Capital Gains Tax is a tax imposed on the gains presumed to have

been realized by the seller from the sale, exchange, or other

disposition of capital assets located in the Philippines, including
pacto de retro sales and other forms of conditional sale.

Frequently Asked Questions

1) What is meant by capital asset?
Capital asset means property held by the taxpayer (whether or not
connected with his trade or business), but does not include
a) stock in trade of the taxpayer or other property of a kind which
would properly be included in the inventory of the taxpayer if on
hand at the close of the taxable year; or
b) property held by the taxpayer primarily for sale to customers in
the ordinary course of his trade or business; or
c) property used in the trade or business of a character which is
subject to the allowance for depreciation provided in subsection (F)
of Sec. 34 of the Code; or
d) real property used in trade or business of the taxpayer.
2) What is meant by ordinary asset?
Ordinary asset refers to all properties specifically excluded from the
definition of capital assets under Sec. 39 (A)(1) of the NIRC.
3.) What is meant by "Stock classified as Capital Asset"? (Sec 2(a) of
RR 6-2008)
This refers to stocks and securities held by taxpayers other than
dealers in securities.
4.) What is meant by "Dealer in Securities"? (Sec 2(b) of RR 6-2008)
Dealer in Securities refers to a merchant of stocks or securities,
whether an individual, partnership or corporation, with an
established place of business, regularly engaged in the purchase of
securities and the resale thereof to customers; that is one, who as
merchant buys securities and re-sells them to customers with a view
to the gains and profits that may be derived therefrom. "Dealer in
securities" means any person who buys and sells securities for
his/her own account in the ordinary course of business (Sec. 3.4,
SRC).
5.) What is meant by real property?
Real property shall have the same meaning attributed to that term
under Article 415 of Republic Act No. 386, otherwise known as the
Civil Code of the Philippines.
6.) What does a real estate dealer refer to?
A real estate dealer refers to any person engaged in the business of
buying and selling or exchanging real properties on his own account
as a principal and holding himself out as a full or part-time dealer in

real estate.
7.) What does a real estate developer refer to?
Real estate developer refers to any person engaged in the business
of developing real properties into subdivisions, or building houses on
subdivided lots, or constructing residential or commercial units,
townhouses and other similar units for his own account and offering
them for sale or lease.
8.)What does a real estate lessor refer to?
Real estate lessor refers to any person engaged in the business of
leasing or renting real properties on his own account as a principal
and holding himself out as a lessor of real properties being rented
out or offered for rent.
9.) Who are considered engaged in the real estate business?
Taxpayers who are considered engaged in the real estate business
refer collectively to real estate dealers, real estate developers
and/or real estate lessors. A taxpayer whose primary purpose of
engaging in business, or whose Articles of Incorporation states that
its primary purpose is to engage in the real estate business shall be
deemed to be engaged in the real estate business.
10.) Who are considered not engaged in the real estate business?
Taxpayers who are considered not engaged in the real estate
business refer to persons other than real estate dealers, real estate
developers and/or real estate lessors.
11.) Who are considered habitually engaged in the real estate
business?
Real estate dealers or real estate developers who are registered
with the Housing and Land Use Regulatory Board (HULRB) or HUDCC
12.) How can you determine whether a particular real property is a
capital asset or an ordinary asset?
a) Real properties shall be classified with respect to taxpayers
engaged in the real estate business as follows:
i) All real properties acquired by the real estate dealer shall be
considered as ordinary assets.
ii) All real properties acquired by the real estate developer, whether
developed or undeveloped as of the time of acquisition, and all real
properties which are held by the real estate developer primarily for
sale or for lease to customers in the ordinary course of his trade or
business or which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year and all real
properties used in the trade or business, whether in the form of
land, building, or other improvements, shall be considered as
ordinary assets.
iii) All real properties of the real estate lessor, whether land, building
and/or improvements, which are for lease/rent or being offered for

lease/rent, or otherwise for use or being used in the trade or

business shall likewise be considered as ordinary assets.
iv) All real properties acquired in the course of trade or business by
a taxpayer habitually engaged in the sale of real property shall be
considered as ordinary assets.
Note: Registration with the HLURB or HUDCC as a real estate dealer
or developer shall be sufficient for a taxpayer to be considered as
habitually engaged in the sale of real estate.
If the taxpayer is not registered with the HLURB or HUDCC as a real
estate dealer or developer, he/it may nevertheless be deemed to be
engaged in the real estate business through the establishment of
substantial relevant evidence (such as consummation during the
preceding year of at least six (6) taxable real estate sale
transactions, regardless of amount; registration as habitually
engaged in real estate business with the Local Government Unit or
the Bureau of Internal Revenue, etc.
A property purchased for future use in the business, even though
this purpose is later thwarted by circumstances beyond the
taxpayers control, does not lose its character as an ordinary asset.
Nor does a mere discontinuance of the active use of the property
change its character previously established as a business property.
(Sec 3(a)(4)of RR 7-2003)
b) In the case of taxpayer not engaged in the real estate business,
real properties, whether land, building, or other improvements,
which are used or being used or have been previously used in trade
or business of the taxpayer shall be considered as ordinary assets.
c) In the case of taxpayers who changed its real estate business to a
non-real estate business, real properties held by these taxpayer
shall remain to be treated as ordinary assets.
d) In the case of taxpayers who originally registered to be engaged
in the real estate business but failed to subsequently operate, all
real properties acquired by them shall continue to be treated as
ordinary assets.
e) Real properties formerly forming part of the stock in trade of a
taxpayer engaged in the real estate business, or formerly being
used in the trade or business of a taxpayer engaged or not engaged
in the real estate business, which were later on abandoned and
became idle, shall continue to be treated as ordinary assets.
Provided however, that properties classified as ordinary assets for
being used in business by a taxpayer engaged in business other
than real estate business are automatically converted into capital
assets upon showing proof that the same have not been used in

business for more than two years prior to the consummation of the
taxable transactions involving said properties
f) Real properties classified as capital or ordinary asset in the hands
of the seller/transferor may change their character in the hands of
the buyer/transferee. The classification of such property in the
hands of the buyer/transferee shall be determined in accordance
with the following rules:
i) Real property transferred through succession or donation to the
heir or donee who is not engaged in the real estate business with
respect to the real property inherited or donated, and who does not
subsequently use such property in trade or business, shall be
considered as a capital asset in the hands of the heir or donee.
ii) Real property received as dividend by the stockholders who are
not engaged in the real estate business and who do not
subsequently use such property in trade or business, shall be
considered as a capital asset in the hands of the recipients even if
the corporation which declared the real property dividends is
engaged in real estate business.
iii) The real property received in an exchange shall be treated as
ordinary asset in the hands of the case of a tax-free exchange by
taxpayer not engaged in real estate business to a taxpayer who is
engaged in real estate business, or to a taxpayer who, even if not
engaged in real estate business, will use in business the property
received in exchange.
g) In the case of involuntary transfers of real properties, including
expropriations or foreclosure sale, the involuntariness of such sale
shall have no effect on the classification of such real property in the
hands of the involuntary seller, either as capital asset or ordinary
asset as the case may be.
13.) What is the basis in the valuation of property?
The value of the real property will be based on the selling price, fair
market value as determined by the Commissioner (zonal value) or
the fair market value as shown in the schedule of values of the
Provincial or City Assessor, whichever is higher.
If there is no zonal value, the taxable base is whichever is higher of
the gross selling price per sales documents or the fair market value
that appears in the latest tax declaration.
If there is an improvement, the FMV per latest tax declaration at the
time of the sale or disposition, duly certified by the City/Municipal
Assessor shall be used. No adjustments shall be added on the said
value, provided that the tax declaration bears the upgraded fair

market value of the said property pursuant to Section 219 of R.A.

No. 7160, otherwise known as the Local Government Code of 1991
and the last paragraph of the Local Assessment Regulations No. 192 dated October 6, 1992.
In case the tax declaration being presented was issued three (3) or
more years prior to the date of sale or disposition of the real
property, the seller/transferor shall be required to submit a
certification from the City/Municipal Assessor whether or not the
same is still the latest tax declaration covering the said real
property. Otherwise, the taxpayer shall secure its latest tax
declaration and shall submit a copy thereof duly certified by the said
Assessor. (RAMO 1-2001)
For shares of stocks, it will be based on the net capital gains realized
from the sale, barter, exchange or other disposition of shares of
stocks in a domestic corporation, considered as capital assets not
traded through the local stock exchange.
14.) What is meant by "Net Capital Gains"? (Sec 2(o) of RR 6-2008)
"Net Capital Gain" means the excess of the gains from sales or
exchanges of capital assets over the losses from such sales or
exchanges.
15.) What are the rules for the determination of amount and
recognition of gain or loss in the sale, barter, or exchange of shares
of stock not traded through the Local Stock exchange? (Sec 7(c ) of
RR 6-2008)
(A.) Determination of Selling Price. In determining the selling
price, the following rules shall apply:
(a.1) In the case of cash sale, the selling price shall be the total
consideration per deed of sale.
(a.2) If the total consideration of the sale or disposition consists
partly in money and partly in kind, the selling price shall be sum of
money and the fair market value of the property received.(a.3) In
the case of exchange, the selling price shall be the fair market value
of the property received.(a.4) In case the fair market value of the
shares of stock sold, bartered, or exchanged is greater than the
amount of money and/or fair market value of the property received,
the excess of the fair market value of the shares of stock sold,
bartered or exchanged over the amount of money and the fair
market value of the property, if any, received as consideration shall
be deemed a gift subject to the donor's tax under sec. 100 of the
Tax Code, as amended.
(B.) Definition of "fair market value" of the Shares of Stock.

(b.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 the day nearest to
the date of sale, transfer or exchange of the shares shall be the fair
market value. Sec 2 of RR 6-2013
(b.2) In the case of shares of stock not listed and traded in the local
stock exchanges, the value of the shares of stock at the time of sale
shall be the fair market value. In determining the value of the
shares, the Adjusted Net Asset Method shall be used whereby all
assets and liabilities are adjusted to fair market values. The net of
adjusted asset minus the liability values is the indicated value of the
equity.
The appraised value of real property at the time of sale shall be the
higher of
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of valued fixed
by the Provincial and City Assessors, or
(3) The fair market value as determined by Independent Appraiser.
(b.3) In the case of a unit of participation in any association,
recreation or amusement club (such as golf, polo, or similar clubs),
the fair market value thereof shall be its selling price or the bid price
nearest published in any newspaper or publication of general
circulation, whichever is higher.
(C.) Determination of Gain or Loss from Sale or Disposition of Shares
of Stock. The gain from the sale or other disposition Stock. The
gain from the sale or other disposition of shares of stock shall be the
excess of the amount realized therefrom over the basis or adjusted
basis for determining gain, and the loss shall be the excess of the
basis or adjusted basis for determining loss over the amount
realized. The amount realized from the sale or other disposition of
property shall be the sum of money received plus the fair market
value of the property (other than money) received, if any.
16.) What are the applicable tax rates of Capital Gains Tax under the
National Internal Revenue Code of 1997?
a) Real Properties - 6 %
b) For Shares of Stocks not Traded in the Stock Exchange, on the net
Capital Gains
- Not over P100,000 - 5%
- Any amount in excess of P100,000 - 10%
17.) Who are required to file the Final Capital Gains Tax return?

Every person, whether natural or juridical, resident or non-resident,

including estates and trusts, who sells, transfers, exchanges or
disposes real properties located in the Philippines classified as
capital assets, including pacto de retro sales and other forms of
conditional sales or shares of stocks in domestic corporations not
traded through the local stock exchange classified as capital assets.
18.) What is the procedure in the filing of Final Capital Gains Tax
return?
File the Final Capital Gains Tax return in triplicate (two copies for the
BIR and one copy for the taxpayer) with the Authorized Agent Bank
(AAB) in the Revenue District where the seller or transferor is
registered, for shares of stocks or where the property is located, for
real property. In places where there are no AAB, the return will be
filed directly with the Revenue Collection Officer or Authorized City
or Municipal Treasurer.

19.) Who/what are considered exempt from the payment of Final

Capital Gains Tax?
Dealer in securities, regularly engaged in the buying and selling of
securities
An entity exempt from the payment of income tax under existing
investment incentives and other special laws
An individual or non-individual exchanging real property solely for
shares of stocks resulting in corporate control
A government entity or government-owned or controlled corporation
selling real property
If the disposition of the real property is gratuitous in nature
Where the disposition is pursuant to the CARP law
20.) Who are conditionally exempt from the payment of Final Capital
Gains Tax?
Natural persons who dispose their principal residence, provided that
the following criteria are met:
The proceeds of the sale of the principal residence have been fully
utilized in acquiring or constructing new principal residence within
eighteen (18) calendar months from the date of sale or disposition;
The historical cost or adjusted basis of the real property sold or
disposed will be carried over to the new principal residence built or
acquired;
The Commissioner has been duly notified, through a prescribed
return, within thirty (30) days from the date of sale or disposition of
the persons intention to avail of the tax exemption;
Exemption was availed only once every ten (10) years; and
There is no full utilization of the proceeds of sale or disposition. The
portion of the gain presumed to have been realized from the sale or
disposition will be subject to Capital Gains Tax.
In case of sale/transfer of principal residence, the Buyer/Transferee
shall withhold from the seller and shall deduct from the agreed

selling price/consideration the 6% capital gains tax which shall be

deposited in cash or managers check in interest-bearing account
with an Authorized Agent Bank (AAB) under an Escrow Agreement
between the concerned Revenue District Officer, the Seller and the
Transferee, and the AAB to the effect that the amount so deposited,
including its interest yield, shall only be released to such Transferor
upon certification by the said RDO that the proceeds of the
sale/disposition thereof has, in fact, been utilized in the acquisition
or construction of the Seller/Transferors new principal residence
within eighteen (18) calendar months from date of the said sale or
disposition. The date of sale or disposition of a property refers to the
date of notarization of the document evidencing the transfer of said
property. In general, the term Escrow means a scroll, writing or
deed, delivered by the grantor, promisor or obligor into the hands of
a third person, to be held by the latter until the happening of a
contingency or performance of a condition, and then by him
delivered to the grantee, promise or obligee.
21.) What is a Certificate Authorizing Registration?
Certificate Authorizing Registration (CAR) is a certification issued by
the Commissioner or his duly authorized representative attesting
that the transfer and conveyance of land, buildings/improvements
or shares of stock arising from sale, barter or exchange have been
reported and the taxes due inclusive of the documentary stamp tax,
have been fully paid.
With the implementation of the Electronic Certificate Authorizing
Registration (eCAR) System, the CAR shall now be electronically
generated.
22.) What is eCAR System?
eCAR stands for Electronic Certificate Authorizing Registration. A
web-based facility that automates the generation of CAR with
barcode, eCAR will also enable electronic linkage between the BIR
and the Land Registration Authority. (Participant Guide)
eCARs shall have a validity of one (1) year from date of issue. For
other manually issued CARs that are outstanding and not yet
presented to the Register of Deeds, i.e., CARs more than one (1)
year from the date of issuance which are due for revalidation and
expired CARs which are more than two (2) years from the date of
issuance, are not anymore valid for presentation to the Registry of
Deeds. The said CARs shall be replaced with an eCAR by the
concerned Revenue District Offices or Large Taxpayers Divisions. A
certification fee shall be charged for each released eCAR
issued/reprinted after affixture of P15.00 Documentary Stamp Tax
on Certificates (Sec 188 of the NIRC of 1997) and the prescribed
Certification Fee of One Hundred Pesos (P100.00) under Executive
Order No. 197 to the taxpayer/authorized representative.
23.) How do we determine the fair market value of shares of stocks not

traded through the Local Stock Exchange?

In determining the value of the shares, the Adjusted Net Asset Method
shall be used whereby all assets and liabilities are adjusted to fair market
values. The net of adjusted asset minus the adjusted liability value is the
indicated value of the equity.
For purposes of this item, the appraised value of real property at the time
of sale shall be the highest among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by
the Provincial and City Assessors, or
(c) The fair market value as determined by Independent Appraiser.
(RR NO. 6-2013)