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

September 15, 1993 BIR RULING NO. 371-93 SALE OF REAL PROPERTIES UNDER CMP-EXEMPT FROM CAPITAL GAINS TAX 21 (E) 56-93 71-93 Community Organization for the People's Emancipation, Inc. Concepcion, Tarlac Attention: Atty . Yolanda C . Castro President This refers to your letter dated July 9, 1993 requesting in behalf of the landowners, Alfredo P. de Leon, et. al., a ruling that the sale of their real properties located at Alfonso, Concepcion, Tarlac, in your favor, a duly registered non-stock, non-profit community organization in accordance with the Community Mortgage Program (CMP) initiated by the Total Land Management, Inc. 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 properties being sold to Community Organization for People's Emancipation, Inc. are covered by TCT Nos. 251890 & 236077 (portion) issued by the Registry of Deeds for the Province of Tarlac; 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. Records on this case disclosed that the registered (956) members of the Community Organization for the People's Emancipation, Inc. are composed of the less privileged and homeless individuals (mostly victims of Mt. Pinatubo eruption), and are qualified beneficiaries of the Community Mortgage Program of the government; that they are the actual beneficiaries who are about to transfer/occupy the said properties subject of the sale (CMP offsite project), as evidenced by the Masterlist of Beneficiaries and Loan Apportionment and the Subdivision Plan, covering the entire properties sold to them; 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 amortizations. 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 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 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 properties by Alfredo P. de Leon, et. al., located at Alfonso, Concepcion, Tarlac, and covered by TCT Nos. 251890 & 236077 (portion) with the total area of 221,120 square meters to Community Organization for the People's Emancipation, Inc. 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 landowners are liable to pay the documentary stamp tax on the document conveying the properties 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 landowners. RENE G. BAEZ Deputy Commissioner of Internal Revenue