Capital

Gains Tax

INCOTAX AY2425 2nd Semester

Joanne Mitchelle Razo-Manacmul, CPA

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Agenda 01
CAPITAL GAINS TAX (CGT)

Style
 Definition

CLASSIFICATION OF TAXPAYER’S
02 PROPERTIES
 Types and analysis of properties

TYPES OF GAINS AND DEALINGS IN

03 PROPERTIES
 Types and taxation of gains on dealings in
properties

SCOPE OF CAPITAL GAINS TAXATION

04  Gains subject to CGT and computation
illustrations, Exceptions.

CGT BIR FORM AND DEADLINES

05  Getting familiar with the CGT form, deadlines
and penalties.

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 Capital Gains Tax (CGT) Is a tax
imposed on the gains presumed to have been
realized by the seller from the sale, exchange,
or other disposition of capital assets located
in the Philippines, including pacto de retro
sales and other forms of conditional sale.

Pacto de retro sale refers to a sale where the seller retains the right to repurchase the
property being sold. In a pacto de retro sale, ownership of the property transfers
immediately to the buyer upon sale, but the seller can repurchase the property at a later
time.

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Capital Asset Ordinary Assets
Assets not used in the business Assets used in the business operations or
activities. Assets held for use or later sale
operations or activities.
Examples:
Personal Business • Warehouse
Assets Assets • Delivery Trucks
Stocks for the Inventory on hand • Production
(for Individuals) (for Corporations)
business as of TY end
Machineries
• Personal car • Cash and Equipment
• Jewelries • Accounts • Building and Lot
• Residential Receivables • Real property
house and lot • Prepayments Held for sale to Assets depreciated or held for sale to
• Shares of • Investments customers real property used in customers.
stocks-personal business.
Gain on sale is called Gain on sale is called
“Capital Gain” “Ordinary Gain”

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Analysis of Properties Held by Taxpayers

Individual Taxpayers

Business Asset Personal Asset

(All are capital assets)

Ordinary assets Capital assets

Corporate Taxpayers

Ordinary Assets Capital assets

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Taxation of Gains in Dealings in Properties

Ordinary Gains Regular Income Tax

General Rule:

Regular Income Tax

Capital Gains
Exception Rule:

Capital Gains Tax

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 Scope of Capital Gains Tax

Gain on sale, exchange, and Sale, exchange, and other Gains from
other disposition of disposition of real property other capital
domestic stocks directly to classified as capital assets assets
buyer. in the Philippines

Regular
15% CGT 6% CGT Income Tax

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Gain on sale, exchange, and other
disposition of domestic stocks
directly to buyer.

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 Gain on sale, exchange, and other disposition of 15% CGT on the
domestic stocks directly to buyer. capital gain.

Domestic Stocks • Preferred stocks

– evidence of ownership or rights to • Common Stocks
ownerships in a domestic • Stock rights
corporation regardless of features: • Stock options
• Stock warrants
• Unit of participation in any
association, recreation, or
amusement club (golf, polo, similar
clubs)

Preferred Stocks - stock that entitles the holder to a fixed dividend, whose payment
takes priority over that of common-stock dividends.
Common Stocks - shares entitling their holder to dividends that vary in amount and
may even be missed, depending on the fortunes of the company.
Stock rights - the right of an existing shareholder to buy a certain number of extra shares in
a company at a particular price
Stock options - (also known as an equity option) gives an investor the right—but not the
obligation—to buy or sell a stock at an agreed-upon price and date.
Stock warrants - the right to purchase a company's stock at a specific price and at a specific
date. A stock warrant is issued directly by a company to an investor.

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 Gain on sale, exchange, and other disposition of domestic stocks directly to buyer.

CGT covers sale of domestic stocks The term “other disposition”

for CASH and exchange of domestic does not include:
stocks in kind and other disposition
such as: • Issuance of stocks by a corporation
• Exchange of stocks for services
• Foreclosure of property in • Redemption of shares in a mutual
settlement of debt fund
• Pacto de retro sales • Worthlessness of stocks
• Conditional sales • Redemption of stocks for
• Voluntary buy back of shares cancellation by issuing corporation
by the issuing corporation • Gratuitous transfer of stocks

Pacto de retro sale refers to a sale where the seller retains the right to repurchase the
property being sold. In a pacto de retro sale, ownership of the property transfers
immediately to the buyer upon sale, but the seller can repurchase the property at a later
time.

Conditional Sales - the sale of goods according to a contract containing conditions,

typically that ownership does not pass to the buyer until after a set time, usually
after payment of the last installment of the purchase price, although the buyer has
possession and is committed to acquiring ownership.

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Modes of Disposing Domestic Stocks

Through the Philippine Directly to Buyer

Stocks Exchange (PSA)

Stock transaction tax

60% of 1% of the Selling 15% CGT
price

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 ILLUSTRATION 1: Non-dealer in stocks
Mr. San Juan, not a dealer in stocks, sold the following stocks
investment through the Philippine Stocks Exchange (PSE)

Date Stock Selling Cost Gain/(Loss)

Code Price
4/5/2023 AC ₱4,000,000 ₱3,700,000 ₱300,000
Tax on Sale of
4/5/2023 SMB ₱3,000,000 ₱3,200,000 (200,000)
Domestic Stocks
through the PSE TOTAL ₱7,000,000 ₱6,900,000 ₱100,000

Total Selling Price of stocks through PSE ₱7,000,000

Multiply by the stock transaction tax 0.01
Stock Multiply by the stock transaction tax 0.6
transaction Transaction Tax ₱42,000
tax 60% of 1% The ₱58,000 (₱100,000 - ₱ 42,000) capital gains is exempted
of the Selling from capital gains tax or regular income tax.
Price

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 Lyka, a resident citizen, disposed her investments with San Miguel
Corporation which costed her ₱100,000 directly to Kiel for P240,000. It
paid on the sale P2,000 for broker’s fees and P500 in documentary
stamps tax expense. The stocks have a fair market value of P300,000
at the date of the sale.
Compute for the Capital Gains tax.
Selling Price ₱240,000
Gain on sale, Less: Costs and Expenses
exchange, and Purchase cost ₱100,000
Broker’s Fee ₱ 2,000
other disposition of
DST ₱ 500 ₱102,500
domestic stocks Capital Gain ₱137,500
directly to buyer for Capital Gain Tax rate x 15%
CASH Capital Gain Tax Due ₱20,625

15% CGT on the The ₱60,000 difference between FMV and Selling price is
capital gain. subject to Donor’s Tax

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 Example
Example: Cyrus, sold his investments with Jollibee Foods Corp which costed him
₱300,000 directly to his friend Denise for P500,000. He incurred the
following expenses related to the sale:
Broker’s Fee ₱10,000
Commissions ₱20,000
DST ₱8,000
Compute for the Capital Gains tax.
Gain on sale, Selling Price ₱500,000
exchange, and Less: Costs and Expenses
other disposition of Purchase cost ₱300,000
domestic stocks Broker’s Fee ₱ 10,000
directly to buyer for Commissions ₱ 20,000
DST ₱ 8,000 ₱338,000
CASH Capital Gain ₱162,000
Capital Gain Tax rate x 15%
15% CGT Capital Gain Tax Due ₱24,300

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 Example
Example: ABC Corporation borrowed ₱5,000,000 from XYZ Bank, secured by
10,000 shares of ABC Corporation (classified as capital assets). ABC
Corporation defaulted on the loan, and XYZ Bank foreclosed the
shares. The fair market value (FMV) of the shares at the time of
foreclosure was ₱6,000,000. The original acquisition cost of the shares
was ₱3,500,000. Compute for the Capital Gains tax.
Gain on sale,
exchange, and
Selling Price ₱5,000,000
other disposition of
Less: Costs and Expenses
domestic stocks Purchase cost ₱3,500,000
directly to buyer –
Foreclosure of Capital Gain ₱1,500,000
Property in Capital Gain Tax rate x 15%
settlement of debt.
Capital Gain Tax Due ₱225,000
15% CGT

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Sale, exchange, and other disposition
of real property classified as capital
assets in the Philippines
.

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 Example 1
Jerry sold a vacant agricultural land for
₱5,000,000. The Land was previously
purchased at ₱4,000,000 and had an
appraisal value of ₱8,000,000 and zonal
Sale, exchange, and other disposition of value of ₱7,000,000. The property had a
real property located in the Philippines fair value of ₱6,000,000 in the Provincial
Assessors Office and an assessed value
of ₱2,400,000
6% CGT on Selling Price or Fair Compute for the Capital Gains tax.
Value whichever is higher
Relevant Information:

Selling Price ₱5,000,000

Fair Value is whichever is higher between Zonal Value
Value ₱7,000,000 Highest
FV per PAO ₱6,000,000
Zonal value Fair Market Value
prescribed by BIR as shown in schedules of
Commissioner for market values of the Zonal Value ₱7,000,000
real properties. Provincial and City CGT rate x 6%
Assessor’s office. CGT Due ₱ 420,000

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 Example 2
Frankie sold to Sharon her Tagaytay rest
house for ₱8,000,000. The house and lot
was previously purchased at ₱5,000,000
and had an online selling price at
Sale, exchange, and other disposition of ₱10,000,000 and zonal value of
real property located in the Philippines ₱7,500,000. The property had a fair value
of ₱7,000,000 in the City Assessors Office
and an appraised value of ₱5,400,000
6% CGT on Selling Price or Fair Compute for the Capital Gains tax.
Value whichever is higher
Relevant Information:

Selling Price
Price ₱8,000,000 Highest
Fair Value is whichever is higher between Zonal Value ₱7,500,000
FV per CAO ₱7,000,000
Zonal value Fair Market Value
prescribed by BIR as shown in schedules of
Commissioner for market values of the Selling Price ₱8,000,000
real properties. Provincial and City CGT rate x 6%
Assessor’s office. CGT Due ₱ 480,000

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Exceptions on Sale, exchange, and other disposition of
real property located in the Philippines
1. Alternative taxation rule
2. Exemption under NIRC
3. Exemption under Special
Laws

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Sale, exchange, and other disposition of real property located in PH

1. Alternative Taxation Rule Example 1 Example 2

Claudine sold her vacant lot Mario bought a house and lot
The Individual seller has the near a highway at a cost of
to the City of Angeles for
option to be taxed either: ₱4.5M. She purchased the lot ₱2M. After several years, the
6% CGT for ₱2M 20 years ago and had government invoked its power
a fair value of ₱3M from the of eminent domain to buy the
OR City Assessors Office and a property for the expansion of
Regular Income Tax (RIT) zonal value of ₱3.5M at the the highway. Assuming the FV
date of sale. of the property is ₱1.8M.
Conditions to satisfy: Claudine’s options: Mario’s options:
Option 1 Option 2 Option 1 Option 2
Seller Buyer 6% CGT RIT 6% CGT RIT
= ₱ 4.5M x 6% = ₱4.5M - ₱2M = ₱1.8Mx 6% = ₱1.8M -₱2M

= ₱270K = ₱2.5M = ₱108,000 = (₱200K)

Reported as deduction
Report actual gain in
from RIT in his ITR
INDIVIDUAL ITR subject to 32%

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 Sale, exchange, and other disposition of real property located in PH

2. Exemption under NIRC

Section 24(D)(2) Individuals selling their principal residence may be exempt from the 6% CGT
on specific conditions.

Conditions prior to exemption:

Citizen or Resident Alien Principal residence of seller-taxpayer

Proceeds to be used to acquire new Notified BIR within 30 days from
principal residence the sale through BIR1706 and
Sworn declaration of Intent
Reacquisition of new residence must be
Capital Gains is held in escrow in
within 18 months(1.5 years) from the
favor of the government
date of sale.
Exemption can be availed only once
every 10 years
*Sale should precede the reacquisition. BIR Ruling 038-2015

In simpler terms, if the seller buys or constructs a new principal residence within the 18-
month period, they may be entitled to a CGT exemption, provided the sale proceeds were
used for this purpose.

To be eligible for a refund or exemption under the above law, several requirements must be
met:
1.Sale of a Principal Residence: The property sold must be classified as the seller’s
principal residence. This generally refers to the house where the seller lived before the sale.
For it to be considered a "principal residence," it must have been occupied by the seller as
their main home.
2.Reinvestment of Proceeds: The seller must use the proceeds from the sale to purchase
or construct a new principal residence. The key here is that the amount reinvested must be
equal to or greater than the proceeds from the sale of the original residence.
3.Timeline: The reinvestment must occur within 18 calendar months from the sale. This
means that the purchase or construction of the new principal residence must happen
within this period.
4.One-Time Use: Under the NIRC, the CGT exemption for the sale of a principal residence
can only be availed of once every ten (10) years.
5.Filing for a Refund: If the seller has already paid the CGT, they may apply for a refund
from the Bureau of Internal Revenue (BIR), provided they can prove compliance with the

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conditions above. If the proceeds were only partially reinvested, only the proportionate
amount of the CGT may be refunded.

Process of Claiming a CGT Refund

If a seller qualifies for a CGT refund, the next step involves filing for the refund with the BIR.
Here is an outline of the general process:
1.File a Formal Claim with the BIR: A formal application must be submitted to the BIR. This
involves completing the necessary forms and providing documentation that proves
compliance with the legal requirements. Essential documents include:
1. The Deed of Sale of the original property
2. The Deed of Sale or contract to sell for the new principal residence
3. Proof of payment of the CGT for the original sale
4. Documents proving that the proceeds from the sale were fully utilized in the
purchase or construction of the new residence
5. Any other relevant documents the BIR may request
2.Timely Filing: The claim for refund must be filed within two (2) years from the date of
payment of the CGT. The statute of limitations for refunds in the Philippines makes this
deadline critical. If the claim is not filed within this period, the right to a refund may be
forfeited.
3.Supporting Documents: In addition to the sale documents, the claimant must provide
evidence that the property sold was indeed their principal residence and that the proceeds
were utilized to acquire a new principal residence. Affidavits, receipts, and proof of
occupancy may also be required.
4.BIR Review and Approval: After filing, the BIR will evaluate the application to determine if
the taxpayer is indeed entitled to a refund. The BIR will review the documentation to ensure
that the requirements are fully met. If approved, the refund will be processed and returned
to the taxpayer.
Taxpayer Considerations and Challenges
While the law appears straightforward, practical application can sometimes be challenging.
Sellers seeking a CGT exemption or refund must ensure strict compliance with the
requirements. In some cases, delays in filing or incomplete documentation can lead to a
denial of the claim. Here are some common issues faced:
1.Documentary Requirements: The burden of proving that the proceeds were fully
reinvested in a new residence lies with the taxpayer. Thus, meticulous record-keeping is
essential.
2.Reinvestment of Partial Proceeds: If only part of the sale proceeds is used for acquiring a
new residence, the taxpayer will not be fully exempt from the CGT. Only the portion that was
reinvested will be eligible for exemption or refund, and the remaining portion will be subject
to CGT.
3.Claim Processing Delays: The refund process may take time, and taxpayers need to be
prepared for possible delays at the BIR due to processing backlogs.

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Sale, exchange, and other disposition of real property located in PH
2. Exemption under NIRC
Example 1 Example 1
In January of 2024, April bought a new condominium 3. Scenario: If April didn’t buy the
in Pasig for ₱4M to be her principal residence in
condominium in Pasig until October 2024,
preparation for her to sell her old principal residence
in Mandaluyong with a zonal value of ₱6M and City
what will happen to the CGT of ₱390K
Assessor’s fair market value of ₱5.5M . She was able It will be partially exempted, since the value of the
to sell it in June 2024 for ₱6.5M cash to Joel. April condominium in Pasig is less than the selling price of
bought the place for ₱3M several years ago. She was the Mandaluyong property.
able to inform BIR of the sale and submitted proper
documents. To April [₱390K x (₱4M/ ₱6.5M)] ₱240K
1. Will BIR approve April’s application to be To BIR [₱390K x (₱2.5M/ ₱6.5M)] ₱150K
exempt from CGT?
No. She failed to meet one condition by buying a Total amount in Escrow ₱390K
new principal residence prior to selling the old one.
If April fully utilized the sales proceeds of ₱6.5M to
2. How much CGT does she owe? buy the new condominium, she will be fully exempt
SP ₱6.5M SP ₱6.5M and the ₱390K will be refunded to her in full.
CGT Rate x 6%
ZV ₱6.0M
CAO FMV ₱5.5M CGT ₱390K

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Sale, exchange, and other disposition of real property located in PH

3. Exemption under Special Laws

Sale of land pursuant to the Sale of socialized housing units by

Comprehensive Agrarian Reform the National Housing Authority
Program • Sales to homeless and under-privileged
citizens by NHA with reference to Urban
• Exempt from Capital Gains Tax Development Housing Act of 1992
• Interest income on the Selling Price (if
• Exempt from Capital Gains Tax
there’s any agreement) is also exempt
from Regular Income Tax

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Sale, exchange, and other disposition of real property located in PH
Exercise 1 Exercise 2
1. Alternative Raymart was forced to sell his property in Celia invested in a lot near the
Davao City for ₱8.5M to the government due to airport for ₱3M 15 yrs ago. In
Taxation Rule a government project that will need to be build May 2024, the government
there. The property had a zonal value of ₱8.0M invoked its power of eminent
and had a fair market value of ₱9M from the domain to acquire Celia’s lot
Provincial Assessors Office. Raymart bought for the expansion of the
that property 10 years ago for ₱5M. Assume a airport. Assuming the FMV of
32% Regular income tax rate. Which option will the property is ₱2.3M and the
Raymart choose between CGT or RIT. zonal value is ₱2.5M.
Raymart’s options:
Relevant Celia’s options:
Information: Option 1 Option 2 Option 1 Option 2
SP ₱8.5M 6% CGT RIT 6% CGT RIT
ZV ₱8.0M = ₱8.5M - ₱5M = ₱2.5Mx 6% = ₱2.3M -₱3M
= ₱9.0M x 6%
FMV ₱9.0M = ₱3.5M x 32% = ₱150K = (₱700K)
= ₱540K = ₱1.12M

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Sale, exchange, and other disposition of real property located in PH
2. Exemption under NIRC (Sale of principal place of residence)
Exercise 1 Example 1
On February 15, 2023, Joy sold her principal 3. Scenario: If Joy met all the conditions what
residence in Mabalacat for ₱15M to Jesse with a
will happen to the CGT?
zonal value of ₱13.5M and Provincial Assessor’s
Office fair market value of ₱14M. On March 20, 2023 It will be partially exempted, since the value of the
she filed and submitted her affidavit along with the new residence is less than the selling price of the
necessary documents with BIR to claim for CGT
exemption. In September 1, 2024, she was able to
To Joy [₱900K x (₱14M/ ₱15M)] ₱840K
buy a new residence house for ₱14M. Solve for the
following: To BIR [₱900K x (₱1M/ ₱15M)] ₱60K
1. Will BIR approve Joy’s application to be exempt Total amount in Escrow ₱900K
from CGT?
No. She failed to meet 2 conditions: (1) Late filing
with BIR; (2) she bought new residence past the 18
months.
2. How much CGT does she owe?
SP ₱15M SP ₱15M
CGT Rate x 6%
ZV ₱13.5M
CAO FMV ₱14M CGT ₱900K

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BIR FORM

Reference:
https://bir-cdn.bir.gov.ph/local/pdf/1706%20Jan%202018%20ENCS%20Final%20version.pdf

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 FILING AND PAYMENT DEADLINES AND PENALTIES

DEADLINE PENALTY for late filing

Within 30 days from Surcharge = 25% of tax due

the date of Sale (as Interest = 12% per annum
evidenced by Compromise = ranging from
notarized deed of sale) ₱1,000 up to ₱25,000 depending
on tax delinquency.

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Thank you!!!

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