Handout 6: Capital Gains Tax ACC 311 [Income Taxation]
N.M. CUA – Instructor 2 nd
Term / 2nd Semester 2024-2025
TYPES OF ASSETS
a. Stock in trade of the taxpayer, or other property of a kind which would properly be
included in an inventory of the taxpayer if on hand at the end of the taxable year
b. Properties held by the taxpayer primarily for sale to customers in the ordinary course of
ORDINARY
trade or business
ASSETS
c. properties used in trade or business of a character which is subject to allowance for
depreciation
d. real properties used in trade or business (Inventories, PPE, etc.)
Any other assets that does not fall under the definition of ordinary assets (Investment
CAPITAL ASSETS
properties, Notes receivable and investment in equity or debt securities)
CAPITAL GAINS SUBJECT TO FINAL TAX
1. There is a net gain
2. The capital asset sold is a domestic stock
3. The sale is made directly to buyer
Requisites Note: The rule on capital gains on sale of domestic stocks directly to
buyer is uniform to all income taxpayers (individual or corporation)
regardless of classification.
Capital Gains Tax Rate: 15%
1. Gain on sale – share of stock that is traded in the Philippine Stock
Exchange (PSE)
Requisites Does > This is subject to the Stock Transaction Tax (STT) under your
CAPITAL GAINS
Not Apply To Business Tax: Percentage Tax topic.
TAX ON SALE,
> Stock Transaction Tax is 60% of the 1% of the stocks’ selling price.
BARTER,
2. Gains under similar condition by security brokers or dealers.
EXCHANGE, AND
1. Per transaction basis: Within 30 days after each transactions
OTHER
2. Annual basis
DISPOSITION OF When To File CGT
a. For individuals – On or before April 15 of the following year
DOMESTIC Returns?
b. For Corporations – On or before the 15th day of the fourth month
SHARES OF
following the close of the taxable year
STOCK DIRECTLY
1. Lump sum – Upon date of filing the return with the Bureau (within 30
TO BUYER
When To Pay The days from date of sale)
CGT? 2. Installment – Tax on installments is due within 30 days from
receipts of each installment
Par Value P1.50/P200 or fractional part of the par value of due bill,
Stock certificate of obligation, or stock.
No-Par 25% of the documentary stamp tax paid on the original
Stock issue of stock.
Documentary
Limit: Only one tax shall be collected on each sale or
Stamp Tax (DST)
transfer of stock or securities from one person to another
Other
regardless of whether or not a certificate of stock is
Concern
issued or obligation is issued indorsed, or delivered in
pursuance of such sale or transfer
CAPITAL GAINS SUBJECT TO FINAL TAX
a. The real property is located in the Philippines
b. The property is classified as capital asset
Requisites
c. The taxpayer is an individual or a domestic corporation
d. The taxpayer is other than a foreign corporation
6% * (the higher of Gross Selling Price or Fair Market Value)
The fair market value for the purpose of the capital gains tax is
whichever is the higher of:
1. Zonal Value as prescribed by the Commissioner of Internal Revenue
2. Assessed Value as determined by Provincial or City Assessor’s
Office
Gross Selling Price is the amount of any money received plus the fair
market value of any property received. Interest on the selling price
shall be treated separately as Other Income taxable under regular
Tax Rate and
income taxation.
Basis
Excess Mortgage Assumed
The excess of the mortgaged assumed over the cost of the property
is included both in initial payment and selling since it is a constructive
SALE, EXCHANGE, receipt of income in other words, it represents “extra consideration”
OR OTHER
DISPOSITION OF NOTE!
REAL PROPERTY The basis of the tax is on the gross selling price or gross fair market
IN THE value. This treatment PRESUMES THE EXISTENCE OF A GAIN and is
PHILIPPINES applied regardless of whether or not the transaction yielded a gain
CLASSIFIED AS or a loss.
CAPITAL ASSET 1. No 6% CGT applies to properties located outside the Philippines
2. All Individuals regardless of status is subject to the 6% CGT
3. Only Domestic Corporations are subject to the 6% CGT
Scope of the 6%
CGT
NOTE!
Regular income taxation, being the general rule, applies where the 6%
CGT does not. Under RIT, the actual net gain is subject to income tax.
1. The tax is withheld at source – the seller and buyer files a joint capital
gains tax return (one return per sale or foreclosure sale)
2. Installment (one return for each installment payment received) The
tax is withheld at source in installments when the taxpayer qualifies
and opted to be taxed on installments
How is 6% CGT
Paid?
NOTE!
If the buyer of the property is The Government, its Political
Subdivision’s/Agencies/GOCCs. The taxpayer has the option either
to subject the transaction to 6% CGT or to include it as part of Regular
Income Tax
CAPITAL GAINS SUBJECT TO FINAL TAX
The sale may be exempted from the payment of capital gains tax
provided the following conditions are met:
1. The seller is an individual citizen or resident alien
2. The real property sold is his principal residence
Principal Residence – the place where an individual person resides
comprising of the house and the lot to where it erects. The residential
address indicated in the latest income tax return immediately before
the date of sale is conclusively presumed to be the true residence.
SALE, EXCHANGE,
3. The full proceeds of the sale is utilized in acquiring another
OR OTHER
residence.
DISPOSITION OF
4. A new residence must be acquired or constructed within 18
REAL PROPERTY
Tax Exemption calendar months from the date of sale.
IN THE
5. The BIR is duly notified by the taxpayer of his intention to avail of the
PHILIPPINES
tax exemption within 30 days from the date of sale through a
CLASSIFIED AS
prescribed return.
CAPITAL ASSET
6. The capital gains tax thereon is held in escrow in favor of the
government.
7. The exemption can only be availed once every 10 years.
8. The historical cost or adjusted basis of the real property (principal
residence) sold shall be carried over to the new principal residence
built or acquired
Not Discussed:
a. Only a portion of the proceeds was utilized to acquire new residence
b. Tax basis of new principle residence
Amount
1. P15.00 – if selling price after allowance for encumbrances does not
exceed P1,000
2. P15.00 – for each or fractional excess above P1,000 of such selling
Documentary
price
Stamp Tax (DST)
Deadline: DST return shall be filed and the tax thereon paid within 5
days after the close of the month when the taxable document was
made, signed, issued, accepted, or transferred.
DRILLS
Problem 1. Classify the following assets by indicating OA for ordinary assets or CA for capital assets
Realty Developer Security Dealer Merchandiser
Vacant lot
Office supplies
Domestic stocks
Bonds
Accounts/Notes Receivable
Office Equipment
Land where the office building stands
Personal car of the business owner
Personal house and lot of the business owner
Jewelry of the business owner
Problem 2. For each of the following scenarios, compute the capital gains tax
Illustrative Cases CGT
1. Andy, sold domestic stocks through the PSE at a gain of P400,000
2. Andy, a security dealer, sold domestic stocks through the PSE at a gain of P400,000
3. Andy, a security dealer, sold domestic stocks directly to a buyer ta gain of P400,000
4. Andy, a realty dealer, sold domestic stocks directly to a buyer ta gain of P300,000
5. Andy sold domestic bonds directly to buyer at a gain of P400,00
6. Andy purchased a stock option which he sold at a gain of P50,000
7. Andy purchased domestic stocks for P1M and sold the same for P1.8M. At the date of sale the
stock has a fair market value of P2.4M
Problem 3.
Illustrative Cases CGT
1. Disposal of vacant lot costing 2,000,000 at a gain of 1,000,000. The lot has a fair value of
P2,500,000 at the date of disposal.
2. Disposal of the business’ old warehouse with carrying amount of 2,000,000 at a gain of
1,000,000. The lot has a fair value of 2,500,000 at date of disposal
3. Disposal of house and lot in Japan for 6,000,000
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