Taxes on property transfers

WE HAVE often been asked, what are the taxes to be paid when the object of the sale, exchange or other disposition are real properties? We have to understand that taxes of this nature are of various types principally because real properties (land and improvements) are subject to these transfer taxes. These include the following:

CAPITAL GAINS TAX

In order that the transaction will be subject to the 6 percent capital gains tax, the following requisites must be present:

1. The taxpayer must either be an individual taxpayer, whether a citizen (resident or non-resident) or an alien (resident or non-resident), or a domestic corporation.

2. The object of the sale, exchange or other disposition of property must be a real property.

3. The real property or land and/or building must be a Capital Asset.

4. The location of the real property sold of disposed of must be in the Philippines.

If all the requisites are met, the 6 percent capital gains tax is computed based on the Gross Selling Price (GSP) or the Fair Market Value (FMV)/Zonal Value (ZV) at the time of sale or exchange, whichever is higher. The six percent capital gains tax is imposed on the seller or transferor of the real property.

Payment of capital gains tax must be made within 30 days from sale or disposition, return filed and payment made to an authorized agent bank (AAB) in the Revenue District Office (RDO) where the property being transferred is located.

A person is not subject to capital gains tax if: a) a capital gain has been realized from the sale of the principal residence of a natural person; b) the seller files an intention to avail of the exemption with the BIR within 30 days from date of sale; c) within 18 months from said sale, the seller utilizes the sales proceeds to acquire or construct a new principal residence; d) the historical cost or adjusted basis of the residence sold shall be carried over to the new residence; e) Exemption can only be availed of once every ten (10) years and f) if the proceeds are not fully utilized, the unutilized portion of the gain is taxable.

Creditable withholding tax (CWT)

A CWT based on the Gross Selling Price (GSP)/Total Amount of Consideration or the Fair Market Value (FMV)/Zonal Value (ZV), whichever is higher, paid to the seller/ owner for the sale, transfer or exchange of real property, other than Capital Asset shall be imposed on the withholding agent/buyer in accordance with the following rates:

1. Where the seller/transferor is habitually engaged in the real estate business (as a developer) registered with HLURB or HUDCC:

a. With selling price of P 500,000.00 or less - 1.5 percent

b. With selling price of more than P 500,000.00 but not more than P2,000,000.00 – 3.0 percent

c. With selling price of more than P 2,000,000.00 – 5.0 percent

2. Where the seller/transferor is not habitually engaged in the real estate business (but the real estate sold is an Ordinary Asset) – 6.0 percent

3. Where the seller/transferor is exempt from CWT in accordance with pertinent BIR Revenue Regulations (RR) – Exempt.

The tax should be deducted and withheld by the buyer-withholding agent and taxes paid with the RDO or the AAB where the property is transferred to or located within 10 days following the end of the month in which the transaction occurred.

Documentary Stamp Tax (DST)

The Tax Code imposes a Documentary Stamp Tax (DST) on all conveyances, deeds, instruments or writing on the sale or other disposition of real property for a consideration. The DST on sale of real property is 1.5 percent of the consideration or fair market value/zonal value, whichever is higher. DST shall be file and tax paid within 10 days after the close of the month when the taxable document was made or transferred.

In actual property transfers however, the payment of the DST is simultaneously made with the payment of the capital gains tax or the creditable withholding tax.

All of the above discussed taxes are internal revenue taxes, thus are to be paid with the Bureau of Internal Revenue (BIR). Other transfer taxes will be discussed in future articles.

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(The writer is a Certified Public Accountant and president of the Baguio Realtors Board, Inc. Apart from being a recognized Real Estate Practitioner as a Real Estate Broker and Educator, Lecturer and Resource Person, he is likewise a Business Management/ NGO/Cooperative Consultant, Project Development Consultant, Financial Advisor/Loan Broker and Columnist. For comments and more information of Real Estate Updates and Studies, you may get in touch with him at No. 04 Old Forestry Compound, Baguio City 2600, Tel. No (074) 427-1971/ Cell Nos. 09109302753/09163188274 or email: bert_capili@yahoo.com/ bertcapili65@hotmail.com).