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REVENUE MEMORANDUM CIRCULAR NO. 27-2017clarifies the taxable base on sale, exchange or other disposition of real property whether classified as capital asset or ordinary asset.

Under the tax code, the taxable base for the 6% capital gain tax (CGT) shall be the higher between real property’s:
a. gross selling price and
b. current fair market value (FMV).

The current FMV, as determined by Section 6(E) of the NIRC, shall be the higher of:
a. FMV as determined by the Commissioner (Zonal Values) or
b. FMV as shown in the schedule of values of the Provincial and City Assessors

It has further stated, that Revenue officials or employees cannot apply comparative sale or any other taxable base for the imposition of CGT, income or withholding tax on aforementioned transactions.

In relation, BIR issued Revenue Memorandum Circular No. 35 – 2017 which clarifies that CGT liability arises from profit or gain that was presumed to have been realized by the seller from the sale, exchange or other disposition of real property classified as capital asset, including pactro de retro sales and other conditional sales. Mere issuance of tax declaration in the absence of transfer of ownership from any sale, exchange or disposition shall not be subject to CGT.

Click here to view RMC 27-2017 for your reference.

Click here to view RMC 35-2017 for your reference.

REVENUE MEMORANDUM CIRCULAR NO. 35-2017 issued on April 27, 2017 clarifies the imposition of Capital Gains Tax on the sales, exchanges or transfers of real properties classified as capital asset.

A final tax of six percent (6%) is imposed on capital gains presumed to have been realized by the seller from the sale, exchange or other disposition of real properties located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales based on the gross selling price or fair market value, whichever is higher. This implies that in order to be liable for the payment of Capital Gains Tax, there must be presumed gain from the sale, exchange or disposition of the real property.

The mere issuance of tax declaration in the absence of any sale, exchange or other form of conveyance is not subject to Capital Gains Tax. The payment of Capital Gains Tax is dependent and is a direct consequence of the sale, transfer or exchange. It is not the transfer of ownership or possession per se that subjects the sale/transfer/exchange to the 6% Capital Gains Tax, but the profit or gain that was presumed to have been realized by the seller by means of said transfer.