BIR Ruling No. 322-2020

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

Section 39, Tax Code; RR 7-2003 010322-2020 JUN 1 5 2020 BIR Ruling No.253-16

Unit K, 21st Floor, Strata 100 Building Emerald Avenue, Ortigas Center Pasig City SVT LAW

Attention: Atty. Solo V. Tibe Managing Attorney

Gentlemen:

Rueda Corporation, for confirmation that its sale of real property,with Transfer Certificate of Title (TCT) No. This refers to your letter dated November 7, 2017 requesting, on behalf of Campos , is subject to Capital Gains Tax (CGT) and Documentary Stamp Tax (DST).

corporation with principal business address at No. 22 N. Domingo Street, Cubao, Quezon City. It is registered with the Securities and Exchange Commission under Company Registration No As represented, Campos Rueda Corporation ("the Company") is a domestic

dated June 18, 1946. The primary purposes for which it was created are: to own and

or incidental in the accomplishme operate a motor vehicle repair shop; to exercise any power and/or to pursue any act necessary ent of said purpose. The Company has acquired and maintained a house and lot cover located at No. 46, Sineguelas Street.

Valle Verde 1, Pasig City. Since as0 erations until 2007, the above

described property had beer Campos, for residential

purposes. Thereafter, and fo Derty has been unutilized

and has shown visible signs o has continued paying the

homeowners' association dues G City.The aforesaid property

has not been used for the and neither has it been

classified as a property of a kind whic. included in the inventory at the close

of a taxable year, nor held for sale 109 V course of trade or business. The

Company now intends to dispose of the subject property to an interested buyer.

SVT Law (Campos Rueda Corporation) Page 2'of 5 0T-0322-2020 JUN 1 5 2020

dated June 22, 2016 how to determine whether an asset is capital or ordinary: In reply, please be informed that this Office has discussed in BIR Ruling No. 253-16

1997, as amended, provides for the definition of a capital asset, to wit: .. Section 39 (A) of the National Internal Revenue Code (NIRC) of

Section 39.Capital Gains and Losses.

(A) Definitions. As used in this Title

(1) Capital Assets. -- The term 'capital assets' means property held by the taxpayer (whether or not property of a kind which would properly be included in the inventory of the taxpayer if on held by the taxpayer primarily for sale to business, or property used in the trade or connected with his trade or business), but does not include stock in trade of the taxpayer or other hand at the close of the taxable year, or property customers in the ordinary course of his trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34; or real property used in trade or business of the taxpayer.

ordinary asset. Section 2 (a) of RR 7-2003 defines capital assets as referring to or business, and which are not included among the real properties considered as ordinary assets under Sec. 39 (A) (1) of the Code. On the other hand, Section 2 (b) of the same Regulations laid down what constitutes ordinary assets as follows: the determination of whether a particular real property is a capital asset or an (RR) No. 7-2003, issued on February 11, 2003, providing for the guidelines in "all real properties held by a taxpayer, whether or not connected with his trade The foregoing provision is being implemented by Revenue Regulations

XXX XXX XXX

b.Ordinary assets shall refer to all real properties

specifically excluded from the definition of capital assets under Sec. 39(A)(1) of the Code, namely:

1. Stock in trade of a taxpayer or other real

included in the inventory of the taxpayer if on property of a kind which would properly be

hand at the close of the taxable year; or

SVT Law (Campos Rueda Corporation) Page 3 of 5 OT-0322-202 JUN 1 5 2020

2. Real property held by the taxpayer primarily for

sale to customers in the ordinary course of his trade or business; or

3. Real property used in trade or business (i.e.,

buildings and/or improvements) of a character

which is subject to the allowance for

4 Real property used in trade or business of the depreciation provided for under Sec. 34(F) of the Code; or

taxpayer.

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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

d Real estate dealer shall refer to any person engaged the Philippines."

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. (underscoring supplied)

e. Real estate developer shall refer 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.

( Real estate lessor shall refer 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 lessor of real properties being rented

out or offered for rent.

Taxpayers engaged in the real estate business shall

refer collectively to real estate dealers, real estate

developers, and/or real estate lessors. Conversely,

the term "taxpayers not engaged in the real estate

business" shall refer to persons other than 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 for purposes

of these Regulations. (underscoring supplied)

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Whether a Particular Real Property is a Capital Asset or Ordinary Asset. - SECTION 3.GuidelinesinDetermining

a. Taxpayers engaged in the real estate business. 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. (underscoring

2. Real estate Developer. - All real properties supplied)

acquired by the real estate developer, whether

developed or undeveloped as of the time of

acquisition, and all real properties which are

field 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, 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.

I Taxpayers habitually engaged in the real

estate business. -- All real properties acquired in the course of trade or business by a taxpayer habitually engaged in the sale of real estate shall be considered as ordinary assets. 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

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Government Unit or the Bureau of Internal in real estate business with the Local of amount; registration as habitually engaged Revenue, etc.).

owned or acquired by a taxpayer engaged in the real estate business are classified as ordinary assets. The classification, therefore, of a particular real property as being capital or ordinary asset does not depend upon its actual use or the purpose for its acquisition, but on the nature of the business of its registered owner. . Based on the above-quoted provisions, it is clear that all real property

in the real estate business. Among its secondary purposes is "to purchase and sell, exchange and deal in lands and estate, and any interest of any kind whatsoever therein." The Articles of Incorporation of Campos Rueda Corporation reveals that it is engaged

Company's President is owned by a corporation engaged in the real estate business, the same is classified as ordinary asset. Therefore, its sale shall be subject to Value-Added Tax (VAT). Creditable Withholding Tax (CWT) and DST. Inasmuch as the -subject property previously constituted as the residence of the

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

Very truly yours,

aeana

K- Commissioner of Internal Revenue CAESAR R. DULAY 034281