Recodo Muslim Homeowners Association, Inc.

June 2, 2010 BIR RULING [SH-(009) 035-10] RA 7279; BIR Ruling Nos. 299-92; S-32-077-2000 Recodo Muslim Homeowners Association, Inc. Purok 5, Recodo, Zamboanga City Attention: Ms. Hadja Darwisa U. Hanapi President Gentlemen : This refers to your letter dated December 9, 2009 which was indorsed by Revenue Region No. 15, Zamboanga City on December 21, 2009 requesting for a ruling that the sale of a parcel of land by Ruben F. Navarro, Christopher N. Fernandez, John Eric N. Fernandez, Maribel N. Fernandez and Madeline N. Fernandez in favor of Recodo Muslim Homeowners Association, Inc. is exempt from the payment of capital gains tax pursuant to Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that Ruben F. Navarro, Christopher N. Fernandez, John Eric N. Fernandez, Maribel N. Fernandez and Madeline N. Fernandez are the registered co-owners of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-217,272 issued by the Registry of Deeds for Zamboanga City with an area of 15,435 square meters; that Recodo Muslim Homeowners Association, Inc., on the other hand, is a homeowner's organization duly registered with the Home Insurance and Guaranty Corporation (HIGC) with Registration No. 09-091 dated August 19, 1997; that on December 8, 2009, a Deed of Sale was executed by and among Ruben F. Navarro, Christopher N. Fernandez, John Eric N. Fernandez, Maribel N. Fernandez and Madeline N. Fernandez (Vendor) and the Recodo Muslim Homeowners Association, Inc. (Vendee) covering the said parcel of land under the Community Mortgage Program of the Social Housing Finance Corporation (SHFC) for distribution to the Ninety-nine (99) member-beneficiaries of the Recodo Muslim Homeowners Association, Inc.; that on December 21, 2009, the SHFC issued Certification No. 0489 stating that the purchase of the above-described parcel of land by the Recodo Muslim Homeowners Association, Inc. is a bonafide transaction and qualifies for the capital gains tax exemption pursuant to Republic Act No. 7279; and that in support of your request, you submitted the following copies: (1) Deed of Absolute Sale; (2) HIGC Registration; (3) SHFC Certification; (4) Transfer Certificate of Title No. 217,272; (5) Site Development Plan; and (6) Masterlist of Beneficiaries. cHTCaI In reply, please be informed that pursuant to Section 20 and 32 of RA No. 7279, pertinent portions of which states that: "Sec. 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: "(d) Exemption from the payment of the following: (2) Capital gains tax on raw lands used for the project; xxx xxx xxx." "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 the landowner who sold its properties for use in a socialized housing project is exempt from the payment of capital gains tax. In BIR Ruling No. 299-92 dated October 23, 1992, this Office has already ruled that: "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 realized by the owners shall be exempt from capital gains tax pursuant to the aforequoted provisions of R.A. 7279, otherwise known as the Urban Development and Housing Act of 1992. Such being the case, the sale of your real property located at Purok 1, Bgy. 24, Imadejas, Butuan City to the Sta. Cruz Homeowners Association, Inc. is exempt from the payment of capital gains tax and the expanded withholding tax." Such being the case, the sale of the afore-stated parcel of land by Ruben F. Navarro, Christopher N. Fernandez, John Eric N. Fernandez, Maribel N. Fernandez and Madeline N. Fernandez to the Recodo Muslim Homeowners Association, Inc. is exempt from the payment of capital gains tax. cSEaDA However, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Sec. 20 of RA 7279. Accordingly, Ruben F. Navarro, Christopher N. Fernandez, John Eric N. Fernandez, Maribel N. Fernandez and Madeline N. Fernandez are liable to pay the documentary stamp tax on the documents conveying the parcel of land imposed under Section 196 of the Tax Code of 1997, as amended, based on the consideration contracted to be paid for such realty or its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the selling price per sale transaction of the lots in this case does not really exceed P150,000.00 or P180,000.00 as the case may be, for each qualified beneficiaries (now P400,000.00 per issuance of HUDCC Memorandum Circular No. 1, Series of 2008 promulgated on December 11, 2008, as implemented by Revenue Memorandum Circular No. 30-2009 dated May 14, 2009). Moreover, the transfer of the real property from the said Association to the individual members thereof is not subject to either the capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, or the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended, considering that the said transfer/transaction is merely a formality to finally effect transfer of titles of the real property to the member-beneficiaries who actually bought the same. Such lack of consideration does not, likewise, render the transfer subject to the donor's tax imposed under Section 99 of the Tax Code of 1997, since there is no intention on the part of the Association to donate said properties to the members considering that the members of the Association could not donate properties, the ownership of which belongs to themselves (member-beneficiaries). Furthermore, the deed to be executed by the Recodo Muslim Homeowners Association, Inc. to effect the aforesaid transfer in favor of its individual members is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997, as amended. aETASc Moreover, upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificates of Title of the land to be issued in the name of the Recodo Muslim Homeowners Association, Inc. of the socialized housing program 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 RA No. 7279. (BIR Ruling No. S-32-077-2000 dated August 14, 2000) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MARISSA O. CABREROS OIC-Assistant Commissioner Legal Service