Sale of Land under CMP Exempt from Capital Gains Tax

June 11, 1993 BIR RULING NO. 246-93 SALE OF LAND UNDER CMP EXEMPT FROM CAPITAL GAINS TAX 21 (e) 201-93 246-93 Mr. Esteban Menor Bgy. San Fermin, Cauayan Isabela This refers to your letter dated April 23, 1993 in effect, requesting for a ruling that the sale of your real property located at Bgy. San Fermin, Cauayan, Isabela, to the Menor Village Union Homeowners Association, Inc., a duly registered non-stock, non-profit community organization, in accordance with the Community Mortgage Program (CMP) initiated by the National Housing Authority (NHA), 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. 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 the Menor Village Union Homeowners Association, Inc., is covered by TCT No. 172378 (portion), issued by the Registry of Deeds of the Province of Isabela; 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 Menor Village Union Homeowners Association, 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 and/or about to occupy the said property subject of the sale, covering the entire property except lots 2 & 34 (with a total area of 1,010 square meters) 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, 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: cdtech "Sec. 32. Incentives. To encourage its wider implementation, participants in the CMP shall be granted the following privileges and 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 exempted 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 your real property located at Bgy. San Fermin, Cauayan, Isabela, to the Menor Village Union Homeowners Association, Inc., excluding lots 2 & 34 (with the total area of 1,010 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 30 and 32 of R.A. 7279. Such being the case, you are liable to pay the documentary stamp tax on the document conveying the properties 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. aisadc LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue