Sale of Property under CMP Exempt from Capital Gains Tax

October 14, 1993 BIR RULING NO. 414-93 SALE OF PROPERTY UNDER CMP EXEMPT FROM CAPITAL GAINS TAX 21 (e) 246-93 414-93 Muntinlupa Development Foundation Unit No. 4 R.C. Sicam Townhouse V. Buencamino St., Alabang Muntinlupa, Metro Manila Attention: Ms . Ma . Cecilia M . Genole Executive Director This refers to your letter dated April 23, 1992 in effect, requesting for a ruling that the sale of the real property of Mr. Luis P. Mejia and Ms. Evelyn M. Esguerra located at Arandia St., Bgy. Tunasan, Muntinlupa, Metro Manila, to the Samahang Magkakapitbahay ng Purok 6 Tunasan, a community association assisted by the Muntinlupa Development Foundation, a non-stock, non-profit organization duly registered with the Securities and Exchange Commission (SEC) is exempt from capital gains tax pursuant to Section 32(a) and (b) of R.A. 7279 which was approved on March 24, 1992 and published in the March 28, 1992 issue of the Philippine Times Journal and Malaya , newspapers of general circulation. 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 property being sold to the Samahang Magkakapitbahay ng Purok 6 Tunasan is covered by TCT No. 177323 of the Registry of Deeds of Makati, Metro Manila; 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 beneficiaries are registered members of the Samahang Magkakapitbahay ng Purok 6 Tunasan composed of twenty-seven (27) families who are all residing at Arandia St., Purok 6, Tunasan, Muntinlupa; that the land to be sold to the association has an area of two thousand twenty-three (2,023) square meters at P350.00 per square meter or P780,150.00; that out of the 2,023 square meters, 1,586 square meters or 78.40% shall be occupied while 437 square meters or 21.60% shall be allotted for roads and pathways; that almost all of the beneficiaries have been residing in the area for more than ten years; that the members of the association who are qualified beneficiaries of the Community Mortgage Program come from underprivileged and low-income families and most of them do not even have a permanent source of income. In reply, please be informed that pursuant to Section 32 of R.A. 7279, pertinent portion of which reads: cd i "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. Such being the case, the sale to the Samahang Magkakapitbahay ng Purok 6 Tunasan is exempt from the capital gains tax and the expanded withholding tax. Upon application for exemption, a lien on the title of the land shall be annotated by the Register of Deeds having jurisdiction over the property, to the effect, that the said property is to be applied or is being applied to socialized housing pursuant to R.A. No. 7279, otherwise known as the Urban Development and Housing Act of 1992. 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. cd LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue