What will be discussed:

What is a Capital Gain Tax?

How does Capital Gain Tax work?

How to compute for Capital gain tax

What kinds of assets are taxable?

Requirements and procedures in paying Capital Gain Tax

Where and when to pay for a Capital Gain Tax

Basic Penalties for late filing and payment of Taxes

What is a Capital Gain Tax?

The value of the real proper will be based on the selling price, fair market value as determined by the commissioner (zonal value) or the the fair market value as shown in the provincial or city assessor, whichever is higher.

If there is no zonal value, the taxable base or whichever is higher of the gross selling price per sales documents or the fair market value that appears in the latest tax declaration.

How does Capital Gain Tax work?

We, as good citizens of our country, must all pay taxes to the Bureau of Internal Revenue. There are a lot of taxes to be paid, the most basic is Income tax, but there are also taxes for revenues we acquire from the sale of stocks, real estate and other capital assets. That’s where the capital gains tax comes in.

So, how does it work?               

Example: Mr. Santos sells a residential lot in Pasig City with a floor area of 200sqm on cash with Selling Price of P3 Million. Mr. Santos is not engaged in a real estate business. The proceeds from the sale will be used by Mr. Santos for his trip to US and other personal expenses.  The following are the fair market value information of the real property:

1. Fair Market Value as determined by BIR Commissioner (Zonal Value/BIR Rules):
1a. Land: P1,600,000 (let us say BIR Zonal value is P8,000/sqm [200 x 8,000=1,600,000])
1b. Improvement: P1,200,000

2. Fair Market Value as determined by Provincial/City Assessor’s (per latest Tax Declaration):
2a. Land: P1,400,000
2b. Improvement: P1,300,000

How much is the Capital Gains Tax?

Answer/solution:

Step 1. Determine the highest fair value (FMV):

Total FMV1 (1a + 1b): P2,800,000
Total FMV2 (2a + 2b): P2,700,000
Total FMV3 (1a + 2b): P2,900,000
Total FMV4 (2a + 1b): P2,600,000

The Highest FMV is FMV3: P2,900,000. This is the FV we will use in the step 2.

Step 2. Determine the higher between FMV and Selling Price:

FMV = P2,900,000
Selling Price = P3,000,000

The higher value is the selling price P3,000,000. This is our tax base for computing Capital Gains Tax.

Step 3. Calculate Capital Gains Tax.

DST = P3,000,000 x 6%
DST = P180,000

So what kinds of assets are taxable exactly?

Does that mean I have to tell the BIR I made P100 for selling my used pair of shoes at an Ukay-Ukay? Does everyone get the same rate for Capital Gain Tax?

The BIR states that Capital Assets are property held by the taxpayer (whether or not connected with his trade or business). So that’s A LOT of things, so technically, yes you do need to tell them about the P100 used shoes, but the most common taxable assets are:

·         Securities

·         Real estate and

·         Valuable collectibles/antiques

So you probably could get away with that pair of used shoe.

Requirements and procedures in paying Capital Gain Tax

 For Final Capital Gains Tax for Transfer of Real Property Classified as Capital Assets (Taxable and Exempt)

Tax Form
BIR Form 1706 – Final Capital Gains Tax Return (For Onerous Transfer of Real Property Classified as Capital Assets -Taxable and Exempt)

Documentary Requirements

1) An original copy and one photocopy of the Notarized Deed of Sale or Exchange

2) Photocopy of the Transfer Certificate of Title; Original Certificate of Title; or Condominium Certificate of Title

3) Certified True Copy of the tax declaration on the lot and/or improvement during nearest time of sale

4) “Certificate of No Improvement” issued by the Assessor’s office where the property has no declared improvement, if applicable or Sworn Declaration/Affidavit of No Improvement by at least one (1) of the transferees

5) Copy of BIR Ruling for tax exemption confirmed by BIR, if applicable

6) Duly approved Tax Debit Memo, if applicable

7) “Sworn Declaration of Interest” as prescribed under Revenue Regulations 13-99, if the transaction is tax-exempt

8) Documents supporting the exemption

Additional requirements may be requested for presentation during audit of the tax case depending upon existing audit procedures.

Procedures

File the Capital Gains Tax return in triplicate (two copies for the BIR and one copy for the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the property is located. In places where there are no AAB, the return will be filed directly with the Revenue Collection Officer or Authorized City or Municipal Treasurer.

If not stated in the contract, the seller is usually the one who shoulders the Capital Gain Tax, but in some cases, it is dependent on the terms or the buyer and seller.

Tax Rates

For real property - 6%.

Deadline

Within 30 days after each sale, exchange, transfer or other disposition of real property.

Where and when to pay for a Capital Gain Tax

GENERAL RULE

·         WHERE TO PAY

In the BIR Revenue District Office (through the authorized agent bank (AAB)) where the property is located

·         WHEN TO PAY

Within thirty (30) days from date of notarization of the deed of sale

BASIC PENALTIES FOR LATE FILING AND PAYMENT OF TAXES

·         PENALTY        

25% surcharge on basic tax due
50% surcharge in case of fraud or intent to evade tax

·         INTEREST

20% per annum based on basic tax due

·         COMPROMISE PENALTY

Subject to type and amount of tax due

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