BIR Ruling [UN-152-94]

May 23, 1994 BIR RULING [UN-152-94] Santiago & Santiago Ground Floor, Ortigas Bldg. Ortigas Avenue, Pasig Metro Manila Attention: Atty . Amado M . Santiago, Jr . Gentlemen : This refers to your undated letter stating that you have a property located at Shaw Blvd.,Mandaluyong, Metro Manila, which was paid to you in 1985 by your clients, Zerimar Investment Co.,Inc. and Marisol Commercial, Inc.;that at the time of the transfer of the property to you, it was subject to a twenty one (21) year lease from the original owner, Ortigas & Co. Ltd. your client's predecessor in interest; that the lease then had an unexpired term of five (5) years ad the lessee continued to pay the rentals to your transferors; that the rentals which were fixed sixteen (16) years earlier, were by then barely enough to pay for the real estate taxes; that upon the expiration of the lease, you immediately demanded that the lessee vacate the premises since you are not engaged in the business of leasing real property and had agreed to accept the land as payment of your fees only because your clients did not have the cash to pay you; that after a short grace period, the buildings were accordingly demolished by the lessee and the land was delivered to you vacant; that the land had since been vacant although it was used with prior arrangement with you, by the contractors of the adjoining lot for a short period for their laborers and then by ambulant canteen operators without your authority; and that the land had since 1992 been clear of illegal occupants and fenced as a vacant lot. cdtech In connection therewith, you are requesting a ruling as to whether the land is a capital asset; and that upon its sale, you will be subject to only 5% capital gains tax under Section 21(e) of the Tax Code, as amended. In reply thereto, please be informed that your property is considered a capital asset under Section 33(a) (1) of the Tax Code, as amended. Section 21(e) of the Tax Code, as amended provides that 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 estates 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. Accordingly, your sale of your aforementioned property is subject to the 5% capital gains tax based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. (BIR Ruling No. 107-91 dated June 17, 1991). Very truly yours, ALICIA P. CLEMENO Acting Assistant Commissioner (Legal Service)