Sale of Real Property under CMP Exempt from Capital Gains Tax

August 23, 1993 BIR RULING NO. 358-93 SALE OF REAL PROPERTY UNDER CMP EXEMPT FROM CAPITAL GAINS TAX 21 (e) 196 247-93 358-93 Urban Land & Development Foundation, Inc. 558 Sto. Rosario Street Angeles City Attention: Mr . Francisco C . Cortes Vice-President This refers to your letter dated July 9, 1993 requesting in behalf of the landowner, Beatriz O. Santos, et al., for a ruling that the sale of their real property located at San Francisco, Magalang, Pampanga, to St. Francis Homeowners Association, Inc., a duly registered non-stock, non-profit community organization in accordance with the Community Mortgage Program (CMP) initiated by your Office 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. cdtech 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 St. Francis Homeowners Association, Inc. is covered by TCT No. 320481 issued by the Registry of Deeds for the Province of Pampanga; 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 St. Francis 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 on the said property subject to the sale covering the entire area except the 2,682 square meters allocated for road alleys; that the NHMFC will undertake to pay the landowner for the account of the said community/association, who will stand as the buyer-borrower, and 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: "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; 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. Such being the case, the sale of the real property by Beatriz O. Santos, et. al., located at San Francisco, Magalang, Pampanga, to St. Francis Homeowners Association, Inc. is exempt from the capital gains tax and the expanded withholding tax. However, it is understood 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 Sec. 196 of the Tax Code, as amended, based on the actual consideration paid by the association to the landowner. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue