GAINS AND LOSSES FROM DEALING IN PROPERTY Examples of capital assets are (but not limited to) the

s are (but not limited to) the following:

DEALINGS IN PROPERTY 1. Stock and securities held by taxpayers other than dealers in securities;
2. Interest in partnership and joint venture;
The term “dealings in property” refers to the disposal through sale or
3. Goodwill;
exchange of (a) ordinary assets, or (b) capital assets.
4. Real and personal properties not used in trade or business like
Ordinary Assets residential house and lot, car, jewelries, etc; and
5. Investment property.
Section 39 (A) of the NIRC specifically provides the classifications of ordinary
assets as follows: Note: The sale of real properties and sale of securities are subject to final
taxes. The gain on sale of capital assets other than real properties and
1. Stock in traded intended for sale in the normal course of business, securities is subject to regular income tax.
such as:
a. Merchandise inventory (finished goods, in process and raw
materials); or
b. Securities held or being sold by dealers in securities.
2. Real properties acquired by real estate dealers or developers ( Rev.
Regs. No. 7-2003); or
3. Properties used in business subject to depreciation provided in
Section 34 (F) of NIRC; or
4. Real properties used in trade or business including real property held
for rent. (Section 39 (A), NIRC)
Notes:
1. Accordingly, ordinary assets are assets that are used “primarily” for
business.
2. The gain on sale of ordinary assets is subject to regular income tax.
Capital Assets
The law defines the term “capital assets” by exclusion. Section 39 (A) of the
NIRC provides that “capital assets” as property held by the taxpayer (whether
or not connected with his trade or business) but does not include ordinary
assets as defined in Section 39 A of the NIRC. (Sec. 2, Rev. Regs. No. 7-
2003)
Therefore, capital assets are property of a taxpayer other than ordinary
assets.
 Applicable INCOME TAXES for Capital Gains and Ordinary Gains
TYPE OF GAIN APPLICABLE TAX
CAPITAL GAIN on:
1. Sale of shares of domestic corporations directly to a Subject to 15% CGT on capital gain. However, if the seller is a foreign corporation, CGT is
buyer. 5% on 1st P100,000 capital gain, 15% excess of P100,000 (Chapters 2&5)

2. Sale of shares of domestic corporations through local Not subject to income tax regardless of whether the transaction resulted to a gain or loss. It
stock exchange. is subject to stock transaction tax of 6/10 of 1% of gross selling price (TRAIN Law). A stock
transaction tax is classified as other percentage tax which is a business tax, not an income
tax (refer also to discussions in Chapter 2 and 5).

3. Sale of real properties classified as capital assets in the Subject to 6% capital gains tax based on the highest amount among the selling price, fair
Philippines. market value and zonal value

4. Sale of real properties classified as capital assets in the Either 6% capital gains tax or basic tax at the option of the taxpayer (Refer to Chapter2).
Phils. to the gov’t, its agencies or GOCCs by an individual
taxpayer.

5. All Other types of capital gains other than those Subject to basic income tax. Part of the taxpayer’s taxable income but subject to rues on
enumerated in #1-4. capital gains and losses as discussed in the succeeding pages of this chapter.

ORDINARY GAIN Subject to basic tax. Part the taxpayer’s taxable income

Illustration
Auto Corporation sold the following assets during the taxable year:
Ordinary Asset Capital Assets
Cars Land Shares of stock
Sales price P10,000,000 P5,000,000 P600,000
Cost of sales 7,000,000 4,800,000 300,000
Expenses 2,000,000 400,000 100,000
Net P 1,000,000 (P 200,000) P200,000

Assume that the shares of stock are traded-in the stock market. The related appropriate taxes are follows:
 Ordinary Asset Capital Assets
Cars Land Shares of stock
Taxable base P1,000,000 P5,000,000 P200,000
Multiplied by 30% 6% ½ of 1%
Income Taxes P 300,000 P 600,000 P 15,000
Illustration Portion of the capital gains tax payable annually for four years beginning 2019 is computed as
follows:
Assume that in 2013, Sunshine, an individual taxpayer,
acquired a property for P600,000. In 2018, she sold the Annual installment (P500,000/4 years) P125,000
property for P1,000,000. Terms of sale: Down payment,
Oct. 1, 2018, P100,000; mortgage assumed, P400,000; Installment capital gains tax:
balance of P500,000 payable in four annual installments
beginning Jan. 2, 2019. The taxpayer elects to pay the tax P125,000
x P60,000 = P12,500
on the gain in installments. Computation of total capital P600,000
gains tax:
If the property sold is subject to a mortgage that is assumed by the buyer, contract price is equal
Selling price P1,000,000 to selling price less mortgage assumed.
Multiply by 6%
Total capital gains tax P 60,000 Relief from Double Taxation
Revenue Memorandum Order 30-2002 authorizes the use of BIR Form 1928 in the
Portion of the capital gains tax payable on the year of sale application for relief from double taxation (gains from sale or transfer of shares of stock in the
is computed below: Philippine corporation) for processing of tax treaty relief applications involving gains from sale or
transfer of shares of stocks in a Philippine corporation including gains from sale or transfer of
Downpayment received P100,000 unit of participation in a Philippine partnership.
Total contract price RETURNS AND PAYMENT OF CAPITAL GAINS TAX
Selling price P1,000,000
Less: Mortgage
assumed by buyer 400,000 P600,000

Initial capital gains tax:

P100,000 Illustration:
x P60,000 = P10,000
P600,000 Assume that on Dec. 1, 2019, Gianina sold shares of stock which she acquired for P200,000 at
CAPITAL GAINS AND LOSSES ON STOCK a selling price of P400,000, payable under the following terms: P80,000 down, balance to be
TRANSACTIONS paid in four annual installments beginning year 2020. If she elects to pay in installment, the total
capital gains tax; and the initial and installment capital gains taxes, assuming this is her lone
Stocks issued by a domestic corporation may either be stock transaction, shall be computed as follows:
traded in the local stock exchange or not.
Selling Price P400,000
Stocks Listed and Traded in the Local Stock Exchange Less: Cost 200,000
Capital Gain P200,000
When stocks in the local stock exchange are sold,
exchanged, or transferred through the same, a Total capital gains tax at 15% P 30,000
percentage tax of only 6/10 of 1% (formerly ½ of 1%) is
imposed on the gross selling price of the shares of stocks.
Gross selling price is the total amount of money or its
equivalent which the purchaser pays the vendor to receive
the goods. (Section 127(A), TRAIN)

Initial Public Offering (Repealed by R.A. 11494 or

Bayanihan ACT ll, Section 6)

Stocks Not Traded in the Local Stock Exchange

The net capital gains realized on stock transactions
shall not be included in the gross income of the seller in
computing his normal income tax liability. Capital gains tax
on stock transactions is a final tax. In no case shall it be
allowed as deduction against income or credited against
income tax or any other taxes.

A corporation that was not a party to an exchange

transaction by stockholders covering its shares of stock
cannot be assessed for any deficiency capital gains tax
and donor’s tax (Commissioner of Internal Revenue vs
Shinryo (Philippines) Co., Inc., CTA (En Banc) Case 7572,
Oct.25, 2011).

Tax Base
Valuation of the shares of stocks will be based on the
net capital gain realized from the sale, barter, exchange,
or other disposition of shares of stocks in domestic
corporation, considered as capital assets not traded
through the local stock exchange.

Capital gains tax should be based on selling price or fair

market value or stock sold/traded, whichever is higher.
For purpose of this Section, “fair market value” of the
shares of stock sold shall be:

1. In the case of listed shares which were sold, transferred, or

exchanged outside of the trading system and/or facilities of the
Local Stock Exchange, the closing price on the day when the
shares are sold, transferred, or exchanged. When no sale is
made in the Local Stock Exchange on the day when the listed
shares are sold, transferred or exchanged, the closing price on