BIR clarifies method for calculating tax on real property capital gains

Posted on May 09, 2017

THE Bureau of Internal Revenue (BIR) said valuations based on comparable sales of real property are not acceptable for calculating capital gains tax, saying the law only allows the use of specific methods to value a real property.

“The six percent (6%) CGT (capital gains tax) is based on the gross selling price or fair market value or zonal value of the subject property, whichever is higher,” the BIR said in a statement, referring to memorandum circular 35-2017 issued earlier.

“The foregoing implies that in order to be liable for the payment of CGT, there must be presumed gain from the sale, exchange or disposition of real property. The mere issuance of tax declaration without any sale, exchange, or disposition is not subject to CGT. Likewise, there must be transfer of ownership that resulted from the sale, disposition or conveyance of the real property,” the BIR said.

It added that the payment of capital gains tax is a direct consequence of the sale, meaning a mere issuance of tax declaration in the absence of any sale, exchange, or other forms of conveyance is not subject to the CGT.

Meanwhile, BIR’s spokesperson, lawyer Marissa O. Cabreros said in a phone interview that the memorandum was “meant to clarify the basis for real property valuation, because some use a comparable sale figure as a third basis for computation.”

She said that there were cases of buyers or sellers seeking to change the real property valuation in their favor by using values generated by a comparable sale.

A comparable sale valuation is based on the recent sale of another property in the same location.

Ms. Cabreros said that real property sellers are justifying a higher selling price based on comparable valuation to jack up the selling price.

The only bases for real property valuations are fair market value as determined by the Commissioner of Internal Revenue, or the fair market value as shown in the schedule of values of the Provincial and City Assessors, according to Section 6(E) of the National Internal Revenue Code.

“Thus, in no case shall revenue officials or employees apply any other basis for the imposition of capital gains tax on sale/income tax/withholding tax on sale, or exchange or other disposition of real property,” the BIR memorandum read.

“The Commissioner is clarifying that comparative sale is not in the law,” Ms. Cabreros added. -- Elijah Joseph C. Tubayan