BIR Ruling No. 311-2022

BUREAU OF INTERNAL REVENUE REPUBLICOF THE PHILIPPINES DEPARTMENT OF FINANCE

Que:zon City

Sec. 39 (A) amended Tax Code of 1997, as OT -311 - 2G2 000-00 Person to Contact: Chief, Law & Legislative Division Tel No.. 926-55-36/927-09-63

Date: JUN 2 4 2022

MR.BENITO AGUILAR

Dear Mr. Aguilar

income tax, creditable withholding tax (CWT) and value-added tax (VAT). acquired with the intention of using such property for residetial purposes is considered as capital asset and the subsequent sale of such property is exempt from the imposition of This refers to your request for a ruling that the house and lot which you initially

up to the date of sale. Due to the economic effect of the pande raic to your finances, you were constrained to sell the Subject Property in January 2021. Revenue, the Subject Property did not become part of, or uses in any of your business trade. The said property was not also occupied nor ten . ted or rentec. out from the date of purchase engaged ir leasing a single property, which business is registered with the Bureau of Internal dilapidated house and use it for your own residential purposes only.ithough you are As represented, you acquired a lot :ocated at "Subject Property in 2020. You intended to renovate the existing old,

Code (Tax Code) of 1997, as amended, provides for the definition of a capital asset, as follows: In reply, please be informed that Section 39 (A) of the National Internal Revenue

"Section 39.Capital Gains and Losses. -

(A Definitions.-As used in this Title

property of a kind which would properly be inc uded in the inventory held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other ( Capital Assets. -- The term 'capital iu:sets' means property

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property used in trade or business of the taxpayer. course of his trade or busines., or property used in the trade or depreciation provided in Subsection (F) cf Section 34; or real business, of a character which s subject to the allowance fon of the taxpayer if on hand at the close of the tuxable year, or aroperty held by the taxpaver primarily for sale to customers in the ordinary

No. 7-2003, issued on February 11, 2003, providing for the guidelines in the determination of RR 7-2003 defines capital assets and what constitutes ordinary assets as follows: of whether a particular real property is a capital asset or an crdinary asset. Sections 2 and 3 The foregoing provision is being implemented by Revenue Regulations (RR

"SECTION 2. Definition Of Terms. -- For purposes of these Regulations, the following terms shall be defined as follows:

or not connected with his trade or business, and which are not included among the real properties considered as ordinary assets under Sec. Capital assets shall refer to all real properties held by a taxpayer,whether 39(A)(1) of the Code.

b. Ordinary assets shall refer to ll real propertie specifically excluded

from the definition of capital assets under Sec. 39(A1) of the Code, namely:

1. Stock in trade of a taxpayer or other real property of a kind which 2 Real property held by the taxpayer primarily for sale to customers in would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year; or

3 Real property used in trade or business i.e. buildings and/or the ordinary course of his trade or business; or

4. Real property used in trade or business of the taxpayer. depreciation provided for under Sec.34F of the Code;or improvements) of a character which is subject to the allowance for

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C. 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."

d Real estate dealer shall refer 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.

MR.BENITO AGUILAR 01.311-2022 JUN 2 4 2022 Page 3 of 4

e Real estate developer shall refer to any person engaged in the

units, townhouses and other similar units for his own account and business of developing real prcpf ties into subdivisions,or building houses on subdivided lots, or constructing residential or commercial offering them for sale or lease.

Real estate lessor shall refer to any person engaged in the business

or offered for rent. and holding himself out as lessor of real properties being rented out of leasing or renting real properties on his own account as a principal

g. Taxpayers engaged in the real estate busines's shall refer collectively

to real estate dealers, real estate developers, and/or real estate real estate developers and/or real estate lessors. A taxpayer whose primary purpose of engaging in business, or whose Articles of lessors. Conversely, the term "taxpayers not engaged in the real estate business" shall refer to persons other than real estate dealers,

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 for purposes of these Regulations.

SECTION 3. Guidelines in Determining Whether a Particular iai Property is a Capital Asset or Ordinary Asset.

a. Taxpayers engaged in the real estate Fsiness.-Real property shall be

classified with respect to taxpayers engaged in the real estate business as follows:

1 Real Estate Dealer.- -- All real properties acquired by the real estate

dealer shall be considered as ordinary assets.

2 Real estate Developer. developer, whether developed or undeveloped as of the time of All real properties acquired by the real estate

acquisition, and all real properties which are fieid 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.

3. Real Estate Lessor.-All real properties of the real estate lessor,whether land and/or improvements, whilch 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. Q

2

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4 six (6) taxable real estate sale transactions, regardless of amount; evidence (such as consummation during the preceding year of at least registration as habitually engaged in real estate business with the Local Government Unit or the Bureau of Internal Revenue, etc.. (Underscoring supplied) Taxpayers habitually engaged in uf. real estate business. 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 the real estate business through the establishment of substantial relevant properties acquired in the course of trade or business by a taxpayer habitually engaged in the sale of real estate shall be considered as dealer or developer,he/it may nevertheless be deemed to be engaged in ordinary assets. Registration with the HLURB or HUDCC as a real estate dealer or developer shall be sufficient for a taxpayer to be All real

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previously intended for your residence is classified as capital asset since the said property is business shall be considered as ordinary assets. In the instant case, the Subject Property not for l-ase/rent or being offered for lease/rent, or otherwise for use or being used in your trade or business. Hence, its subsequent sale is not subject to CWT and VAT. lease/rent or being offered for lease/rent, or otherwise for use or being used in the trade or Based on the foregoing, all real properties of a real estate lessor, which are for

However, if upon investigation, it will be ascertained that the facts are different, ther his ruling shall be considered null and void This ruling is being issued on the basis of the foregoing facts as represented.

'Very truly yours.

Aa

K-1 Commissioner of Internal Revenue CAESAR R.DULAY 051949