I'm Giancarlo Enrico S. Pozon, a Wushu instructor, investor and Barrister... That's right, Barrister; I graduated from law school and took the Bar Exams, now I'm waiting for the results. I created this blog to make Philippine Law easy to understand for the average person. It's all about free legal advice. There are many law blogs. But the problem is that many of them are written for lawyers and law students. They use words that can't be understood by ordinary people.
Many lawyers, judges and law students consider themselves as superior to most human beings because of their knowledge of the law. It bothers me since the law is supposed to serve society. Since the law is meant to serve society as a whole, it is important that is must be understood by everybody.
This does not mean that we should all become lawyers. It means that although law is a highly specialized profession, the first duty of everybody in this profession is to make the law understandable to all; that's why all these articles are free legal advice.
Like I said, this blog is about law -but it's for the ordinary people, not the lawyers. It's for the ordinary folk so they will know what is good and bad for them, and that making them aware of the law will help us all improve society as a whole. This is free legal advice for everybody!
This is a tax that is collected from the profits of the sale of capital assets. The NIRC has a curious definition of a capital asset. It gives what a capital asset is NOT. What isn't in the list below is a capital asset:
1.) Stocks traded in the stock exchange
2.) Property in the inventory at the end of the taxable year
3.) Property normally sold to customers
4.) Property used in business that can be depreciated over time (like a delivery van)
5.) Real property used in business (like the office building, factory, etc.)
Items 2 and 3 refer to commodities for sale in your store, etc. Lots sold by real estate companies to their customers form part of items 2 and 3. If a real estate company stops its real estate operations, its properties are still considered ordinary assets. Involuntary transfers, such as foreclosures, will not change real properties from capital to ordinary assets and vice-versa. Real property foreclosed by banks are ordinary assets. Income from capital assets must be reported in the income tax returns except if they came either from selling shares of stock not listed in the stock exchange or from selling real property that are capital assets -they're placed in a separate tax return. Also, for these unlisted shares of stock the return is filed within 30 days from the sale (each time you make a sale) and the final return is filed on the 15th day of the 4th month after the end of the taxable year (remember your tax quarters?) For real property, you have 30 days from the date of sale to file the return; individuals can pay in installments (they have 30 days from the date of each installment to file the return.) What isn't a capital asset can be found here.
Your house is a capital asset. Your car is a capital asset. Your shares of stock that aren't listed in the stock exchange are capital assets. Anything that isn't in the list above is a capital asset. The final capital gains tax is taken from your net capital gain. Your net capital gain is your profit from the sale of a capital asset and your net capital loss is your loss from the sale of a capital asset.
Real properties classified as capital assets are taxed at 6% of the gross selling price or fair market value (whichever is higher!) plus 1.5% documentary stamp tax. You can avoid paying this in one of the following cases:
1.) If you sold your principal residence (your home) and bought another one within 18 months; provided: you informed the BIR within 30 days from the day you sold your house, you can use this exemption only once every 10 years, and any amount from the sale that wasn't used in buying the new house will be taxed.
2.) If the real property is sold to the government, or any of its branches. If you do this, you can choose to use the capital gains tax rate or the normal income tax rates, whichever is convenient to the taxpayer.
When selling shares of stock that aren't listed on the stock exchange, the tax is taken from the net capital gain. The net capital gain is taxed at 5% for amounts of PHP100,000 or less. The excess over Php100,000, if there is any, is taxed at 10%.
Net capital losses can be used to cover net capital gains, but only up to the amount of the gains. So if your net capital gain is Php100,000 and your net capital loss is Php50,000, the remaining Php50,000 will be taxed. A taxpayer that isn't a corporation can do a net capital loss carry-over if there is a net capital loss that is more than the net capital gain of one taxable year. The excess of the loss can be carried over to the next year, but only up to 12 months. If you made a net capital gain of Php10,000 in 2011 and a net capital loss of Php20,000, the extra Php10,000 can be used to cover net capital gains for 2012. If you had Php5,000 in 2012, however, the extra Php5,000 can't be carried into 2013.
Non-corporate taxpayers also have a holding period. This is the percentage of profit or loss in computing the net capital loss, net capital gain and net income. The holding periods are: 100% for short-term (held for 12 months or less) and 50% for long-term (held for more than 12 months.)
2 comments:
if you purchase a condo property with you Mother and sister in the contract to sell, then before issuance of the Absolute Deed of Sale, your mother decided not to be included in the title, are you subject to a capital gains tax?
If the condo is a capital asset, unfortunately yes. It doesn't matter who isn't included. The subject matter of the capital gains tax is the transaction itself. So whoever will be mentioned in the deed will be the one to pay the tax.
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