Compare ordinary assets with capital assets

There are two classification of a property, Ordinary and Capital asset. Accordingly, listed below are the
characteristics of an ordinary asset:

 inventory by a merchandising company that is held for sale

 PPE used in the business

 real property that is held for sale

 real property used in trade or business

Hence, the main characteristic of an ordinary asset is that it is primarily used in the normal operation
of the business and/or it is held for sale. Needless to say, if a property did not fall to the definition
mentioned above it will fall automatically under the category of capital assets.

Discuss the rules of taxation of gains and losses on ordinary assets and capital assets. Related
to the questions, explain also how do the rules on individual taxpayers and corporate taxpayers
differ as to the measurement of the net capital gain or loss.

It is important to classify whether an asset is an ordinary asset or capital asset in order to identify if the
gain/loss is subject to basic tax or Capital gains tax (CGT). Taxation on gains from sale of ordinary
assets is relatively simple for gains on sale of ordinary assets (Individual or Corporation) are included in
the taxable income which is subject to basic tax or the graduated tax table. On the other hand, gains on
sale of Capital assets are subject to Capital gains tax. Capital gains may be from sale of real properties
and sale of shares of stock of a domestic corporation sold directly to a buyer (non-listed corp.) For
Individual taxpayers, sale of shares of stocks is subject to 15% capital gains tax (for Citizens,
Residents, NRA-ETB, and NRA-NETB), however when it resulted to a loss it is not subject to CGT.
Moreover, for corporations, specifically for Domestic Corporations are also subject to 15% tax. For
Resident Foreign Corporations (RFC) and Non-Resident Foreign Corporations (NRFC) the first
P100,000 is subject to 5% while the excess is subject to 10%. For sale of real properties for individual
taxpayers the tax base is between the Selling price and Fair market value whichever is higher which is
subject to 6% CGT. However, for corporations only Domestic corporations are subject to 6% CGT
(Selling price or Fair market value whichever is higher) since it is assumed that foreign corporations
does not have properties in the Philippines.