DEED OF ABSOLUTE SALE – IMPORTANT ADVISORY
Sometime ago during the past administration of the Bureau of Internal Revenue, I encountered a Property Owner / SELLER who was selling a property and wanted a NET DEAL.
Now what does a NET DEAL mean ? It means that the SELLER usually wants an amount that is NET or CLEAN to them regardless of expenses to be paid. The normal expenses that are for the account of the SELLER are Capital Gains Tax ( if the property is under an individual’s name, a capital asset, or as classified in the tax declaration, residential use – this depends on the assessment of the Bureau of Internal Revenue examiner though as some areas that used to be residential in nature are now so commercialized and thus the change in classification is required and therefore the zonal value is now based on Commercial rates rather than Residential, this could be substantial and could be a deal breaker or an unpleasant surprise ), Broker’s Professional Fees, Vat and Business Tax ( if applicable ).
Some NET DEALs covers the Broker’s Professional Fees already so this has to cleared from the very beginning in order to set things straight, no surprises !
Take note that the first thing that the Bureau of Internal Revenue asks for is the TIN # of the SELLER ( individual or corporation ) and from this, they could already see if the Sale is subject to final tax such as Capital Gains Tax or is VATable and in some cities, there is also Business Tax otherwise known as City Tax charged by the Local Government ( this has nothing to do with the BIR ).
As I always mention in all my blogs, specially when it’s a Tax issue, it is the BURDEN of the TAXPAYER to know the LAW. IGNORANCE of the LAW is not an excuse !
Now, here’s the experience worth learning from.
A SELLER wanted a NET DEAL, clear of ALL expenses. That was fine, however, the SELLER insisted that the wordings would clearly state that in the Deed of Absolute Sale. We then conferred that with our BIR Liason who then told us not to use that version saying that the sale in NET of all expenses. WHY ? The Bureau of Internal Revenue would then assess the sale inclusive of the expenses added on to the BUYER thus increasing the actual amount of sale.
So what’s the remedy ? A simple MEMORANDUM OF AGREEMENT may be done by both parties to avoid any complications.
These mostly applies to SELLERs who are in their mid 60s to 80s. I personally have a relative I had to argue with and finally got my point across, we just have to explain thoroughly the consequences but unfortunately, some are firm with their belief and end up having problems as all of a sudden, a figure not anticipated is added on to the cost.
CAVEAT : What used to be acceptable then is now unacceptable and keeping oneself updated with current trends, practices and laws is vital in order to have a smooth transaction.
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Robert G. Sarmiento Properties
Professional Affiliation :
Philippine Association of Real Estate Boards
Member, City of Taguig Real Estate Board 2016 – 2017
Real Estate Broker’s Association of the Philippines 2000-2015
President, Greenhills Chapter 2008, 2009
Philippine Association of Real Estate Brokers
San Juan Mandaluyong Chapter 1998, 1999
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