Couple No Longer Subj. to Capital Gains Tax and Doc. Stamp Tax on Exchange of Their Property With Those of Their Neighbor

December 1, 1993 BIR RULING NO. 469-93 COUPLE NO LONGER SUBJ. TO CAPITAL GAINS TAX AND DOC. STAMP TAX ON EXCHANGE OF THEIR PROPERTY WITH THOSE OF THEIR NEIGHBOR 21 (e) 053-89 469-93 Ms. Cheerlita Nufable 23 Gold Street, Filinvest 2 Batasan Hills, Quezon City This refers to your letter dated October 12, 1993 stating that sometime in 1987, Spouses Constantino L. Cruz and Elizabeth M. Cruz bought a parcel of land from Filinvest Development Corporation specifically Lot 7, Block 3 Filinvest II, Phase K-1, Batasan Hills, Quezon City; that thereafter, a Transfer Certificate of Title No. RT-87601 (374729) was issued on January 25, 1988 in favor of Spouses Constantino and Elizabeth Cruz; that the income tax, transfer tax and documentary stamp tax were paid by Filinvest on the said sale transaction; that on August 2, 1991, the Spouses Cruz decided to construct their house on the lot they bought from Filinvest; that after a building permit was issued in their favor, the spouses Cruz started in having their house constructed; that on the other hand, sometime on August 7, 1989 you and your husband, Tomas F. Nufable, Sr., bought a lot from Filinvest Development Corporation particularly Lot 8, Block 3, Filinvest II, Phase K-1, covered by TCT No. 94404, located at Batasan Hills, Quezon City, adjoining Lot 7, Block 3 which was previously acquired by the Spouses Constantino and Elizabeth Cruz as aforestated; that the income tax and documentary stamp tax were paid by Filinvest on the said sale transaction; that however the Spouses Constantino and Elizabeth Cruz inadvertently constructed their house on the lot you and your husband bought (Lot 8, Block 3) as aforestated; that upon learning of the said unfortunate event, you protested to the Spouses Cruz but was prevailed upon by the residents, the developer and Mr. Constantino Cruz to talk things over so as to preserve harmony among homeowners; that as a consequence, you and the Spouses Cruz, agreed to an arbitration proceedings on December 23, 1991 with the Filhomes II Homeowners Association, Inc.; that as a result thereof, you consented to the execution of a Memorandum of Agreement dated December 23, 1991 to exchange your adjoining properties without monetary consideration to avoid unnecessary expense, court litigation and to preserve peace and understanding in the subdivision governed by said homeowners association, that pursuant to said Memorandum of Agreement, a modification shall be made in the existing subdivision plan, such that Lot 7 shall be redesignated as Lot 8A; that the mortgage over Lot 7 to be designated as Lot 8A shall be cancelled and Lot 8 shall be substituted for it as the subject matter of the real estate mortgage executed by the Spouses Cruz in favor of Filinvest. cdtech Based on the foregoing representation, you now request exemption from the payment of capital gains tax and documentary stamp tax of the exchange transaction you executed with the Spouses Cruz in December 23, 1991. In reply, please be informed that under Section 21(e) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Such being the case, parties to an exchange of real properties located in the Philippines classified as capital asset are subject to the 5% capital gains tax based on the fair market value (zonal value) of the properties exchanged (BIR Ruling No. 201-87). Considering, however, that in the instant case, Filinvest Development Corporation, had already paid the corresponding income tax and documentary stamp tax on the sale of realties in favor of the Spouses Constantino and Elizabeth Cruz [Lot 7, Block 3 covered by TCT No. RT-374729)] sometime in 1987 and of the Spouses Tomas and Cheerlita Nufable (Lot 8, Block 3 covered by TCT No. 94404) on August 7, 1989 coupled with the fact that the Spouses Constantino and Elizabeth Cruz inadvertently constructed their house on the lot (Lot 8 Block 3) owned by the Spouses Tomas and Cheerlita Nufable, this Office, is therefore, of the opinion as it hereby holds that the aforenamed Spouses Cruz and Spouses Nufable are no longer liable to pay the capital gains tax imposed under Section 21(e) of the Tax Code, as amended, and the documentary stamp tax prescribed under Section 196 of the same Code on their exchange of their said realties without monetary consideration on December 23, 1991 to avoid unnecessary expenses, court litigation and to preserve peace and understanding in the subdivision. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue