Transfer or Conveyance of Property Exempt from Capital Gains Tax

July 30, 1993 BIR RULING NO. 349-93 TRANSFER OR CONVEYANCE OF PROPERTY EXEMPT FROM CAPITAL GAINS TAX 21 (e) 196 41-92 349-93 Swire Realty Development Corporation 5th Floor, EBC Building U.N. Avenue, Ermita, Manila Attention: Ms . Ma . Luisa E . Bravo Legal Officer This refers to your letter dated May 13, 1993 requesting for a ruling that the transfer or conveyance of the common areas and facilities of the Rainbow Garden Townhouse I of your company, as owner-developer, in favor of the Rainbow 7 Garden Townhouses Homeowners' Association, Inc. is exempt from capital gains tax and documentary stamp tax. cdtech It appears that Swire Realty Development Corporation, a domestic corporation engaged in the realty business, is the owner-developer of a townhouse project located along V. Cruz St., Sta. Lucia, San Juan, Metro Manila, consisting of seven (7) residential townhouse units designated as Rainbow Garden Townhouse I; that the said townhouse project has common areas and facilities consisting of the following: (a) Right of way & swimming pool with an aggregate area of 291 square meters, and covered by TCT No. 2269-R issued by the Registry of Deeds of San Juan; (b) Underground water tank and the elevated water tank, its support and other accessories;(c) Septic tank; (d) Guard-house; (e) Landscaping; (f) Firehydrant, Firehouse and its cabinet; (g) Telephone and intercom; and (h) Electric motor & water pump; that the buyers-homeowners of the said townhouse project, organized and formed a community association called Rainbow 7 Townhouses Homeowner's Association, Inc., and duly registered with the Home Insurance and Guaranty Corporation (HIGC) dated August 18, 1989; that for the purpose of maintaining and promoting the common safety and enjoyment of the townhouse unit-owners, Swire Realty Development Corporation intends to transfer and assign the aforesaid common areas and facilities in favor of the Rainbow 7 Garden Townhouses Homeowners' Association, Inc. without any monetary consideration. In reply, please be informed that "conveyance of realty not in connection with a sale, to trustees or other persons without consideration are not taxable" (Sec. 185, Regulations No. 26 of the Revised Documentary Stamp Tax Regulations). In this case, the Deed of Conveyance in question is without consideration, and the conveyance is not in connection with a sale made to the Homeowner's Association. In fact, the sales by the Swire Realty Development Corporation of the common townhouse units were made in favor of the individual unit owners of the townhouse project, and the purpose of the assignment to the Homeowners' Association of its common areas and facilities is for its management for the common benefit and enjoyment of the unit owners. In view thereof, this Office is of the opinion as it hereby holds that the transfer and conveyance by the Swire Realty Development Corporation of the areas and facilities on its townhouse project, Rainbow Garden Townhouse I, in favor of the Rainbow 7 Townhouses Homeowners' Association, Inc. without consideration is exempt from capital gains tax; and that the said Deed of Conveyance is not also subject to the documentary stamp tax imposed by Section 196 of the Tax Code, as amended. However, the acknowledgment is subject to the documentary stamp tax on the certificate in the amount of P3.00 pursuant to Section 188 of the Tax Code, as amended (BIR Ruling No. 45-87). LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue