When is Capital Gains Tax and Documentary Stamps Tax on a sale or a Real Property payable to the Bureau of Internal Revenue ?
Capital Gains Tax ( for real property – 6% ) ; is payable within 30 days after each sale, exchange, transfer or other disposition of real property . On installment sales wherein both Seller / Developer and Buyer have agreed on a long term basis ( 30 days or more ), Capital Gains Tax is payable upon receipt of 24% of total contract price. Take note that failure to pay Capital Gains Tax on the prescribed date results in penalty surcharge.
Documentary Stamps Tax ( for real property – 1.5% ) is payable within five (5) days after the close of the month when the taxable document was made signed, issued, accepted or transferred.
What is the basis in the valuation of property?
The value of the real property will be based on the selling price, fair market value as determined by the Commissioner (zonal value) or the fair market value as shown in the schedule of values of the Provincial or City Assessor, whichever is higher.
If there is no zonal value, the taxable base is whichever is higher of the gross selling price per sales documents or the fair market value that appears in the latest tax declaration.
If there is an improvement, the FMV per latest tax declaration at the time of the sale or disposition, duly certified by the City/Municipal Assessor shall be used. No adjustments shall be added on the said value, provided that the tax declaration bears the upgraded fair market value of the said property pursuant to Section 219 of R.A. No. 7160, otherwise known as the Local Government Code of 1991 and the last paragraph of the Local Assessment Regulations No. 1-92 dated October 6, 1992.
In case the tax declaration being presented was issued three (3) or more years prior to the date of sale or disposition of the real property, the seller/transferor shall be required to submit a certification from the City/Municipal Assessor whether or not the same is still the latest tax declaration covering the said real property. Otherwise, the taxpayer shall secure its latest tax declaration and shall submit a copy thereof duly certified by the said Assessor. (RAMO 1-2001)
Case Study :
A recent transaction in Metro Manila on a sale of a real property was done in January 2015. The Buyer paid 50% downpayment and the full balance in 120 days. Upon receipt of the 50% downpayment, the Capital Gains Tax was paid and receipt of payment was also received by the bank. Since there was no Deed of Absolute Sale yet and only a Contract to Sell, the sale could not be filed yet with the Bureau of Internal Revenue.
Sixty days into the transaction, the Zonal Value of that particular Revenue District office went up by 50% which naturally alarmed the Seller. Upon verification with the corresponding Revenue District office where the property was located, it was ruled that the basis of Zonal Value on a Sale is when the Deed of Absolute Sale is “notarized” and submitted to the Bureau of Internal Revenue.
Now this is an important ruling that everyone needs to be aware of as it used to be that the Bureau of Internal Revenue accepted the Zonal Value based on the date the Contract to Sell was made specially when the Capital Gains Tax and Documentary Stamp Tax were both already paid. This also applies to installment payments wherein 24% of the contract amount is already paid by the Buyer to the Seller.
NET EFFECT – now the Seller / Developer has to pay the difference on the “New Zonal Value” and the “Old Zonal Value”. Quite a revision !!! The bigger issue is who shoulders the difference ( I have a blog on a new template we use for a Deed of Absolute Sale to clearly state whose responsibility any legal government related expense is for prior to the release of the Certificate Authorizing Registration ).
Also, please take note that on the fine line of a Contract to Sell , particularly Condominiums, some developers pass on the Creditable Withholding Tax and Value Added Tax to the Buyer. In addition, some developers also pass on the payment of the Real Estate Taxes due on the land of the Mother Title of the Condominium to the Buyer which should really be for the Developer’s Account.
As always, it’s always good to verify your transaction with ONETT at the Bureau of Internal Revenue prior to transacting a sale in order to avoid any surprises.
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Robert G. Sarmiento Properties
Professional Affiliation :
Real Estate Broker’s Association of the Philippines
President, Greenhills Chapter 2008, 2009
Philippine Association of Real Estate Brokers
San Juan Mandaluyong Chapter 1998, 1999
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