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Capital Gains Tax
Capital Gains Tax
Capital Gains Tax
• Gains arising from sale of ordinary assets are called “ordinary gains”. Gains
arising from sale of capital assets are called “capital gains.”
• All ordinary gains are taxable under regular income taxation.
• Capital gains are taxable either under final capital gains tax or under regular
income tax.
ANALYSIS OF PROPERTIES HELD BY TAXPAYER
INDIVIDUAL
TAXPAYERS
Personal Asset
Business
(all are capital Asset
assets)
Ordinary
Capital assets
assets
Corporate
Taxpayers
Ordinary Capital
Assets Assets
TYPES OF GAINS SUBJECT TO CAPITAL GAINS TAX
Note: This rule on capital gains on sale of domestic stocks directly to buyer is
uniform to all income taxpayers (individuals or corporate) regardless of
classification
CAPITAL GAIN ON THE SALE, EXCHANGE AND OTHER DISPOSITION OF
DOMESTIC STOCKS DIRECTLY TO BUYER
* If total consideration is paid partly in money and partly in property, the sum of
money and fair value of property received.
1.If acquired by purchases- tax basis is the cost of the property which will determined by the
following methods:
A.Specific identification
B.Moving average method
C.First in-first out method
2.If acquired by devise, bequest or inheritance - tax basis is the fair value at the time of death
of the decedent.
3. If acquired by gift - the tax basis is the lower of the fair market value at the time of gift and
the basis in the hands of the donor or the last preceding owner by whom it was not
acquired by gift.
4. If acquired for inadequate consideration - the tax basis is the amount paid by the transferee
for the property
5. If acquired under tax-free exchanges - the tax basis is the substituted basis of the stocks
Illustration:
Mr. Cool sold his stocks receiving in exchage a building with a tax basis of
P2,000,00 but with a fair value of P2,500,000, goods worth P100,000 and
P400,000 cash.
Illustration:
Terry sold a vacant agricultural land for P5,000,000. The land was
purchased by Terry at P4,000,000 and had an appraisal value of
P8,000,000 and zonal value of P7,000,000. The property had a fair
value of P6,000,000 in the Provincial Assessor’s Office and an
assessed value of P2,400,000.
The highest of the selling price (5M), zonal value (7M) and
Assessor’s fair value (6M) is the P7,000,000 fair value. Hence, the
capital gains tax would be computed P7,000,000 x 6%; hence,
P420,000.
Anna sold her residential house and lot for P5,000,000.
Anna purchased the lot when it was worth P1,000,000 and
constructed on it the house at total cost of P2,500,000.
The following fair value details were available for the
property:
BIR zonal value Assessor's vauation
Zonal Value Fair value Assessed value
Lot P4,000,000 P3,500,000 P800,000
House n/a 2,000,000 1,200,000
Zonal Value Assessor's Fair Fair Value
Value
Land P4,000,000 P3,500,000 P4,000,000
House 0 2,000,000 2,000,000
(improvement)
Total Fair value P6,000,000
(Higher)
Between Fair value
and Selling price
Multiply bu: CGT x 6%
rate
Capital gains tax P360,000
Nature of the 6% Capital Gains Tax
1. Presumption of capital gains- the 6% capital gains tax
applies even if the sale transaction resulted to loss. The
basis of taxation is the selling price or fair value whichever
is higher, not the actual gain.
Q1. Assuming Chel bought a new principal residence for P4,000,000, how
much is the applicable CGT?
Answer: P0
Chel, a resident citizen, sold his residential house and lot (principal
residence) in the Philippines with the following data:
Selling Price P4,000,000
Assessed Value 6,000,000
Zonal Value 5,000,000
Expenses on the sale 125,000
Q2. Assuming Chel bought a new principal residence for P8,000,000, how
much is the applicable CGT?
Answer: P0
Chel, a resident citizen, sold his residential house and lot (principal
residence) in the Philippines with the following data:
Selling Price P4,000,000
Assessed Value 6,000,000
Zonal Value 5,000,000
Expenses on the sale 125,000
Q3. Assuming Chel bought a new principal residence for P2,000,000, how
much is the applicable CGT?
Answer: P180,000
P2M/4M x P6M x 6% = P180,000
EXEMPTIONS TO THE 6% CAPITAL
GAINS TAX
3. EXEMPTION RULES UNDER SPECIAL LAWS