estate tax philippines
Real Estate Capital gains tax in Philippines?
I need clarification regarding capital gains tax for a real estate transaction. I read generally 6% of selling price of the property or fair market value of the property received in an exchange transaction. Does this mean 6% of the difference between sell price and previous buy price (the profit) or 6% of gross sale price (which is a lot!)?
That is, does capital gains have a different meaning than the normal?
The definition of Capital gains I know:
Final price minus buying price = Capital gains
Is capital gains definition different for this transaction?
The CGT of 6% applies, generally, to the gross sales price and has no relation to how much the seller previously paid for the property. However, the tax authorities had long recognized the practice of individuals of reducing taxes paid (such as transfer taxes and documentary stamps) by lowering, in paper, the selling price of the land than the actual price the parties agreed to. In such case, the BIR would then insist on the application of the fair market value of the land as the basis of the CGT.
The capital gains does not have a different meaning from the normal concept. It is just how it is computed that is confusing.
Think of it this way, the CGT is a tax specifically imposed on the seller. Thus whenever person sells a property, CGT is imposed upon him.
Now, if you are now selling the property, the CGT (for the whole property) would be imposed on you. Although you are required to pay the whole amount, you did benefit from the payments made by the previous sellers.
Technically, the current seller would only be paying for the actual capital gains for the property as the previous seller paid for the tax before.
Current Seller’s CGT less Previous Seller’s CGT (which was not included in the purchase price) = Actual Capital
Gains Tax.
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