Philippine Eastern Rural Alleviation Foundation, Inc.

March 19, 2009 BIR RULING [SH-(024) 221-09] RA 7279; S-20-040-2008 Philippine Eastern Rural Alleviation Foundation, Inc. L11 B19, Metro Santiago Ville Rosario, Santiago City Attention: Mr. Romulo T. Gabertan President, Project Originator Gentlemen : This refers to your letter dated December 22, 2008 requesting for a ruling that the sale of a parcel of land by the Heirs of Ernestina N. de Hernandez, et al., to the Turayong Homeowners Association, Incorporated 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". EHASaD Documents submitted show that the Heirs of Ernestina N. de Hernandez, married to Tomas Hernandez, Mario S. Nieto, married to Luz Silvestre, Ricardo S. Nieto, married to Helen Kretzmar and Jose Maria S. Nieto, married to Teresa Valdez are the co-owners of a parcel of land located at Turayong, Cauayan City, Isabela. The subject property is covered by Transfer Certificate of Title (TCT) No. T-35900 issued by the Registry of Deeds for the Province of Isabela with an area of 66,662 sq.m. Turayong Homeowners Association, Incorporated with Tax Identification No. (TIN) 006-289-483, on the other hand, is a legal association of underprivileged and homeless citizens organized on October 5, 1998 with the Home Insurance Guaranty Corporation (HIGC).On December 22, 2008 a Deed of Absolute Sale was executed by and between the Heirs of Ernestina N. de Hernandez, et al.,(with Ms. Lourdes N. Avancea whose TIN is 187-531-396, in her capacity as a co-owner and Attorney-in-Fact of the above-mentioned heirs) and Turayong Homeowners Association, Incorporated whereby the former transfers in favor of the latter a portion of the said lot with an area of 14,970 sq.m. under the Community Mortgage Program (CMP) of the Social Housing Finance Corporation (SHFC) at an agreed price of P5,239,500.00. The said organization had secured a housing loan under the CMP, a financing assistance program of the SHFC, a subsidiary of the National Home Mortgage Finance Corporation (NHMFC),as certified to by Atty. Fermin T. Arzaga, President of SHFC on August 19, 2008, and as such is deemed as a CMP Project where the property shall be proportionately distributed to the association's qualified member-beneficiaries. Based on the records submitted, the Heirs of Ernestina N. de Hernandez, Mario S. Nieto, Ricardo S. Nieto, and Jose Maria S. Nieto had already settled the corresponding estate taxes with Revenue District (RD) No. 15, Ilagan, Isabela, RD No. 52, Paraaque City and RD No. 53, Las Pias-Muntinlupa per copies of the respective Certificate Authorizing Registration BIR Form 1954, Tax Clearance Certificate (TCL) BIR Form 2312 and Estate Tax Returns BIR Form 1801. In reply, please be informed that pursuant to Sections 20 and 32 of RA No. 7279, pertinent portions of which state 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: xxx xxx xxx. (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 landowners who sold their properties for use in a socialized housing project are exempt from the payment of capital gains tax. Such being the case, the sale of the aforestated properties by the Heirs of Ernestina N. de Hernandez, Mario S. Nieto, Ricardo S. Nieto, and Jose Maria S. Nieto to Turayong Homeowners Association, Incorporated is exempt from the capital gains tax. HSDCTA However, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Sec. 20 of RA 7279. Accordingly, the Heirs of Ernestina N. de Hernandez, Mario S. Nieto, Ricardo S. Nieto, and Jose Maria S. Nieto are liable to pay the documentary stamp tax on the documents conveying the property imposed under Section 196 of the Tax Code of 1997, 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 HUDCC Resolution 1-2008 dated December 11, 2008). Moreover, any 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 properties 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 property 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 Turayong Homeowners Association, Incorporated 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. Finally, 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 beneficiary association of the socialized housing program shall be caused to be annotated by the Register of Deeds having jurisdiction over the properties, to the effect, that the said properties shall be used for socialized housing pursuant to RA No. 7279. (BIR Ruling No. S-20-040-2008 dated June 19, 2008) AHCETa 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service