 requesting in behalf of the landowner, Mr. Efren M. Vargas, represented by Mr. Ruperto V. Talan, a ruling that the sale of his real property located at Joan of Arc, Bgy. Gulod, Novaliches, Quezon City, to the Samahang Magkakapitbahay ng Joan of Arc, Inc., a duly registered non-stock, non-profit community organization, in accordance with the Community Mortgage Program (CMP), initiated by your Office, 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. cdi 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 of 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 the Samahang Magkakapitbahay ng Joan of Arc, Inc. is covered by TCT No. RT-62046 (247231) (portion) issued by the Registry of Deeds of Quezon 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 Samahang Magkakapitbahay ng Joan of Arc, Inc. are composed of the less privileged and homeless individuals, and are qualified beneficiaries, of the Community Mortgage Program of the government; that they are the actual occupants on the said property subject to the sale, covering only 170 sq. meters of the entire property (230 sq.m.) sold to them; that the NHMFC will undertake to pay the landowner for the account of the said community association, who will stand as the buyer-borrower, and 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: 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 under 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 the real property by Mr. Efren M. Vargas, represented by Mr. Ruperto V. Talan, located at Bgy. Gulod, Novaliches, Quezon City, to the Samahang Magkakapitbahay ng Joan of Arc, Inc. to the extent of 170 sq. meters only of the entire property (230 sq.m.) sold to them, 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, the landowner is liable to pay the documentary stamp tax on the document conveying the property to the Association under the CMP as imposed under Section 196 of the Tax Code, as amended, based on the actual consideration paid by the association to the landowner. cdt LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue