BIR Ruling No. 396-11

October 25, 2011 BIR RULING NO. 396-11 Tax Code of 1997, as amended. Sections 27 (D) (5); 32 (B) (7) (b); 196; BIR Ruling No. DA-419-98; BIR Ruling No. 543-93 Mr. Honorato Sarial Lot No. 16-N Blk. 57 Shorthorn, Brgy. Bahay Toro Quezon City Dear Mr. Sarial : This refers to your letter dated July 8, 2011, requesting for exemption from the capital gains tax (CGT) on the sale of a parcel of land executed by and between you and the Quezon City Government. Documents submitted show that the Quezon City Government is the registered owner of a parcel of land with an area of sixty six (66) sq. m. located at Lot 17 Blk. 57, Shorthorn, Brgy. Bahay Toro, Quezon City and covered by Transfer Certificate of Title (TCT) No. 262154 of the Registry of Deeds for Quezon City; that the said lot has been found to be no longer suited for the purpose for which the same has been originally intended; and that on February 7, 2008, a Deed of Absolute Sale was executed by and between Mr. Sarial and the Quezon City Government whereby the latter sold to the former the subject property. In reply, please be informed that under Section 27 (D) (5) of the 1997 Tax Code, as amended, it is provided that in the case of sale, exchange, or other disposition of lands and/or buildings which are not actually used in business and are treated as capital assets by domestic corporations, 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 the Tax Code, whichever is higher, is imposed upon capital gains presumed to have been realized therefrom. It must be noted that the capital gains tax mentioned under the aforementioned provision is an income tax, the burden of which rests upon the seller which, in this case, is the Quezon City Government. It is noteworthy to mention that the Quezon City Government is subject to the capital gains tax of 6% imposed on its capital gains presumed to have been realized from the sale of the said parcel of land despite of its being a government entity. This is in accordance with Sec. 32 (B) (7) (b) of the Tax Code of 1997 which provides that only the income derived by the local government unit from the exercise of its essential governmental function shall be excluded from its gross income. ( BIR Ruling No. DA-419-98 dated September 14, 1998) AHTICD Furthermore, the Deed of Absolute Sale is subject to the documentary stamp tax based on the actual consideration of the property sold pursuant to Sec. 196 of the Tax Code of 1997. ( BIR Ruling No. 543-93 dated December 3, 1993) In view of the foregoing, this Office hereby rules that the request for exemption from the capital gains tax on the sale of the subject parcel of land by the Quezon City Government in favor of Mr. Sarial is denied for lack of legal basis. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue