Chapter 6

What is the difference between ordinary assets and capital assets?

Ordinary assets are those that are used in business, such as inventory for sale or supplies and items of
property plant and equipment like buildings, property improvements and equipment (subject to depreciation)

What is the difference between personal capital assets and business capital assets?

Personal capital assets are the all of the assets of individual taxpayers who are not engaged in any business.
(like most of the students who are not engage in business, your cellphones, iphones, books, etc. are all
personal capital assets)

Business capital assets are those assets which are used in the business which are not classified as ordinary
assets, such as cash, receivables, prepayments, investments, patent, copyright, leasehold rights and franchise
rights.

What are the capital gains subject to capital gains tax and the tax rate?

1. Capital gains on the sale of domestic stocks sold directly to the buyer which is taxed at the rate of 15% of
the capital gains.

2. Capital gains on the sale of real properties not used in business which is taxed at the rate of 6% of the
highest between the selling price, fair market value and zonal value. ( if your parents who do not have any
business will sell a parcel of land, the sale will be subject to the capital gains tax)

What are included in the term Domestic Stocks?

They are stocks which are issued by a Corporation which is organized under the laws of the Republic of the
Philippines which include the following:

1. Preferred stock
2. Common stocks
3. Stock rights
4. Stock options
5. Stock warrants
6. Unit of participation in any association, recreation or amusement club.

What are the other disposition of domestic stocks which is subject to the capital gains tax?

1. Foreclosure of property in settlement of debt

2. Pacto de Retro sales – sale nga pwede paliton ug balik sa seller

3. Conditional sales

4. Voluntary buy back of shares by the issuing corporations - ex. Redemption not for cancellation
What are not included in the term other disposition?

1. Issuance of stocks by a corporation (this is a subscription contract, not a contract of sale for original
issuances) – including re-issuance of treasury shares ( premium if any is part of the capital and not a profit)

2. Exchange of stocks for services – payment of expense in kind

3. Redemption of shares in a mutual fund – exempted by the NIRC

4. Worthlessness of stocks – capital loss

5. Redemption of stocks for cancellation by the issuing corporation - regular income tax

6. Gratuitous transfer of stocks – subject to transfer taxes

What are the modes of disposing domestic stocks?

1. Through the Philippine Stock Exchange (PSE) – subject to the Stock Transaction Tax at the rate of 60% of
1% or .006 of the selling price

2. Directly to the buyer - 15% of the capital gains (selling price – costs and expenses). Transactional Capital
Gains Tax which is due within 30 days from the date of sale

What is the rule on the installment payment of the capital gains tax on sale of domestic stocks?

Can be availed only if the sale of domestic stock is on installment basis and if :

1. The Selling price exceeds :1,000 and

2. Initial payment does not exceed 25% of the selling price

What are the exceptions to the 6% capital gains tax on sales of real properties?

1. Alternative taxation rule

2. Exemption under NIRC – sale of Principal residence if the proceeds of the sale is utilized in acquiring a new
principal residence within 18 months from the date of sale

3. Exemption under special laws

a. Sale of land pursuant to the CARP
b. Sale of socialized housing units by the National Housing Authority

When is the deadline for the payment of the capital gains tax on sale of real property?

Within 30 days from the date of sale.