CAPITAL GAINS TAX

CLASSIFICATION OF ASSETS c. Sale with buyback agreement

1. Ordinary assets – assets used in business. d. Conditional sales
2. Capital Assets – assets other than ordinary e. Voluntary buyback of shares by issuing
assets corporation and not intended for
 Real and other properties acquired by cancellation
bank are considered ordinary assets even
though it is not really engaged in realty MODES OF DISPOSING DOMESTIC STOCK
business 1. Through PSE – subject to 0.50% (of selling
ASSET CLASSIFICATION RULES price) stock transaction tax (STT)
1. Property purchased for future used is an 2. Directly to buyer – subject to two-tiered
ordinary asset CGT
2. Discontinuance from active use does not Tax %
change the asset’s classification as ordinary. Net gain up to 100,000 5%
3. Real property used, being used or previously Excess net gain above 100,000 10%
used, in trade is an ordinary asset
4. Depreciable asset is an ordinary asset even if Cash received + FV of non-cash asset received
it becomes fully depreciated.
5. Real properties of an exempt corporation in  Selling price xx
its exempt operation are capital assets Basis of share (inc. dividend-on,
6. For taxpayers engaged in the real estate net of tax) (xx)
business, ordinary assets are automatically Selling expenses (xx)
converted as capital asset upon proof that it Doc. Stamp tax (xx)
has not been used in business for more than Net capital gain xx
2 years prior to the consummation.
Order of priority: i. specific identification; ii.
TAXATION ON DEALINGS IN PROPERTIES FIFO; iii. Weighted average
Type of gain Taxation scheme
1. Ordinary gains Regular Tax Acquired by Basis
General rule, Regular FV at the time of death
Income Tax 1.Inheritance
2. Capital Gains of decedent
Exception: Capital lower of FMV at the
Gains Tax (CGT) time of gift and basis
in the hands of donor
SCOPE OF CAPITAL GAINS TAX 2.donation
or the last preceding
Gains on dealing in donor who acquired it
Tax rate
capital assets not by gift
1. Gain on sale and 5% and 10% capital
3.Inadequate Amount paid by
other disposition of gains tax
consideration transferee
domestic stock (All types of taxpayers
4.Tax-free Substituted basis of
directly to buyer are taxed on this rate)
exchange stocks
2. Sale and other 6% capital gains tax
disposition of real (All types of individuals
0.75 for every 200-peso par value
property located in and domestic corp. are
the Philippines tax on this rate)
CAPITAL GAINS TAX COMPLIANCE
3. Other capital gains Regular income tax
1. Transactional CGT (BIR Form 1707)
 Shall be filed within 30 days from the
GAIN ON SALE AND OTHER DISPOSITION OF
DOMESTIC STOCK DIRECTLY TO BUYER date of disposition. If it qualified for
1. Domestic stocks include: installment method, it shall be filed 30
a. Preferred stocks days from the date of each installment
b. Common stocks 2. Annual CGT (BIR Form 1707-A)
c. Stock rights and stock options  Shall be filed on the 15th day of the 4th
d. Stock warrants month from the close of the taxable year
e. Unit of participation in any association,
recreation, or amusement club, except  If domestic stock is sold in installment, CGT
mutual fund shares. can also be paid in installment, if:
2. Other disposition includes: a. Selling price exceeds 1,000
a. Exchange, except exchange for service b. Initial payment does not exceed 25% of the
b. Property in payment for debt selling price
(Read page 178-179 sale with mortgage assumed)
 CAPITAL GAINS TAX
WASH SALE RULE (61-Day PERIOD)
 Occurs when within 30 days before or 30 days
after the sale, the taxpayer acquired a
substantially identical security
 Capital loss arising from wash sales is not
deductible against capital gains. Loss shall be
capitalized (proportionately, in case security
sold > security bought) to the security bought
within the 61-day period.
TAX-FREE EXCHANGES
1. Merger or consolidation
 Substituted basis of shares received shall
be FV of shares given up less return of
capital (excess of monetary and non-
monetary consideration over realized
gain)
2. Initial acquisition of control – provided
maximum of 4 gained control.
 Substituted basis of shares received shall
be FV of shares given up less return of
capital (excess of monetary and non-
monetary consideration over realized
gain)
In case exchange is not solely for stocks,
gains but not losses shall be recognized
up to the extent of monetary and non-
monetary assets received
 Listed corporations are mandatorily required to
maintain a minimum public ownership under
PSE regulations
 Minimum public ownership is the higher of:
a. 10% of issued and outstanding shares
b. Minimum public ownership required by
SEC or PSE
 Non-compliance will result to de-listing
of shares of the corporation in PSE and
will be subject to 5%-10% CGT and not
to 0.50% STT
SALE AND OTHER DISPOSITION OF REAL
PROPERTY CLASSIFIED AS CAPITAL ASSET
LOCATED IN THE PHILIPPINES
 Disposition includes:
1. Real property in payment of debt
2. Conditional sales
3. Pacto de retro sales
 Tax base: higher of selling price, zonal value,
or assessed value
 No real property shall be registered of any
document transferring title, unless CIR or his
representative has certified such transfer and
that CGT has been paid, if any.
EXEMPTION TO THE 6% CGT
1. Alternative taxation
 Individual seller of real property may opt
to be taxed at 6% CGT or on RIT on
realized gains, provided that the buyer is
the government.
2. Exemption rules
a. Exemption under NIRC
 Sale of principal residence of an
individual taxpayer, if the following
requirements are met:
i. Seller is a citizen or resident
alien.
ii. Sale involves principal residence
iii. Proceeds of sale is utilized to
acquire new principal residence
within 18 months
iv. BIR is notified of the exemption
within 30 days from sale in the
prescribed return (BIR Form
1706) and “sworn declaration of
intent”
v. CGT is held on escrow in favor
of government
vi. Exemption can only availed once
every 10 years
vii. Historical cost or adjusted basis
of the old principal residence will
be carried over the new principal
residence (+ excess cost over
proceeds).
b. Exemption under special laws
i. Sale of land in pursuant to CARP
ii. Sale of socialized housing units
to National Housing Authority
INSTALLMENT PAYMENT OF 6% CGT
 Can be availed if initial payment does not
exceed 25% of selling price.
(Read page 195-196 for sale with mortgage assumed)
DEADLINE FOR FILING OF RETURN
 BIR Form 1706 shall be filed 30 days from
the disposition of the real property
 Documentary stamp of 15 for every 1,000 of
the tax basis