Malugay Homeowners Association, Inc.

November 24, 2009 BIR RULING [SH-(116) 731-09] RA No. 7279; RR 11-97;RMC 42-01; RMC 30-09; S-20-001-06 Malugay Homeowners Association, Inc. #74 Malugay St.,Brgy. San Martin de Porres Paraaque City Attention: Mr. Roberto D. Diche President Gentlemen : This refers to your letter dated October 7, 2009 requesting exemption from the payment of capital gains tax on the individualization of titles in favor of the individual members of the Malugay Homeowners Association, Inc. ("MHOAI") under the Community Mortgage Program (CMP) in accordance with Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents show that MHOAI is a duly registered association with the Home Insurance Guaranty Corporation, the jurisdiction of which is now transferred with the Housing and Land Use Regulatory Board (HLURB);that through the CMP Program of the government, MHOAI acquired by virtue of a loan from the National Home Mortgage Finance Corporation (NHMFC),three (3) parcels of land covered by Transfer Certificate of Title Nos. 135984, 135913 and 136190 of the Registry of Deeds of Paraaque City; that MHOAI is now in the process of subdividing the above parcels of land into sixty-two (62) homelots and distribute the same to its members-beneficiaries; and that MHOAI is working for the individualization of the beneficiaries' accounts with the NHMFC, now with the Social Housing Finance Corporation (SHFC),by executing a Deed of Assignment with Assumption of Mortgage (DOSAM) between MHOAI and its members-beneficiaries. In reply, please be informed that the transfer by MHOAI in favor of its individual members-beneficiaries of the subdivided properties is not subject to either the capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended, or the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended, implementing Section 57 (B) of the same Code. The said transfer of properties is without any consideration and is merely a formality to finally effect the transfer of said properties to the member-beneficiaries who actually bought the same from the former owner through the association. In other words, MHOAI is only transferring the ownership of the properties to its members-beneficiaries who actually owned the same. Furthermore, the said transfer is not subject to the donor's tax imposed under Section 93 of the Tax Code, since there is no donative intent on the part of MHOAI to donate the said properties to its members-beneficiaries, considering that it could not donate properties the ownership of which belongs to the donees (members-beneficiaries) themselves. Moreover, it is noted that under Section 196 of the Tax Code of 1997, the deeds or documents subject to the documentary stamp tax imposed therein are those where the realty sold shall be granted, assigned, transferred, or otherwise conveyed to a purchaser or purchasers or to any other person or persons designated by such purchaser or purchasers, thereby excluding from its purview the instant case considering that no consideration is involved in said transaction upon which the tax could be based. DCcIaE Accordingly, the transfer of the individual title of the subdivided properties in favor of MHOAI's members-beneficiaries 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. (BIR Ruling No. CMP-171-98 dated September 16, 1998) 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 the actual selling price per sale transaction of the lots in this case does not exceed P400,000.00 for each qualified beneficiary, taking into consideration the rules on valuation of real property. [Housing and Urban Development Coordinating Council (HUDCC) Resolution No. 1, Series of 2008 promulgated on December 11, 2008, and as implemented by Revenue Memorandum Circular No. 30-2009] This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service