Beruflich Dokumente
Kultur Dokumente
Property which should be included in the inventory its latest inventory value
If the property (other than capital asset) was acquired for less than an adequate consideration in money or money's worth, the
amount paid by the transferee for the property; or the transferor’s adjusted basis at the time of the transfer, whichever is greater.
If the property was acquired in a transaction where gain or loss is not recognized [Sec.40(C)(2)] Sec. 40(C)(5)
Basis is used to determine Gain or Loss:
o In transactions involving ordinary assets
o Involving capital assets which are not subject to CGT
o Sale of Domestic Shares not traded in the stock exchange
o In forced sale of real property to government in the exercise of the latter’s power of eminent domain.
[Problem 47]
o Adjustments
Additions (Capital Expenditures)
Recoveries (Depreciation)
Adjusted Basis (Cost) Basis + Additions – Recoveries
o Amount Realized (Proceeds) The sum of the:
Cash or money received
FMV of the property or asset (other than money) received
o Holding period (held by taxpayer) apply to individuals only.
Gain / Loss
o Ordinary
Ordinary Gain forms part of the Gross Income
Ordinary Loss deductible
o Capital
Capital gain forms part of the Gross Income
Capital Loss deductible only up to the extent of capital gain
Shares of Stock shall include shares of stock of a corporation, warrants and/or options to purchase shares of stock, as well as units of
participation in a partnership (except general professional partnerships), joint stock companies, joint accounts, joint ventures taxable as
corporations, associations and recreation or amusement clubs (such as golf, polo or similar clubs), and mutual fund certificates.
ACCTAX1 - Income Taxation
Gains and Losses from Disposition of Property
2. No gain or loss shall also be recognized if property is transferred to a corporation by a person (transferor) in exchange for stock or unit of
participation in such a corporation of which as a result of such exchange said person, alone or together with others, not exceeding four (4)
persons, gains control of said corporation: Provided, That stocks issued for services shall not be considered as issued in return for property.\
The term "control", when used in this Section, shall mean ownership of stocks in a corporation possessing at least fifty-one percent
(51%) of the total voting power of all classes of stocks entitled to vote.
However, if the transferor receives not only stock or securities, but also money or property, GAIN but NOT LOSS shall be recognized
Recognition of gain but not of loss (Exchange Not Solely in Kind): (DL page 233-238)
The money and or property received is called “boot:
Tax consequences:
o Gain shall be recognized ≤ Money + FMV of Property
Received
o Exception: No gain is recognized if the
transferor is a corporation and the boot is
distributed in accordance with the plan of
merger or consolidation.
o The basis of the shares received by the transferor shall be
computed as follows:
In computing gain of transferor (FMV of Asset Received + Liabilities Assumed – BV of Asset Transferred)
OR (FMV of Asset Received + BV (net) of Asset transferred)
ACCTAX1 - Income Taxation
Gains and Losses from Disposition of Property
- Capital Gain (Loss) gain (loss) derived from sale or exchange of capital assets.
- Net Capital Gain (Loss) Capital Gain – Capital Loss
o Limitation on Capital losses – allowed to be deducted only to the extent of capital gain
Exceptions: Any loss sustained by a bank or trust company (incorporated under the laws of the Philippines), a
substantial part of whose business is the receipt of deposits, sells any bond, debenture, note, or certificate or other
evidence of indebtedness issued by any corporation (including one issued by a government or political subdivision
thereof), with interest coupons or in registered form.
Reason for exception: securities are considered as property primarily held for sale to customer in the
ordinary course of business.
- Net Capital Loss Carry over
o Applicable to individuals (does not apply to corporations) for one (1) year only.
If any taxpayer, other than a corporation, sustains in any taxable year a net capital loss, such loss (in an amount not in
excess of the net income (before net capital gain) for such year) shall be treated in the succeeding taxable year as a
loss from the sale or exchange of a capital asset held for not more than twelve (12) months.
o Applicable to ordinary or regular rates (thus not applicable to real property and domestic shares of stocks)
- Holding period
o Applicable to individuals (does not apply to corporations)
o Applicable to capital gain (loss)
o Applicable to ordinary or regular rates (thus not applicable to real property and domestic shares of stocks, applicable only to
other capital assets)
o Percentage taken into account in computing net capital gain, net capital loss, and net income.
100% Declarable short term capital asset (holding period of 12 months or less)
50% Declarable long capital asset (holding period of more than 12 months)
Ordinary losses are deductible from capital gains but net capital loss cannot be deducted from ordinary gain or income
[Problem 50]
Cost and Expenses of Acquisition and Disposition In the determination of capital gains and losses, the cost and expenses of acquisition and
disposition of capital assets would be treated as follows:
Other Capital Asset Transactions Resulting in Capital Gains (Losses) (DL page 250-256)
Engaged in Real Estate Business Ordinary Assets (regardless if the asset is idle)
Not Engaged in Real Estate Business
o If not idle Ordinary Asset
o If idle
For two years or less Ordinary Asset
For more than two years Capital Asset
subject to 6% capital gain tax (CGT)
Nature
Final when imposed (on individuals and domestic corporations)
Imposed in lieu of income tax
Except when sale is made to the government: the taxpayer (seller) has the
option to have his tax liability as ordinary income.
Imposed on capital gains presumed to have been realized from the sale, exchange or
disposition of real property located in the Philippines classified as capital assets.
Exemption to 6% CGT:
If the proceeds (from such sale of residential property) will be used to acquire or
construct a new principal residence within 18 calendar months from the date of sale or
disposition. Subject to the following conditions.
Historical cost or adjusted basis of the realty sold shall be carry over to the new
one.
Taxpayer must duly notified the commissioner within the 30 days from date of
sale.
Can only be availed once every 10 years
Unutilized portion is subject of CGT ( see illustration in DL page 265)
o (Unutilized portion ÷ Selling Price) × FMV or Selling Price,
whichever is higher
o New Basis of New House = Cost of old house + Cost of New House
[Problem 53]
[Problem 51]
Installment Method:
[Problem 52]
ACCTAX1 - Income Taxation
Gains and Losses from Disposition of Property
If a taxpayer is not a dealer in securities or being a dealer the securities sold or exchanged were held as investment, the gain or loss arising from
the sale or exchange is treated as capital gain or capital loss.
o Issuance of shares at premium(from unissued shares) Premium on capital stock is not income; hence not taxable
o Payment to corporation of its own stock gain (loss) computed in the same manner as though the payment had been made in any other
property.
o Contributions by shareholders not considered income
[Problem 54]
[Problem 55]
o Wash sale – sale of securities where substantially identical securities are acquired or purchased within a 61-day period beginning 30 days
before the sale and ending 30 days after the sale.
o Non-deductibility of losses on wash sale (it’s a capital loss but is not deductible against capital gain)
o Substance over form
o Requisites:
o Sale or other disposition of stocks or securities resulted in a loss
o There was an acquisition, or contract or option for acquisition of stock or securities within 30 days before the date of
sale or 30 days after the sale.
o The stock or securities sold were substantially the same as those acquired within the 61-days
Substantially identical stock must be of the same class, or in the case of the bonds, the terms thereof
must be the same. There must be similarities on all important particulars.
o Does not apply in the case of a dealer in stock if the sale is made in the ordinary course of the business of such dealer; and short
sale transactions (in this case, the loss on wash sale is deductible)
o Treatment of Loss on Wash Sales (DL page 281-285)
o Formula for Non-Deductible Loss
No. of Shares Acquired Within 61 day period
o ×Loss = Non-deductible Loss
No. of Shares Sold
[Problem 56]
o Formula for Tax Basis of Re-acquired Shares (Stock or securities acquired in wash sales)
o Cost of Acquisition (Cost of New Share) xx
Add: Wash Sale Loss xx
New Tax Basis /Cost xx
OR
o Cost of Old Share xx
Add: Excess of Purchase Price of New Share xx
Over the selling price of the Old Share xx xx
New Tax Basis/Cost xx
ACCTAX1 - Income Taxation
Gains and Losses from Disposition of Property
- Shares of Stock
o Foreign Ordinary/regular rates
o Domestic
15% CGT (final tax) Individual, Domestic Corporations
5%/10% CGT (final tax) Foreign Corporations (Resident & Non-resident)
Exemptions from CGT:
Gains derived by dealers in securities this remain to be taxed as ordinary gain includible in gross income of
dealer in securities
All other gains which are specifically exempt from the income tax under existing investment incentives and other
special laws.
[Problem 57]
- Installment sale of shares of stock not listed and traded in any local stock exchange (DL page 299-301)
o The final tax CGT can be paid on installments if the initial payment do not exceed 25% of the selling price
In the year of Sale: (Initial Payment ÷ Contract Price ) x Final Tax
In subsequent years: (Installments Received ÷ Contract Price ) x Final Tax
-
[Problem 58]
[Problem 59]