Sale of Property under CMP Exempt from Capital Gains Tax

June 17, 1993 BIR RULING NO. 254-93 SALE OF PROPERTY UNDER CMP EXEMPT FROM CAPITAL GAINS TAX 21 (e), 24 201-93 254-93 Atty. Emmanuel Solidum 122 K-8 Kamias Quezon City This refers to your letter dated May 17, 1993 in effect, requesting for a ruling that the sale of Mr. Danilo Mendoza of his real property located at Diliman, Quezon City, to the Kapistahan Homeowners Association, Inc., a non-stock, non-profit community organization, duly registered with the Securities and Exchange Commission (SEC) in accordance with the Community Mortgage Program (CMP), initiated by the National Housing Authority, is exempt from capital gains tax pursuant to Section 32(a) and (b) of R.A. 7279, which was approved on March 24, 1992, and published in the March 28, 1992 issue of the Philippine Times Journal and Malaya , newspapers of general circulation. 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 Kapistahan Homeowners Association, Inc. is covered by TCT No. RT-52238 (244303); that the said transaction was certified by the Urban Poor Affairs Office as a sale through the City Government's Community Mortgage Program under the National Home Mortgage Finance Corporation. Field verification conducted in this case disclosed that the beneficiaries are registered members of the Kapistahan Homeowners Association, Inc.; and that a total of 400.40 square meters of residential lots were sold and occupied by 14 beneficiaries. cdtech In reply, please be informed that pursuant to Section 32 of R.A. 7279, pertinent portion of which reads: "Section 32. Incentives. To encourage its wider implementation, participants in the CMP shall be granted with 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 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, otherwise known as the Urban Development and Housing Act of 1992. Such being the case, the sale to the Kapistahan Homeowners Association, Inc., 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 Mr. Danilo Mendoza as the landowner. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue