INCOME TAXATION 1.

Dealers in securities
Topic: Capital Gains Taxation 2. Investors in shares of stocks in a mutual fund company in
Prof: Aljon J. Roque, CPA, MBA connection with gains realized upon redemption of stocks in the
mutual company
Classification of Taxpayer’s Properties: 3. All other persons who are specifically exempt from national revenue
taxes under existing investment incentives and other special laws (i.e.
1. Ordinary Assets – assets used in business foreign government-owned and controlled corporations)

2. Capital Assets – any assets other than ordinary asset COMPLIANCE REQUIREMENTS

The term capital assets does not include the following (hence  BIR FORM 1707 (Transactional CGT)
ordinary assets): - Shall be filed within 30 days after the transaction
a. Stock in trade;  BIR FORM 1707 – A (Annualized CGT)
b. Property of a kind which would be included in inventory of the - Shall be filed on or before the 15th day of the fourth
taxpayer if on hand at the close of the taxable year; month following the taxable year of the taxpayer
c. Property held by the taxpayer primarily for sale to customers in  Documentary Stamp Tax - P0.75 for every P200 of the par
the ordinary course of trade or business; value of the stocks sold
d. Personal property used in the trade or business which is subject
to allowance for depreciation;
e. Real property used in business including real and other b. Sec. 24 (D) – Capital Gains from Sale of Real Property Classified
properties acquired (ROPA) by banks as Capital Asset (Located in the Philippines) – sale, exchange,
and other disposition of real property in the Philippines and is
TYPES OF GAINS ON DEALINGS IN PROPERTIES: applicable to all individual taxpayers and domestic corporation
Ordinary Gains: Regular Income Tax only
Capital Gains: General Rule: Regular Income Tax
Exception: Capital Gains Tax Tax base: Gross selling price or fair market
value whichever is higher
CAPITAL GAINS TAX Tax rate: 6%

a. Sec. 24 (C) – Capital Gains from Sale of Shares of Stock not Traded
in the Stock Exchange – gain on the sale, exchange, and other
disposition of domestic stocks directly to buyer
Tax base: Net capital gains
Tax rates: 5% - not over P100,000
10% - excess of P100,000
FMV – Higher between assessed Value between zonal value
Exemptions to the absolute rule of 6% CGT:
1. Real property is sold by an individual taxpayer to the
government or any political subdivisions or agencies or GOCC’s
Tax due: 6% capital gains tax or Sec. 24 (A)

2. Sale, exchange, and other disposition of a principal residence for

Domestic stocks:
the re-acquisition of a new principal residence by individual
1. Preference shares
taxpayers
2. Common shares
3. Stock rights
a. Exempt proceeds - Capital gains presumed to have been realized
4. Stock options
from the sale or disposition of their principal residence by natural
5. Stock Warrants
persons, the proceeds of which is fully utilized in acquiring or
constructing a new principal residence within 18 calendar months
Other Disposition
from the date of sale or disposition shall be exempt from capital
1. Foreclosure of property in settlement of debt
gains tax.
2. Pacto de retro sales
3. Conditional Sales
b. Escrow agreement - The 6% capital gains tax otherwise due on
4. Voluntary buy back of shares of issuing corporation – redemption of
shares which may be re-issued and not intended for cancellation the presumed capital gains derived from the sale, exchange or
disposition of his principal residence shall be deposited in cash or
manager’s check in interest-bearing account with an Authorized
INSTALLMENT PAYMENT OF THE 5%-10% CGT Agent Bank (AAB) under an Escrow Agreement between the
Criteria: concerned Revenue District Officer, the seller/transferor and the
1. Selling price exceeds P1,000; and AAB to the effect that the amount so deposited, including its
2. Initial payment does not exceed 25% of the selling prices interest yield shall only be released to such seller/transferor upon
certification by the said RDO that the proceeds of sale or disposition
Initial Payment: Total consideration received for one taxable year thereof has, in fact, been utilized in the acquisition or construction
of the seller/transferor’s new principal residence within 18 calendar
1. Compute first the CGT applicable for the transaction
months from the date of the said sale or disposition.
2. Check if subject for deferred or instalment payment
3. If instalment, compute for the CGT to be paid every instalment date
c. Carry over of historical cost or adjusted basis - The historical cost
CGT = Collection / Contract Price or adjusted basis of the real property sold or disposed shall be
carried over to the new principal residence built or acquired.
Contract Price – based on the pattern of collection
Historical cost of old principal residence xxx
Persons not liable to the 5%-10% CGT
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Add: Additional cost to acquire new principal residence xxx* - Dealer: Sec 24 A
- Non Dealer: CGT
Adjusted cost basis of the new principal residence xxx

*Cost to acquire new principal residence xxx

Less: Gross selling price of old principal residence xxx

Additional cost to acquire new principal residence xxx

d. Notification required - The Commissioner shall have been duly

notified by the taxpayer within 30 days from the date of sale or
disposition through a prescribed return of his intention to avail of
the tax exemption.

e. Exemption once every 10 Years- The tax exemption can only be

availed of once every 10 years.

f. Taxable portion if no full utilization of proceeds –

If there is no full utilization of the proceeds of sale or disposition,

the portion of the gain presumed to have been realized from the
sale or disposition shall be subject to capital gains tax.

The taxable portion is computed as follows:

Unutilized portion x Tax base

Gross selling price

3. Sale of land under Comprehensive Agrarian Reform Program

4. Sale of socialized housing units by the National Housing
Authority

INSTALLMENT PAYMENT OF THE 6% CGT

Criteria:
1. Initial payment does not exceed 25% of the selling prices

Initial Payment: Total consideration received for one taxable year

1. Compute first the CGT applicable for the transaction

2. Check if subject for deferred or instalment payment
3. If instalment, compute for the CGT to be paid every instalment date

CGT = Collection / Contract Price

Contract Price – based on the pattern of collection

COMPLIANCE REQUIREMENTS

 BIR FORM 1706 (Transactional CGT)

- Shall be filed within 30 days after the transaction
 Documentary Stamp Tax – P15 for every P1,000 and
fractional parts of whichever is higher between gross
selling price or FMV. If the government is a party to the
sale, the basis shall be the consideration paid

OTHER POINTS TO CONSIDER

Shares of stocks may be sold, exchanged or disposed:

 Through PSE
- Dealer : Sec 24 A
- Non dealer : Stock Transaction Tax (OPT)

 Directly to Buyer
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