Sale of Property under CMP Not Subject to Capital Gains Tax

October 14, 1993 BIR RULING NO. 413-93 SALE OF PROPERTY UNDER CMP NOT SUBJECT TO CAPITAL GAINS TAX 21 (e) 246-93 413-93 Urban Poor Affairs Office UPAO Building, City Hall Compound Quezon City, Metro Manila Attention: Mr . Zosimo I . Ampongan, Jr . Head This refers to your letter dated April 28, 1993 requesting in behalf of the landowner, G.R. Francisco, Inc., a ruling that the sale of its real property located at Bgy. Sta. Lucia, Novaliches, Quezon City to the Kabalikat sa Kaunlaran Neighborhood Association, Inc., a duly-registered non-stock, non-profit community organization in accordance with the Community Mortgage Program (CMP) initiated by the National Housing Authority (NHA) 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 through a Letter Guaranty by said Government Financing Institution the landowner executed 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 the Kabalikat sa Kaunlaran Neighborhood Association, Inc. is covered by TCT No. 46333 issued by the Register of Deeds of Quezon 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 Kabalikat sa Kaunlaran Neighborhood 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 seven (7) beneficiaries (covering an area of 338 square meters) whose domicile are under doubtful circumstances; that the NHMFC will undertake to pay the landowner in the account of the said community association, who will stand as the buyer-borrower, whose 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 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 tax pursuant to the aforequoted provision of R.A. 7279. Such being the case, the sale of its real property (minus 338 sq. m.) located at Bgy. Sta. Lucia, Novaliches, Quezon City to the Kabalikat sa Kaunlaran Neighborhood Association, 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 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