Mr. Julito C. Labiano

November 26, 2009 BIR RULING [SH-(120) 737-09] RA 7279; S-32-077-2000 Mr. Julito C. Labiano St. Francis cor. St. Agnes, Maries Ville II Brgy. Mayamot, Antipolo City Sir : This refers to your letter dated October 20, 2009 requesting for a ruling that your sale of a parcel of land to Friendship Homeowners Association, Inc., (FHAI) 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 Julito C. Labiano married to Angelita V. Labiano and with Tax Identification Number (TIN) 109-569-174 is the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. 307825 issued by the Registry of Deeds for Marikina, Metro Manila. The aforesaid property is situated at Sitio Hinapao, Barangay San Jose, Antipolo City with an area of Six Thousand Seven Hundred Seventy Four (6,774) sq.m. Friendship Homeowners Association, Inc.,on the other hand, is a legal association of underprivileged and homeless citizens and is registered with the Housing and Land Use Regulatory Board (HLURB) on December 4, 2006, National Capital Regional Office. The parties executed a Deed of Sale whereby the owner will transfer and convey the said property to FHAI at an agreed price of Nine Million Nine Hundred Four Thousand Five Hundred Sixty Pesos (P9,904,560.00) at one thousand six hundred pesos (P1,600.00) per sq.m. FHAI will be securing a housing loan under the Community Mortgage Program (CMP),a financing assistance program of the Social Housing Finance Corporation (SHFC) a subsidiary of the National Home Mortgage Finance Corporation (NHMFC). Per verification and ocular inspection conducted by Revenue Officer Irene Juana A. Acacio of Revenue District Office (RDO) No. 45, Marikina City, the actual occupants of the subject property are members of FHAI who are underprivileged, homeless and therefore qualified beneficiaries. DcaECT 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 landowner who sold his property for use in a socialized housing project is exempt from the payment of capital gains tax. Such being the case, the sale of the aforestated parcel of land by Julito C. Labiano to FHAI 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, Julito C. Labiano is 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. 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 P400,000.00 for each qualified beneficiaries per HUDCC Resolution No. 1-2008 dated December 11, 2008. ITEcAD 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 FHAI 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-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.) JAMES H. ROLDAN Assistant Commissioner Legal Service