Sale of Real Properties under CMP - Exempt from Capital Gains Tax

September 10, 1993 BIR RULING NO. 368-93 SALE OF REAL PROPERTIES UNDER CMP EXEMPT FROM CAPITAL GAINS TAX 21 (e) 85-93 68-93 Nagkakaisang Samahan ng Magkakapitbahay Homeowners Association, Inc. Nakasama-Ba Compound, Bagbaguin Road Bo. Bagumbong, Caloocan City Attention: Ms . Petrolina G . Alay-ay President This refers to your letter dated July 28, 1993 requesting in behalf of the landowner, Jesus S. Ancayan, for a ruling that the sale of his real properties located at B. Bagumbong, Caloocan City, to your association, Nagkakaisang Samahan Ng Magkakapitbahay Homeowners Association, Inc., a duly registered non-stock, non-profit community organization in accordance with the Community Mortgage Program (CMP) initiated by the Foundation for the Development of Urban Poor (FDUP) 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 on the basis of the Letter Guaranty issued by said Government Financing Institution, the landowner executed a Deed of Sale in favor of 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 properties being sold to your Association is covered by TCT Nos. 213908 & 213910 issued by the Register of Deeds of Caloocan City; 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 Nagkakaisang Samahan ng Magkakapitbahay, 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 of the said property subject of the sale covering the entire property sold to them, except the areas (3,200 sq. m.) allocated for community roads; that the NHMFC will undertake to pay the landowner in the account of the said community association, which will stand as the buyer-borrower, and the members in turn, will pay the Association thru monthly amortization. In reply, please be informed that pursuant to Section 32 of R.A. 7279, pertinent portion of which reads: "Sec. 32. Incentives. To encourage its wider implementation, participants in the CMP shall be granted 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 Tenants 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 provision of R.A. 7279. Such being the case, the sale by Jesus S. Ancayan of his real properties located at Bo. Bagumbong, Caloocan City, to your Association is exempt from the 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 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. aisadc LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue