Transfer taxes Presented by: Susan D. Tusoy, CPA, MPS Asst. Chief, Assessment Division.

Transfer taxes

Presented by:

Susan D. Tusoy, CPA, MPSAsst. Chief, Assessment Division

Topics:

Capital Gains Tax/EWT on Sale of Real Properties– Ordinary Asset vs. Capital Asset– Zonal Valuation– Forms, due dates, and requirements– Basic Computation

Estate Tax Donor’s Tax Zonal Valuation Basic Computation Forms, due dates and requirements

Classification of Real Property

Capital Asset

Ordinary Asset

Capital Asset

Means property held by the taxpayer (whether or not connected with his trade or business), but does not include-

a) Stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory if on hand at the close of the taxable year;

b) Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business;

c) Property used in the trade or business of a character which is subject to the allowance for depreciation provided in Subsection (F) of Sec. 34 of the Code;

d) Real property used in trade or business of the taxpayer.

Ordinary Asset

Refers to all properties specifically excluded from the definition of capital assets under Sec. 39(A)(1) of the Code.

Sale of Real Property

Capital Gains Tax/Documentary Stamp Tax– Capital Asset

Expanded Withholding Tax/Documentary Stamp Tax– Ordinary Asset

Capital Gains Tax

It 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.

Expanded Withholding Tax

It is a kind of withholding tax which is prescribed only for certain payors and is creditable against the income tax due of the payee for the taxable quarter/year.

Documentary Stamp Tax

It is a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.

Sale of Capital Asset

Kind of Tax Rate Deadline Form to be used

Capital Gains Tax

6% of Tax Base

30 days after each sale of

property

BIR Form No. 1706


P15.00/ P1,000.00

of Tax Base

Within 5 days after the close of the month the taxable

document was made, signed, accepted or transferred

BIR Form No. 2000 OT


Tax Base – whichever is higher between:1) Selling Price2) Fair Market Value (FMV)

a) FMV as determined by the Commissioner or Zonal Value

b) FMV as shown in the schedule of values of the Provincial and City Assessors

Zonal Value

The value of the real property located in each zone or area as determined by the Commissioner of Internal Revenue pursuant to Section 6(E) of the NIRC, upon consultation with competent real estate appraisers, both from the private and public sectors, adopted for purposes of computing any internal revenue tax.


Place of Filing/Payment

It shall be filed and paid at Authorized

Agent Bank (AAB) or Collection Agent of the

RDO having jurisdiction over the place where

the property is located.

ILLUSTRATION ON SALE OF CAPITAL ASSET

Data: Area sold: 115 sq.m.

Selling price - P150,000.00

FMV per Tax Dec. - P 80,500.00Zonal Value - P1,720.00/sq.m.

(P1,720.00 x 115sq.m.) - P197,800.00

Taxable Base: P197,800.00

ILLUSTRATION ON SALE OF CAPITAL ASSET


Capital Gains Tax Due P 11,868.00 (P197,800.00 x 6%)

Documentary Stamp Tax Due P 2,970.00(P197,800.00/P1,000.00 x P15.00)

Total Amount Due P 14,838.00

Sale of Ordinary Asset

Kind of Tax Rate Deadline Form to be used

Expanded Withholding

Tax

Refer to schedule of withholding

tax rate

On or before the 10th day of the ff. month in w/c the withholding was

made

BIR Form No. 1606


P15.00/ P1,000.00

of Tax Base

Within 5 days after the close of

the month the taxable

document was made, signed, accepted or transferred

BIR Form No. 2000 OT


Withholding Tax RateIf habitually engaged

0 to 400,000(socialized housing)

for house & lot package - Exempt0 to 160,000(socialized housing)

for homelots only - RMC 36-2011 - Exempt0 to 500,000 - 1.5%

500,001 to 2M - 3.0%More than 2M and above - 5.0%

If not habitually engaged - 6.0%

Habitually Engaged (RR 6-2001)

Seller is registered with HLURB or HUDCC

If not registered with HLURB/HUDCC, show proof that he/it is engaged in the real estate business, such as:– Consummation of at least 6 taxable real

estate transactions, regardless of amount in the preceding year


Tax Base – whichever is higher between:1) Selling Price

2) Fair Market Value (FMV)a) FMV as determined by the Commissioner or Zonal

Value





Agent Bank (AAB) or Collection Agent of the

RDO having jurisdiction over the place where

the property is located.

ILLUSTRATION ON SALE OF ORDINARY ASSET

Data: Area sold: 500 sq.m.

Selling price - P500,000.00

FMV per Tax Dec. - P600,000.00Zonal Value - P1,400.00/sq.m.

(P1,400.00 x 500sq.m.) - P700,000.00




Seller is not habitually engaged in real estate business:

EWT Due P 42,000.00 (P700,000.00 x 6%)

Documentary Stamp Tax Due P 10,500.00(P700,000.00/P1,000.00 x P15.00) Total Amount Due P52,500.00



Seller is habitually engaged in real estate business:

EWT Due P 21,000.00 (P700,000.00 x 3%)

Documentary Stamp Tax Due P 10,500.00(P700,000.00/P1,000.00 x P15.00) Total Amount Due P31,500.00

WITHHOLDING TAX ON THE SALE, TRANSFER WITHHOLDING TAX ON THE SALE, TRANSFER OR EXCHANGE OF REAL PROPERTYOR EXCHANGE OF REAL PROPERTY

In general - Tax rate Type of withholding

Capital asset 6% Final withholding tax (CGT)

Ordinary asset Exempt;1.5%; 3%; 5%; 6% Expanded (creditable)withholding tax

Exceptions –

Sale of capital asset to the government

6% CGT or normal income tax rate at the option of the taxpayer

Sale/transfer of principal residence

Exempt

SALE OF CAPITAL ASSET TO THE GOVERNMENTSALE OF CAPITAL ASSET TO THE GOVERNMENT

Seller - individualBuyer - government or any of its political subdivisions or agencies or GOCCs

Property sold - capital asset

Tax to be imposed (at the option of the seller)

1. Capital gains tax (6%)

2. Normal rate of income tax (5% - 32%)

Under option no. 2, buyer is not required to withhold 6% but no CAR shall be issued unless the seller/buyer shows the seller’s duly filed ITR reflecting the subject real property transaction

SALE/TRANSFER OF PRINCIPAL RESIDENCESALE/TRANSFER OF PRINCIPAL RESIDENCE

Property sold - principal residence

Tax to be imposed - EXEMPT

Conditions:

1. Proceeds were fully utilized to acquire another principal residence within 18 months from the date of sale

2. Deposit of the equivalent of 6% CGT in escrow account coupled with the execution of escrow agreement

3. Exemption can be availed only once in 10 years

Procedures –

1. Buyer/transferee shall withhold from the seller the equivalent of 6% CGT

2. Deposit the amount withheld with an AAB under an Escrow Agreement between the RDO, seller, transferee and the AAB

3. Buyer/transferee and the seller shall jointly file BIR Form 1706 without computed tax due to the RDO within 30 days from date of sale

4. Seller shall utilize the proceeds to acquire/construct his new principal residence within 18 months from the date of sale


Procedures –

5. Seller shall submit documentary evidence showing the utilization of proceeds to RDO within 30 days from lapse of 18 month period

6. Seller shall be treated as deficient in the payment of CGT upon failure to submit proof of acquisition and shall be assessed for deficiency taxes inclusive of penalties computed from the 31st day after date of sale

7. Assessment has become final and executory – the deposit in escrow shall be forfeited and applied to the tax liability


ESCROW AGREEMENTESCROW AGREEMENT

Definition- it means a scroll, writing or deed, delivered by the grantor,

promisor or obligor into the hands of a third person, to be held by the latter until the happening of a contingency or performance of a condition, and then by him delivered to the grantee, promisee or obligee

Purpose- an agreement that the amount so deposited, including interest

yield shall only be released to the transferor upon certification by the RDO that the proceeds has in fact been utilized in the acquisition of new principal residence within 18 months from date of sale

_______________________________________

_______________________________________

Question?

What if the seller fails to utilize the proceeds of sale of disposition in full or in part within the 18-month period?

Answer

He shall be treated as deficient in payment of his CGT and shall be assessed including penalties computed from the 31st day after the date of sale of the principal residence.

The deposits in escrow inclusive of its interest earnings shall be forfeited and applied against the deficiency CGT.

If insufficient, the seller shall be liable for the remaining balance of the assessment.

If there is excess, it shall be returned to the seller by the bank upon written authorization from the BIR.

INSTALLMENT SALE defined…Revenue Regulations No. 17-2003

The sale of real property qualifies as an installment sale if the down payment plus all the subsequent payments received during the year of sale do not exceed 25% of the selling price.

Deferred-payment sale defined… Revenue Regulations No. 17-2003

Payments in the year of sale exceed

25% of the selling price.

Time of Withholding for Installment Sales (RR 6-2001 as amended by RR 17-2003)

If the buyer is an individual not engaged in trade or business:

– no withholding is required to be made on the periodic installment payments. Tax shall be withheld on the last installment or installments immediately prior to such last installment, if the last installment is not sufficient to cover the tax due, based on SP/FMV at the time of execution of the Contract to Sell

If the buyer is engaged in trade or business, whether corp. or otherwise:

– the tax shall be withheld by the buyer from every installment/s

Tax Base on Installment Sale(Buyer is engaged in trade or business)

The tax shall be based on the ratio of actual collection of the consideration against the agreed consideration appearing in the Contract to Sell applied to the gross selling price or fair market value of the property at the time of execution of the Contract to Sell, whichever is higher.

Formula: Actual collection x SP/FMV x tax rate Agreed consideration

(Contract to Sell)

Time of Withholding for Deferred-payment Sales (RR 6-2001 as amended by RR 17-2003)

If the buyer is an individual not engaged/engaged in trade or business:

– tax shall be withheld by the buyer on the first installment based on the SP/FMV, whichever is higher.

DST on Installment/Deferred Payment Basis

DST shall accrue upon the execution of the Deed of Sale but the basis shall be the SP/FMV, whichever is higher as of the time of the execution of the Contract to Sell.

ASSIGNMENT OF RIGHTS OVER REAL PROPERTYASSIGNMENT OF RIGHTS OVER REAL PROPERTY

Buyer assign his right over the real property to another after completion of payment but before the execution of the Deed of Absolute Sale

Seller Buyer/Assignor Assignee

subject to w/hold the finalCGT or CGT/expandednormal w/holding tax andincome tax remit to BIR

subject to CGT or w/hold the final CGT/

normal income tax expanded w/holding

tax and remit to BIR

Note: The assignment shall be considered separate sale of property hence shall be

subject to the tax liabilities imposed on all sales transactions

SALE OF INTEREST IN REAL PROPERTYSALE OF INTEREST IN REAL PROPERTY

Property purchased on installment which was sold by the buyer before it was fully paid

Seller Buyer 1 Buyer 2

subject to CGT w/hold final CGT/ withhold final CGT/

or normal expanded w/holding expanded w/holdingincome tax tax and remit to BIR tax and remit to BIR

subject to income tax on the

realized gain (agreed consideration between B1 and B2 – amount actually paid to the seller)

RMC No. 55-2011Clarification on when to reckon the redemption period on foreclosed property

For natural persons – the one-year redemption period shall be reckoned from the date of registration of the sale in the Office of the Register of Deeds

For juridical persons – the right of redemption shall be until the registration of the certificate of foreclosure sale with the Register of Deeds or 3 months after foreclosure, whichever is earlier.

Estate Tax

Estate Tax

It is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers which are made by law as equivalent to testamentary disposition.

Definition

Real property- includes land, building, improvement, trees, machineries and construction of all kinds adhered to the soil, etc. and real rights or equity in immovable property, left by the deceased as of the time of death.

Definition

Tangible Personal Property – includes jewelry, car and appliances, paintings and other movable property which can be perceived by the human senses and which can be transported from one place to another.

Intangible Personal Property – includes deposits in banks, shares of stock, trademark, patented copyright, and the like which do not have physical form, hence, cannot be perceived by the human senses.

Definition

Exclusive Property – that property owned solely by each spouse and acquired by gratuitous title and other acquisition using exclusive money of the husband and/or wife.

Communal Property – that property brought into marriage and property acquired during the marriage by both husband and wife whose marriage was solemnized on or after August 4, 1988, the effectivity of the New Family Code, in the absence of pre-nuptial agreement.

Definition

Conjugal Property – that property which is acquired by both husband and wife during marriage solemnized before August 4, 1988, as revised by the New Family Code, including fruits thereof.

Composition of Gross Estate

As to Resident or Non-Resident Citizen/Resident Alien

a) Real or Immovable Property – wherever situatedb) Tangible Personal Property – wherever situatedc) Intangible Personal Property– wherever situated

As to Non-Resident Aliena) Real or Immovable Property – within the Phils.b) Tangible Personal Property – within the Phils.c) Intangible Personal Property – within the Phils.

(unless exempted under reciprocity clause)

Valuation of Gross Estate

Real properties as of the time of the decedent’s death shall be, whichever is higher between:

a) FMV as determined by the Commissioner or Zonal Value


Valuation of Gross Estate

For unlisted common shares, they are valued based on their book value.

For unlisted preferred shares, they are valued at par value.

For shares which are listed in the stock exchanges, the FMV shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself.

Allowable Deductions (citizen or resident decedent)

1. Expenses, losses, indebtedness, and taxesa. Funeral expenses – actual expenses or an amount equal to 5% of the gross estate, whichever is lower, but in no case

to exceed P200,000.b. Judicial expenses of the testamentary or intestate

proceedings - expenses incurred during the settlement of estate

c. Claims against the estated. Claims against insolvent persone. Unpaid Mortgages, Taxes & Casualty Losses

Allowable Deductions (citizen or resident decedent) continued….

2. Property Previously Taxed or Vanishing Deduction

3. Transfer for Public Use4. Family Home - Current FMV of the decedent’s

family home but not to exceed P1M5. Standard Deduction - P1M6. Medical Expenses - Not to exceed

P500,000/within 1 year before death7. Amt received by heirs under RA 49178. Net Share of Surviving Spouse

Estate Tax

Rate Deadline Form to be used

Refer to Estate Tax Table

applicable at the time of

decedent’s death

Jan. 1, 1998 to present – within 6 months from decedent’s death

BIR Form No. 1801

If the Net Estate is:But not The tax of the excess

Over over shall be plus over

200,000 exempt200,000 500,000 - 5% 200,000 500,000 2,000,000 15,000 8% 500,000

2,000,000 5,000,000 135,000 11% 2,000,000 5,000,000 10,000,000 465,000 15% 5,000,000

10,000,000 and over 1,215,000 20% 10,000,000

ESTATE TAX TABLE (effective Jan. 1, 1998 to present)


It shall be filed and paid at

Authorized Agent Bank (AAB) or

Collection Agent of the RDO having

jurisdiction over the place of residence of

the decedent at the time of his/her death.

Take Note!

Notice of death shall be filed within two (2) months from date of death

When the gross estate exceeds Two Million Pesos (P2,000,000.00), it shall be supported with a statement duly certified by a Certified Public Accountant (CPA)

ILLUSTRATIVE PROBLEMS

ILLUSTRATION 1 ILLUSTRATION 1 (Decedent is an (Decedent is an unmarried head of family) unmarried head of family)

Real and Personal properties P5,000,000.00 Family Home 2,000,000.00

Gross Estate P 7,000,000.00

Less: DeductionsOrdinary Deductions: Funeral Expenses P 200,000.00 Other Deductions 1,300,000.00 P1,500,000.00

Special Deductions: Family Home P1,000,000.00 Standard Deductions 1,000,000.00 Medical Expenses 500,000.00 2,500,000.00

• Total Deduction P4,000,000.00• Net Taxable Estate

P3,000,000.00• Estate Tax Due P 245,000.00

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ILLUSTRATION 2 ILLUSTRATION 2 (Decedent is a (Decedent is a married man with surviving spouse)married man with surviving spouse)

Exclusive Conjugal Total

Conjugal Properties Real Properties P5,000,000.00 P5,000,000.00

Exclusive Properties Family Home P2,000,000.00Other Exclusive Properties 2,500,000.00 4,500,000.00

Gross Estate P4,500,000.00 P5,000,000.00 P9,500,000.00Less: DeductionsOrdinary Deductions: Conjugal Deductions Funeral Expenses (P 200,000.00) ( 200,000.00)

Other Deductions (1,300,000.00) (1,300,000.00) Total Conjugal Deductions (P1,500,000.00) (P1,500,000.00) Net Conjugal Estate P3,500,000.00Special Deductions: Family Home (1,000,000.00) Standard Deductions (1,000,000.00) Medical Expenses ( 500,000.00) Total Deductions (P4,000,000.00)Net Estate P5,500,000.00Less: ½ Share of Surviving Spouse (P3,500,000.00/2) (1,750,000.00)Net Taxable Estate P3,750,000.00Estate Tax Due P 327,500.00

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ILLUSTRATION 3 ILLUSTRATION 3 (Decedent is a (Decedent is a married man with surviving spouse)married man with surviving spouse)

Exclusive Conjugal Total

Conjugal Properties Family Home P2,000,000.00Other Real Properties 5,000,000.00 P7,000,000.00

Exclusive Properties P2,000,000.00 2,000,000.00

Gross Estate P2,000,000.00 P7,000,000.00 P9,000,000.00Less: DeductionsOrdinary Deductions: Conjugal Deductions Funeral Expenses (P 200,000.00) ( 200,000.00)

Other Deductions (1,300,000.00) (1,300,000.00) Total Conjugal Deductions (P1,500,000.00) (P1,500,000.00) Net Conjugal Estate P5,500,000.00Special Deductions: Family Home (1,000,000.00) Standard Deductions (1,000,000.00) Medical Expenses ( 500,000.00) Total Deductions (P4,000,000.00)Net Estate P5,000,000.00Less: ½ Share of Surviving Spouse (P5,500,000.00/2) (2,750,000.00)Net Taxable Estate P2,250,000.00Estate Tax Due P 162,500.00

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Donor’s Tax

Donor’s Tax

It is a tax on a donation or gift, and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer.

Composition of Gross Gift

Citizens/resident Donora) Real or Immovable Property – wherever situated

b) Tangible Personal Property – wherever situated

c) Intangible Personal Property– wherever situated

Non-resident alien Donora) Real or Immovable Property – located in the Phils.

b) Tangible Personal Property – located in the Phils.

c) Intangible Personal Property – located in the Phils. unless exempted under the principle of reciprocity

Deductions from Gross Gift(including tax-exempt donations)

Dowries or gift by parents to children on account of marriage, before its celebration, or within 1 year thereafter to the extent of P10,000.00.

Gifts to the national government or any of its agencies

Gifts made in favor of an educational, and/or charitable, religious, cultural or social welfare corporation, foundation, trust or philanthropic organization or research institution or organization, provided that not more than 30% of said gifts shall be used for administration purposes

Deductions from Gross Gift(including tax-exempt donations)

Encumbrance on the property donated if assumed by the donee in the deed of donation;

Those specifically provided by the donor as a condition of the donation which will diminish the value of the property received by the donee;

Exempt donation under special laws

Donation

Donee Kind of Tax Rate Deadline Form to be used

Stranger Donor’s Tax

30% of the net gift/s

Within 30 days after the date the gift is made

BIR Form No. 1800

Relative Donor’s Tax

Refer to Donor’s Tax Table applicable at the time of donation

Within 30 days after the date the gift is made

BIR Form No. 1800

Valuation of Gross Gift

If the gift is made in property, the FMV at the time of donation.

In case of real property, the value of the gross gift at the time of donation shall be, whichever is higher between:

1) FMV as determined by the Commissioner or Zonal Value

2) FMV as shown in the schedule of values of the Provincial and City Assessors

Stranger for donor’s tax purposes

Stranger – is a person who is not a:a) Brother, sister (whether by whole or half-

blood), spouse, ancestor and lineal descendant; or

b) Relative by consanguinity in the collateral line within the fourth degree of relationship.

If the net gift is:But not The tax of the excess

Over over shall be plus over

100,000 exempt100,000 200,000 - 2% 100,000 200,000 500,000 2,000 4% 200,000 500,000 1,000,000 14,000 6% 500,000

1,000,000 3,000,000 44,000 8% 1,000,000 3,000,000 5,000,000 204,000 10% 3,000,000 5,000,000 10,000,000 404,000 12% 5,000,000

10,000,000 1,004,000 15% 10,000,000

Note: If the donee is a stranger, the rate is 30%

DONOR'S TAX TABLE (effective Jan. 1, 1998 up to present)



Agent Bank (AAB) or Collection Agent of

the RDO having jurisdiction over the place

where the donor is domiciled at the time of

the transfer.

Take Note!

Gifts made during the same calendar year are collated and the donor’s tax computed on the total gifts during the year.

A separate return shall be filed for each gift made on different dates during the year reflecting therein any previous net gifts made during the same calendar year.

Only one return shall be filed for several gifts made by the donor to different donees on the same date.

Take Note!

If the gift involves conjugal/community property, each spouse shall file separate return corresponding to his/her respective share in the conjugal/community property. This rule will also apply in the case of co-ownership over the property.

ILLUSTRATIVE PROBLEMS

ILLUSTRATION 1

Data: Gifts given by Mr. A, single, to a friend for taxable year 2011:

FMV – P500,000.00

Zonal Value – P600,000.00

Value of Gross gift - P600,000.00

Donor’s Tax Due P180,000.00

(P600,000.00 x 30%)

ILLUSTRATION 2

Data: Gifts given by Mr. A, single, to relatives for taxable year 2011:FMV – P500,000.00Zonal Value – P600,000.00Value of Gross gift P600,000.00

Tax on P500,000.00 - P 14,000.00Excess (P100,000.00 x 6%) - 6,000.00Donor’s Tax Due P 20,000.00

ILLUSTRATION 3

Data: Gifts given by Mr. A, single, to relatives for taxable year 2011:On January 12, 2011FMV – P500,000.00Zonal Value – P600,000.00Value of Gross gift - P600,000.00

Tax on P500,000.00 - P 14,000.00Excess (P100,000.00 x 6%) - 6,000.00Donor’s Tax Due P 20,000.00

ILLUSTRATION 3(cont.)

Data: On February 25, 2011FMV – P 300,000.00Zonal Value – P 450,000.00Value of Gross gift P 450,000.00Add: Prior gift – 1/12/11 600,000.00Total gifts P1,050,000.00

Tax on P1,000,000.00 - P 44,000.00Excess (P50,000.00 x8%) - 4,000.00Total Donor’s Tax Due P 48,000.00Less: Tax paid – 1/12/11 20,000.00Donor’s tax due – 2/25/11 P 28,000.00

Transfer taxes Presented by: Susan D. Tusoy, CPA, MPS Asst. Chief, Assessment Division.

Documents

Transcript of Transfer taxes Presented by: Susan D. Tusoy, CPA, MPS Asst. Chief, Assessment Division.