BIR Ruling No. 368-14

October 3, 2014 BIR RULING NO. 368-14 RA7279; Sections 24 (D) (1) and 27 (D) (5) of the Tax Code of 1997, as amended; 000-00 The Neighborhood Homeowners Association, Inc. Barangay 18, Magsaysay-Abellanosa Streets Cagayan de Oro City Attention: Tito L. Daing Jr. President Gentlemen : This refers to your letter dated December 2, 2011, requesting exemption from the payment of documentary stamp tax relative to the transfer of title of land in favor of its qualified member-beneficiaries pursuant to Republic Act 7279 otherwise known as the "Urban Development and Housing Act of 1992". It is represented that The Neighborhood Homeowners Association, Inc. (NHA, Inc.) with Taxpayer's Identification No. 002-455-999-000, is the registered owner of a parcel of land located at Barangay 18, Cagayan de Oro City and covered by Transfer Certificate of Title No. T-45406 1 issued by the Registry of Deeds for Cagayan de Oro City; that it is a non-stock, non-profit organization duly registered with the Housing and Land Use Regulatory Board (HLURB); that the aforesaid parcel of land was acquired through a loan purported under the Community Mortgage Program (CMP) of the National Home Mortgage Finance Corporation (NHMFC); that on August 20, 1996, BIR-Revenue Region No. 16-Cagayan de Oro City, issued a ruling exempting the same as CMP and granted exemption from Capital Gains Tax (CGT) that on May 24, 1999, NHA, Inc. executed a Real Estate Mortgage in favor of A Foundation for Growth, Organizational Upliftment of People, Inc. (Group, Inc.) to guarantee the principal obligation of Three Million Three Hundred Ninety Six Thousand Five Hundred Sixty One & 30/100 pesos (P3,396,561.30); that on December 4, 2002, through a Secretary's Certificate, NHA, Inc. confirms the loan and mortgage including the Amendment of the Real Estate Mortgage by reducing the loan of Three Million Three Hundred Ninety Six Thousand Five Hundred Sixty One & 30/100 pesos (P3,396,561.30) to Two Million Three Hundred Thirty Nine Thousand Five Hundred Twenty Nine Pesos and Sixty Four Centavos (P2,339,529.64) executed by Group, Inc.; and that July 23, 2003, amended the Real Estate Mortgage by lowering the amount of Two Million Three Hundred Thirteen Thousand Six Hundred Seventy Nine Pesos and 64/100 (P2,313,679.64) and accept all the terms and conditions under the CMP of the NHMFC and the assignment and or Transfer of Title, whatever rights, interest and participation in and to that parcel of land covered by TCT No. T-45406 to the NHMFC. In reply, please be informed that Section 31 of Republic Act (R.A.) No. 7279 otherwise known as the Urban Development and Housing Act of 1992, provides: "Sec. 31. Definition. The Community Mortgage Program (CMP) is a mortgage financing program of the National Home Mortgage Finance Corporation which assists legally organized associations of underprivileged and homeless citizens to purchase and develop a tract of land under the concept of community ownership. The primary objective of the program is to assist residents of blighted or depressed areas to own the lots they occupy, or where they choose to relocate to, and eventually improve their neighborhood and homes to the extent of their affordability." AHEDaI The subject parcel of land does not appear to be covered by a CMP. Such arrangement is not availing in this case. Since the arrangement is not covered by R.A. 7279, the transaction shall be treated as ordinary transfer of real property that is subject to applicable taxes. Sections 24 (D) (1) and 27 (D) (5) of the Tax Code of 1997, as amended, provides: "(D) Capital Gains from Sale of Real Property. (1) In General. The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts: . . ." xxx xxx xxx SEC. 27. Rates of Income tax on Domestic Corporations. xxx xxx xxx (D) Rates of Tax on Certain Passive Incomes. xxx xxx xxx (5) Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or Buildings. A final tax of six percent (6%) is hereby imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price of fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, of such lands and/or buildings." HcACST The transfer of the property in favor of the beneficiaries is subject to the capital gains tax based on the gross selling price or fair market value, whichever is higher, pursuant to Sections 24 (D) (1) and 27 (D) (5) of the Tax Code of 1997. The conveyance being a disposition of real property under 24 (D) (1) and 27 (D) (5) of the Tax Code, as amended, is likewise subject to the documentary stamp taxes imposed in Section 188 and Section 196 of the Tax Code, as amended. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Lot Nos. 823 & 825.