CAPITAL

GAINS
TAXATION
Income Taxation
 PROPERTIES HELD BY
TAXPAYERS

2 C A P I T A L G A I N S T A X AT I O N
 ASSET
Does not depend upon the nature of the property but upon the
CLASSIFICAT nature of the taxpayer’s business and its usage by the business
ION

1. Purchased for future use in business

2. Previously used in business
3. Disposal – acquirer’s intention
4. Used by exempt corporation

C A P I T A L G A I N S T A X AT I O N
TYPES OF GAINS
ON DEALINGS IN
PROPERTIES
Ordinary gain
Capital gain
TAXATION OF GAINS ON DEALINGS IN
PROPERTIES

Type of Gain Applicable taxation scheme

Ordinary gains Regular income tax
Capital gains GR: Regular income tax
ER: Capital gains tax

C A P I T A L G A I N S T A X AT I O N
SCOPE OF CAPITAL GAINS
TAXATION
Gains on dealings in capital Tax rates
assets
Gain on the sale, exchange, and 15% CGT
other disposition of domestic
stocks directly to buyer
Sale, exchange, and other 6% CGT
disposition of real property in
the Philippines
Gains from other capital assets Regular income tax

C A P I T A L G A I N S T A X AT I O N
CAPITAL GAIN ON THE SALE, EXCHANGE, AND OTHER
DISPOSITION OF DOMESTIC STOCKS DIRECTLY TO BUYER

Domestic stocks – evidence of ownership or rights to ownership in a

domestic corporation regardless of the features
1. preferred
2. common
3. stock rights
4. stock options
5. stock warrants
6. unit of participation
TA X O N S A L E O F D O M E S T I C S TO C K S T H R O U G H T H E P S E
- S TO C K T R A N S A C T I O N TA X ( 6 0 % O F 1 % O F T H E S E L L I N G P R I C E )
E F F E C T I V E J A N U A RY 1 , 2 0 1 8

Stock Selling
Date Cost Gain (Loss)
Code price

4/5/2020 AC 4,000,000 3,700,000 300,000

4/5/2020 SMB 3,000,000 3,200,000 (200,000)

Total 7,000,000 6,900,000 100,000

Dealer VS. Non-dealer

C A P I T A L G A I N S T A X AT I O N
DOMESTIC STOCKS DIRECTLY TO BUYER

CGT – universal & annual

Net gain:
Selling price xxx
Less:
Basis of stocks disposed xxx
Selling expenses xxx
Documentary stamp tax xxx xxx
Net capital gain (loss) xxx

C A P I T A L G A I N S T A X AT I O N
 SELLING PRICE

Cash sale – total consideration received

Partly in money and partly in property – the sum of money and fair value of property received

Exchanges – the fair value of the property received

C A P I T A L G A I N S T A X AT I O N
 TAX BASIS

By purchase
cost of property and obligations assumed by the purchaser
Devise, bequest, or inheritance
fair value at the time of death of the decedent
Gift
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
For inadequate consideration
amount paid by the transferee for the property
Tax-free exchanges
substituted basis of the stocks

C A P I T A L G A I N S T A X AT I O N
COST OF ACQUISITION

Mrs. La Carlota purchased 1,000 shares of Bacolod Corporation for P200 per share.
She paid the broker’s commission of P2,000. The stocks were subject to a chattel
mortgage of P20,000 which Mrs. La Carlota assumed.

C A P I T A L G A I N S T A X AT I O N
ACQUISITION BY GRATUITOUS TITLE

In March 2013, Mrs. Lipa received by way of donation shares of stocks of Taal
Corporation from her father, Don Bosco. Don Bosco also acquired the same shares by
donation in June 1999 from his mother, Dona Karena, who bought the shares for
P400,000 in April 1996. The shares had a fair value of P700,000 in June 1999 and
P2,500,000 in March 2013.

A. Acquired by donation
B. Acquired by inheritance
C. Acquired for an inadequate consideration:
- Mrs. Lipa bought the shares for only P1,200,000

C A P I T A L G A I N S T A X AT I O N
 CAPITAL GAINS TAX ILLUSTRATION

On March 31, 2022, a taxpayer disposed its investments in domestic stocks costing P100,000 directly
to a buyer for P180,000. He paid P2,000 and P500 for broker’s commission and documentary stamp
tax expense, respectively. How much is the capital gains tax?

Selling price 180,000

Less:
Purchase cost 100,000
Commission expense 2,000
DST expense 500 102,500
Capital gain 77,500
Multiply by capital gains tax rate 15%
Capital gains tax due 11,625

C A P I T A L G A I N S T A X AT I O N
TRANSACTIONAL AND ANNUAL CAPITAL GAINS
TAX RETURN
BIR Form 1707
filed within 30 days after each sale, exchange, and other
disposition of stocks. If the tax is qualified for payment under
the installment method, the tax is due within 30 days after each
installment.

BIR Form 1707-A

filed on or before the 15th day of the fourth month
following the close of the taxable year of the taxpayer.
C A P I T A L G A I N S T A X AT I O N
ILLUSTRATION

C A P I T A L G A I N S T A X AT I O N
INSTALLMENT PAYMENT OF THE CAPITAL
GAINS TAX

Requisites:
a. Selling price exceeds P1,000; and
b. Initial payment does not exceed 25% of the selling price.

C A P I T A L G A I N S T A X AT I O N
INSTALLMENT PAYMENT OF THE CAPITAL
GAINS TAX
On November 1, 2022, Mr. Batanes made a sale of domestic stocks costing
P700,000 directly to a buyer for P1,000,000. The buyer agreed to pay in P100,000
monthly installments starting November 30. What is the capital gains tax?
45,000
Case 1: No mortgage on the shares sold.
Ratio of initial payments to selling price
Downpayment and installments within the year = 200,000
Selling price = 1,000,000
20% 

CGT is paid based on the pattern of collection of the contract price

C A P I T A L G A I N S T A X AT I O N
INSTALLMENT PAYMENT OF THE CAPITAL
GAINS TAX
On November 1, 2022, Mr. Batanes made a sale of domestic stocks costing
P700,000 directly to a buyer for P1,000,000. The buyer agreed to pay in P100,000
monthly installments starting November 30. What is the capital gains tax?
45,000
Case 2: With mortgage on stocks but not in excess of cost.
Assume the stocks were previously mortgaged for P600,000 which the buyer assumed. The
P400,000 balance is payable in installments of P100,000 starting November 30, 2022.

The capital gains tax payable every installment shall be P11,250 computed as

C A P I T A L G A I N S T A X AT I O N
INSTALLMENT PAYMENT OF THE CAPITAL
GAINS TAX
On November 1, 2022, Mr. Batanes made a sale of domestic stocks costing P700,000 directly to a
buyer for P1,000,000. The buyer agreed to pay in P100,000 monthly installments starting November
30.
The capital gains tax shall be P45,000.
Case 3: With excess mortgage over cost.
Assume instead that the stocks were subject to P750,000 mortgage which the buyer shall assume.
The P250,000 balance is payable in monthly installments of P50,000 starting November 30, 2022.
The excess of mortgage over the basis of the stocks is an indirect downpayment - a form of
constructive receipt.
Contract price = 1,000,000 selling price – 750,000 mortgage assumed + 50,000 excess mortgage =
P300,000
Ratio of initial payment (150,000/1,000,000) = 15% qualified for installment payment

C A P I T A L G A I N S T A X AT I O N
TAX-FREE EXCHANGES

Merger or consolidation
Acquisition of control or transfer to a controlled corporation
Acquisition of substantial assets
Recapitalization
Reincorporation

C A P I T A L G A I N S T A X AT I O N
EXCHANGE NOT SOLELY FOR STOCKS

In tax-free exchanges, if stocks are exchanged not solely for

stocks but with other consideration such as cash and other
properties, the gains but not losses are recognized up to the
extent of cash and other properties received.

C A P I T A L G A I N S T A X AT I O N
EXCHANGE NOT SOLELY FOR STOCKS:
C A S H A N D P RO P E RT Y R E C E I V E D E X C E E D I N D I C AT E D G A I N

Assume that pursuant to the plan of merger between Carranglan Inc. and Baler Inc., Mr.
Santiago was required to surrender his Carranglan shares costing P1,000,000 in
exchange for Baler shares with total fair value of P900,000 plus P100,000 cash and
P200,000 worth of goods.

Selling price P 1,200,000

Less: Cost of stocks exchanged 1,000,000
Indicated gain P 200,000

The amount of cash and other properties received is considered realization of gains to
the extent of the indicated gain. The excess amount of cash and other properties
received is a return of capital.
C A P I T A L G A I N S T A X AT I O N
EXCHANGE NOT SOLELY FOR STOCKS:
C A S H A N D P RO P E RT Y R E C E I V E D E X C E E D I N D I C AT E D G A I N

Assume that pursuant to the plan of merger between Carranglan Inc. and Baler Inc., Mr. Santiago
was required to surrender his Carranglan shares costing P1,000,000 in exchange for Baler shares
with total fair value of P900,000 plus P100,000 cash and P200,000 worth of goods.
Realized return on capital P 200,000
Return of capital (in excess of the indicated gain) 100,000
Total cash and other properties received P 300,000
The 200,000 gain shall be reported as capital gain.
Basis of the Carranglan shares exchanged P 1,000,000
Add: Basis of other properties exchanged 0
Less: Return of capital 100,000
Basis of the Baler shares received P 900,000

C A P I T A L G A I N S T A X AT I O N
TAX BASIS OF NEW SHARES RECEIVED

C A P I T A L G A I N S T A X AT I O N
PERSONS NOT LIABLE TO THE 15% CAPITAL
GAINS TAX
1. Dealers in securities
2. Investors in shares of stocks in a mutual fund company in connection
with gains realized upon redemption of stocks in the mutual
company
3. All other persons, whether natural or juridical, who are specifically
exempt from national revenue taxes under existing investment
incentives and other special laws, such as:
a. foreign governments and foreign government-owned
and controlled corporations
b. qualified employee trust funds
C A P I T A L G A I N S T A X AT I O N
ILLUSTRATION

1. Poe, a stock dealer, sold domestic shares directly to a buyer for P50,000 gain.
 What is the capital gains tax?
 None/Zero.
2. A stock investor bought 10,000 shares from Silver Dragon Mutual Fund at P120
NAV per share. The investor redeemed his shares when the NAV per share was
P180.
 What is the capital gains tax?
 None/Zero.
SALE, EXCHANGE, AND OTHER DISPOSITION OF
REAL PROPERTY CLASSIFIED AS CAPITAL ASSET
LOCATED IN THE PHILIPPINES

CGT: 6% of the selling price or the fair value, whichever is higher

Fair value – whichever is higher of the

a. zonal value
b. fair market value
schedule of market values of Provincial and
City Assessors

C A P I T A L G A I N S T A X AT I O N
SALE, EXCHANGE, AND OTHER DISPOSITION OF
REAL PROPERTY CLASSIFIED AS CAPITAL ASSET
LOCATED IN THE PHILIPPINES

C A P I T A L G A I N S T A X AT I O N
BIR TAX CLEARANCE

Certificate Authorizing Registration

- reportorial requirement for the transfer
- payment of capital gains tax

30 P R E S E N T AT I O N T I T L E 20XX
NATURE OF THE 6% CAPITAL GAINS TAX

a.Presumption of capital gains

b.Non-consideration to the involuntariness of the
sale
c.Final tax

C A P I T A L G A I N S T A X AT I O N
SCOPE AND APPLICABILITY OF THE 6% CAPITAL
GAINS TAX

C A P I T A L G A I N S T A X AT I O N
 EXCEPTIONS TO THE 6% CAPITAL GAINS TAX

Alternative taxation rule

- 6% capital gains tax or RIT
- the seller is an individual taxpayer & the buyer is government
- basis (possible incurrence of loss)

Exemptions under the NIRC

Exemptions under the special laws

- Sale of land pursuant to the Comprehensive Agrarian Reform Program
- Sale of socialized housing units by the National Housing Authority

C A P I T A L G A I N S T A X AT I O N
EXEMPTION FROM 6% CGT UNDER THE NIRC

The sale, exchange, and other disposition of a principal residence for the reacquisition of a new
principal residence by individual taxpayers is exempt from the 6% capital gains tax.

Principal residence – means the house and lot which is the primary domicile of the taxpayer. If the
taxpayer has multiple residences, his principal residence is deemed that one shown in his latest tax
declaration.

Requisite of exemption:
1. The seller must be a citizen or resident alien.
2. The sale involves the principal residence of the seller-taxpayer.
3. The proceeds of the sale is utilized in acquiring a new principal residence.
4. The BIR is duly notified by the taxpayer of his intention to avail of the tax exemption within 30
days of the sale through a prescribed return (BIR Form 1706) and “Sworn Declaration of
Intent”.
EXEMPTION FROM 6% CGT UNDER THE NIRC

5. The reacquisition of the new residence must be within 18 months from the date of sale.
6. The capital gains tax is held in escrow in favor of the government.
7. The exemption can only be availed of once in every 10 years.
8. The historical cost or adjusted basis of the principal residence sold shall be carried over to the
new principal residence built or acquired.
ILLUSTRATION

C A P I T A L G A I N S T A X AT I O N
ILLUSTRATION

C A P I T A L G A I N S T A X AT I O N
INSTALLMENT PAYMENT OF THE 6% CGT

C A P I T A L G A I N S T A X AT I O N
DOCUMENTARY STAMP TAX ON THE SALE OF
CAPITAL ASSETS
ILLUSTRATION:

On June 1, 2022, Dodong acquired 5,000 shares of ABC Corporation

with par value of P10 each for P75,000, giving Dodong 5% interest.
ABC Corporation declared cash dividends of P1,000,000 and reported
P750,000 net income during the year. On December 29, 2022, Dodong
entered into a sales transaction where half of the shares held are
disposed directly to a buyer for P60,000 enough to earn profit and cover
the expenses, including broker’s commission of P2,812.50. What is the
amount of capital gains tax?

C A P I T A L G A I N S T A X AT I O N