BIR Ruling [UN-100-95]

March 9, 1995 BIR RULING [UN-100-95] MEMORANDUM FOR: The Regional Director Revenue Region No. 7 This refers to your request for a ruling as to whether or not the execution of a Quitclaim and Assignment/Conveyance of Property Held in Trust transferring a parcel of land by the Spouses Juan C. Reyes, Jr. and Minerva G. Reyes on August 9, 1994 in favor of the Spouses Florante P. Gonzaga and Evelyn R. Gonzaga is exempt from the payment of capital gains tax. Records of this case disclosed that on January 27, 1989, a Deed of Sale was executed by and between the Spouses Juan C. Reyes, Jr. and Minerva G. Reyes and Ayala Corporation whereby the latter sold in favor of the former a parcel of land covered by TCT No. 380275 of the Registry of Deeds for Quezon City, for and in consideration of P820,950.00; that as a consequence of said sale transaction, Title over the said realty was transferred in the name of the Spouses Juan C. Reyes, Jr. and Minerva G. Reyes under TCT No. 41555; that on June 5, 1989, a Declaration of Trust and Undertaking to Convey was executed by the Spouses Juan C. Reyes, Jr. and Minerva G. Reyes whereby the said Spouses declared and manifested among others, the following; 1. That while they are the recorded purchaser/vendees in the aforesaid Deed of Absolute Sale dated January 27, 1989 which they executed with Ayala Corporation as seller/vendor involving a parcel of land covered by TCT No. 380275 registered in the name of Ayala Corporation, the said property does not actually belong to them but to the Spouses Florante P. Gonzaga and Evelyn R. Gonzaga who are the true and beneficial owners of the said property; 2. That the funds used in the acquisition and purchase of the said property and paid by them to the seller/vendor Ayala Corporation as of November 8, 1988 amounting to P857,857.96 representing the purchase price and other charges all came from/belonged to or were disbursed/defrayed by the said Spouses Florante P. Gonzaga and Evelyn R. Gonzaga; 3. That due to the condition imposed in the said deed of sale executed in their favor that the said property shall not be sold, transferred or conveyed by them until after the residential house required in the document of sale to be built on the property and completed 100% within three (3) years from November 8, 1988, it was not possible for them at the time to execute a deed of transfer and conveyance of the property in favor of the Spouses Florante P. Gonzaga and Evelyn R. Gonzaga; 4. That it is their commitment and undertaking that when the aforementioned condition shall have been removed or discharged, they shall thereupon execute the corresponding deed of transfer and conveyance covering the said property in favor of the Spouses Florante P. Gonzaga and Evelyn R. Gonzaga. and that on August 9, 1993, the Spouses Juan C. Reyes, Jr. and Minerva G. Reyes executed a Quitclaim and Assignment/Conveyance of Property Held in Trust whereby the said Spouses transferred and conveyed in favor of the Spouses Florante P. Gonzaga and Evelyn R. Gonzaga the aforesaid real property without any monetary consideration. In reply, please be informed that under Section 21(e) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estate and trust shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. In the instant case, however, there is no actual transfer, sale or exchange of ownership over the aforementioned property considering that the Spouses Juan C. Reyes, Jr. and Minerva G. Reyes, in their capacity as trustee of the property, transferred the same in favor or the Spouses Florante P. Gonzaga and Evelyn R. Gonzaga, as the trustor-beneficiaries thereof. Accordingly, the said transfer is not subject to the 5% capital gains tax imposed under Section 21(a) of the Tax Code, as amended. Likewise, the above transaction is not subject to gift tax, since there is no donative intent under the above circumstances. The element of donative intent must be present in the transfer of property to be donated in order that the same may be subject to donor's tax. (Perez vs. Commissioner, CTA Case No. 1707, February 10, 1969) Furthermore, the deed conveying the aforementioned property to the Spouses Florante P. Gonzaga and Evelyn R. Gonzaga, as trustor-beneficiaries is not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code, but its notarial acknowledgment is subject to the documentary stamp tax of P10.00 imposed under Section 188 of the Tax Code, as amended by Republic Act No. 7660. (BIR Ruling No. 124-93 dated April 5, 1993) cdtech ALICIA P. CLEMENO Assistant Commissioner (Legal Service)