Bgy. San Luis Homeowners Association, Inc.

November 13, 2009 BIR RULING [SH-(110) 710-09] 20 RA 7279; S-20-057-2007 dtd. 7/2/07 Bgy. San Luis Homeowners Association, Inc. Sitio Padilla, Bgy. San Luis, Antipolo, Rizal Attention: Virgilio T. Camacho President Gentlemen : This refers to your letter dated October 02, 2009 requesting in effect, for a ruling that the sale of a parcel of land by Cuabun Pacheco married to Rosa L. Pacheco, Elizabeth Chong married to Roger Ty and Siok Ching Go married to Peter So Uy to Bgy. San Luis 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". It is represented that Cuabun Pacheco married to Rosa L. Pacheco, Elizabeth Chong married to Roger Ty and Siok Ching Go married to Peter So Uy are the absolute and registered owners of a parcel of land situated at Bgy. San Luis, Antipolo, Rizal with a total area of Twenty Six Thousand One Hundred Seventeen (26,117) square meters more or less, covered by Transfer Certificate of Title Number (TCT) N-16283 issued by the Registry of Deeds for the Province of Rizal; that Bgy. San Luis Homeowners Association, Inc. is a non-stock, non-profit community association duly organized and existing under and by virtue of the laws of the Philippines; that the vendors (Cuabun Pacheco married to Rosa L. Pacheco, Elizabeth Chong married to Roger Ty and Siok Ching Go married to Peter So Uy) have agreed to sell to the vendee (Bgy. San Luis Homeowners Association, Inc.),an area of Thirteen Thousand One Hundred Fifty Four (13,154) sq.m. only, out of a total land area of 26,117 and the vendee has likewise agreed to buy from the vendor the above described parcel of land under Community Mortgage Program, (CMP);and that Bgy. San Luis Homeowners Association, Inc. was certified by the Social Housing Finance Corporation (SHFC),a subsidiary of National Home Mortgage Finance Corporation, as a bonafide transaction and qualifies for tax exemption under the Community Mortgage Program (CMP),a financing assistance program of the SHFC, for the acquisition of the lots that its qualified member-beneficiaries occupy. AHSaTI 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: (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 property by Cuabun Pacheco married to Rosa L. Pacheco, Elizabeth Chong married to Roger Ty and Siok Ching Go married to Peter So Uy is exempt from the capital gains tax. However, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Sec. 20 of RA 7279. Accordingly, Cuabun Pacheco married to Rosa L. Pacheco, Elizabeth Chong married to Roger Ty and Siok Ching Go married to Peter So Uy are liable to pay the documentary stamp tax on the documents conveying the afore-stated 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. aIDHET 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 lot in this case does not really exceed P400,000.00 for each qualified beneficiaries per HUDCC Resolution No. 1-2008 dated December 11, 2008. Moreover, the transfer of the lots 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 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 Bgy. San Luis 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. Finally, 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 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 property shall be used for socialized housing pursuant to RA No. 7279. 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