Taxability of Sale of Real Properties Under the Community Mortgage Program

October 28, 1992 BIR RULING NO. 319-92 21 (e), 24 284-92 319-92 Ms. Rosario Y. Yturralde Sto. Rosario Street Angeles City M a d a m : This refers to your letter dated October 20, 1992, requesting confirmation of your opinion that the sale of real properties by spouses Rodolfo and Sylvia Manio and spouses William and Grace Manio, represented by you as their Attorney-in-fact, located at Pulunghulo, San Fernando, Pampanga to the BAGONG DIWA HOMEOWNERS ASSOCIATION, INC., a non-stock, non-profit community organization duly registered with the Home Insurance and Guaranty Corporation, in accordance with the Community Mortgage Program (CMP) initiated by National Housing Authority 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. cdta 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 aforenamed landowners, represented by you, for and in consideration of their willingness to sell in favor of the Bagong Diwa Homeowners Association, Inc., parcels of land covered by TCT Nos. 279647-R, 279648-R, 279649-R, 279650-R, 285461-R, 285462-R, 285463-R, 285464-R, 285465-R, 285466-R, 285467-R, 285468-R, 285469-R, 285470-R and 285471-R issued by the Registry of Deeds, Pampanga, consisting of 9,745 square meters located at Pulunghulo, San Fernando, Pampanga, undertaking to pay the amount of P1,008,000.00 representing the proceeds of the loan of the Community Association as borrower-buyer; that the landowners, represented by you, as their Attorney-in-fact executed a Deed of Absolute Sale dated October 19, 1992 on the said properties in favor of the Association for a consideration of P1,008,000.00; that the said transaction was certified by the National Housing Authority as an approved project under the Community Mortgage Program (CMP) of the government. In reply, please be informed that pursuant to Section 32(b) 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. 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 owners shall be exempt from capital gains tax pursuant to the aforequoted provisions of R.A. 7279. Such being the case, the sale of real properties by spouses Rodolfo and Sylvia Manio and spouses William and Grace Manio, represented by you, located at Pulunghulo, San Fernando, Pampanga to the Bagong Diwa Homeowners Association, Inc. are exempt from the payment of 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 Section 32 of R.A. 7279. Such being the case, the landowners, represented by you, are 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 landowners. cdll Very truly yours, JOSE U. ONG Commissioner of Internal Revenue