Taxability of the Sale of Real Property to a Non-Stock, Non-Profit Community Organization Under the Community Mortgage Program

October 7, 1992 BIR RULING NO. 284-92 21 (e), 24 208-92 284-92 Ms. Lea M. Jimenez President, Aguardiente Ideal Land Association, Inc. (AGILA) Sitio Aguardiente, Brgy. Sta. Monica, Novaliches Quezon City M a d a m : This refers to your letter dated July 23, 1992, in effect, requesting confirmation of your opinion that the sale of real property by Leonora and Amada San Juan, represented by their Attorney-in-fact and co-owner Mr. Antonio P. San Juan, Jr., located at Bgy. Sta. Monica, Novaliches, Quezon City to your association, Aguardiente Ideal Land Association, Inc., a non-stock, non-profit community organization duly registered with Securities and Exchange Commission (SEC), in accordance with the Community Mortgage Program (CMP) initiated by the Urban Poor Affairs Office, Office of the Mayor, Quezon City is exempt from capital gains tax pursuant to Section 32 (a) (b) of R.A. 7279, otherwise known as the Urban Development 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 a Letter of Guaranty was issued by NHMFC in favor of the landowners represented by Mr. Antonio P. San Juan, Jr., for and in consideration of the willingness of the latter to sell in favor of the Aguardiente Ideal Land Association, a Community Association, a parcel of land covered by TCT No. 147952 consisting of 1,298 square meters, located at Brgy. Sta. Monica, Novaliches, Quezon City, undertaking to pay the amount of P489,300.00 representing the proceeds of the loan of the Community Association as borrower-buyer that the aforenamed landowners, represented by their Attorney-in-fact, Mr. Antonio P. San Juan, Jr., executed on July 24, 1992, a Deed of Absolute Sale of their said property in favor of the Association for a consideration of P489,300.00; that the said transaction was certified by the Urban Poor Affairs Office, Office of the Mayor, Quezon City as an approved project under the Community Mortgage Program (CMP) of the government. 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: (a) Government-owned or controlled corporations and local government units, may impose their idle lands suitable for socialized housing under the CMP through negotiated sale at prices based on acquisition cost plus financial carrying costs; (b) Properties sold under the CMP shall be exempted from the capital gains tax; xxx xxx xxx the landowners who sell their property to the Tenant's Association pursuant to the Community Mortgage Program are exempt not only from capital gains tax but also on project-related income tax on ordinary gain, and from the expanded withholding tax under Revenue Regulations No. 1-90. Upon the sale thereof, the capital gains realized by the owners shall be exempt from the capital gains tax pursuant to the aforequoted provision of R.A. 7279, otherwise known as the Urban Development and Housing Act of 1992. However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Sec. 20 of R.A. 7279. Such being the case, the document conveying the property to you under the CMP shall be subject to the documentary stamp tax imposed under Sec. 196 of the Tax Code, as amended, based on the actual consideration paid by your association to the landowner. cdpr Very truly yours, JOSE U. ONG Commissioner of Internal Revenue