BIR Ruling [UN-276-95]

July 26, 1995 BIR RULING [UN-276-95] Acebes, Del Carmen, Cinco & Cordova 3rd Floor, 110 Legaspi Building Legaspi Street, Legaspi Village Makati, Metro Manila Attention: Atty . Ebenezer D . Cordova Gentlemen : This refers to your letter dated July 14, 1995 stating that real properties covered by CTC Nos. 129413 129414 and 129415 all situated in Cebu City, were used in 1991 as a site of a restaurant in consideration of nominal rentals; that the restaurant business went bad, so the operator had to close down and the restaurant building was demolished; that from the time of its demolition, your clients, Mrs. Pilar Mendezona et. al. have not constructed any building thereon, nor have used/utilized the same for business purposes; and that the said properties have been idle, abandoned and unused since then. In connection therewith, you are requesting a ruling to the effect that the aforementioned properties are considered capital assets and that if your clients will sell the same, they will be subject to the five percent (5%) capital gains tax under Section 21(e) of the Tax Code, as amended. cdtech In reply thereto, please be informed that Section 21(e) of the Tax Code, as amended, subject to a 5% capital gains tax the sale of real property located in the Philippines which is classified as capital asset. The term "Capital Assets" as negatively defined in section 33 of the Tax Code, as amended, means property held by the taxpayer (whether or not connected with his trade or business), but does not include (1) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or (2) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or (3) property used in the trade or business, of a character which is subject to the allowance for depreciation provided in subsection (f) of Section 29, or (4) real property used in the trade or business of the taxpayer. Such being the case, the aforementioned three parcels of land of your clients are capital assets because the properties do not fall under any of the exemptions stated in Section 33 of the Tax Code, as amended. Thus, said properties shall, upon their sale, be subject only to 5% capital gains tax under Section 21(e) of the Tax Code, as amended. [BIR Ruling 107-91 dated June 17, 1991, and BIR Ruling No. 022-87 dated January 26, 1987]. 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, ALICIA B. CLEMENO Assistant Commissioner (Legal Service)