Sale of Property under CMP Exempt from Capital Gains Tax

December 23, 1993 BIR RULING NO. 516-93 SALE OF PROPERTY UNDER CMP EXEMPT FROM CAPITAL GAINS TAX 21 (e) 456-93 516-93 Mr. Figurado O. Plaza Butuan City This refers to your request for a ruling that the sale of your real property located at New Asia (Port Poyohon, Barangay 171, Butuan City, to the Port Poyohon Settlers Association, Inc., a non-stock, non-profit community organization duly registered with the Securities and Exchange Commission (SEC) in accordance with the Community Mortgage Program (CMP) initiated by the National Housing Authority, 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 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 Institutions 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 Port Poyohon Settlers Association, Inc. is covered by TCT No. T-5490; that the said transaction was certified by the National Housing Authority as an approved project under the Community Mortgage Program (CMP) of the government. Field verifications conducted in this case disclosed that the actual occupants are the registered members of the association and are qualified beneficiaries as certified to by the Office of the City Administrator of Butuan City; that out of the total area of 3,650 square meters, 2,819 square meters are occupied by the registered members and 831 square meters are open spaces; and that the lots are sold to the tenants at a cost of P200.00 per square meter plus an additional cost of P58.95 per square meter for the open spaces. 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 CMO 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 landowner who sells his property to the association pursuant to the Community Mortgage Program is 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 Port Poyohon Settlers Association, Inc. is exempt from the capital gains tax and the expanded withholding tax. Upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificate of Title of the land to be issued in the name of the Port Poyohon Settlers Association, Inc. shall be caused to be annotated by the Register of Deeds having jurisdiction over the property, to the effect, that the said property shall be used for socialized housing pursuant to R.A. 7279. 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, as the landowner, you are 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 you. cdll LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue