Capital Gains Tax Notes PDF

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GAINS DERIVED FROM DEALINGS INPROPERTYOrdinary Gains Gains or income from the sale EXCHANGE OF property exchange of property which are not capital assets. Capital Gains Gains or income from the sale or exchange of capital assets. Capital Assets Include all property held by the taxpayer whether or no...

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GAINS DERIVED FROM DEALINGS IN PROPERTY Ordinary Gains Gains or income from the sale EXCHANGE OF property exchange of property which are not capital assets. Capital Gains Gains or income from the sale or exchange of capital assets. Capital Assets Include all property held by the taxpayer whether or not connected in trade or business, o NOT INCLUDING those enumerated as ordinary assets under the NIRC. Ordinary Asset: Statutory definition (NIRC) 1. Stock in trade or other property of any kind which would be included in the inventory of the taxpayer if onhand at the end of the taxable year. 2. Property primarily held for sale to customers in the ordinary course of trade or business. 3. Property used in trade or business subject to depreciation. 4. Real property used in trade or business. NOT ALL CAPITAL GAINS ARE SUBJECT TO CAPITAL GAINS TAX Capital Gains 1. Schedular rate o Sale of other capital assets 2. Final tax – CGTX o Sale of not listed and not traded domestic shares of stock. o Sale of real properties in the Philippines Rules on capital gains and losses apply only if the transaction on capital asset is either a sale or exchange. RULES ON SHARES OF STOCKS Tax Base: Net capital gains on a per transaction basis Net Capital Gain: Selling Price - Cost Selling Price: Higher between fair market value or consideration Tax Rates: 15% Flat Rate (RA10963) Persons Liable: Citizen or alien (RC, NRC, RA, NRA-ETB, NRA-NETB) RULES ON SALE OF REAL PROPERTY Coverage: Involves the sale of real property classified as capital asset located in the Philippines.

Tax Base: FMV, Agreed Selling Price, or Zonal Valuation, whichever is highest Persons Liable: Citizen or alien (RC, NRC, RA, NRA-ETB, NRANETB) RULES ON SALE OF REAL PROPERTY Tax Rate: General Rule 6% of the tax base Optional: Sale to the 1. Government 2. Political subdivisions 3. GOCCs  option to choose between 6% final tax or the schedular tax rate Exception: Sale or disposition of the principal residence of natural persons are exempt from capital gains tax if certain conditions are met. CONDITIONS FOR TAX EXEMPTION FROM THE SALE OR EXCHANGE OF PRINCIPAL RESIDENCE 1. Sale of actual principal residence of taxpayers (citizens or resident aliens) 2. Proceeds utilized in acquiring/constructing a new principal residence within 18 calendar months from date of sale 3. Notification within 30 days from date of sale through prescribed return of intention to avail the tax exemption 4. 6% capital gains tax under escrow agreement. 5. Availed of only once every 10 years RULES ON OTHER CAPITAL ASSETS Coverage: Involves the sale of properties classified as capital assets other than those subject to capital tax. TAX FORMULA For Sale of Property: Selling price (in terms of money) Less: Cost Gain or Loss For Exchange of Property: FMV of property received in exchange Less: Cost Gain or Loss Tax Base: Net capital gains Tax Treatment and Rate: Subject to schedular rates RULES ON CAPITAL GAINS AND LOSSES Holding Period:

Percentages of gain or loss to be taken into account shall be the following: 100%: held for not more than 12 months (short-term) 50%: held for more than 12 months (longterm)

1. Taxpayer marries or shall have additional dependents during the taxable year. 2. Taxpayer dies during the year. 3. Spouse or any dependent dies, dependent marries, becomes 21 years old or becomes gainfully employed.

 APPLICABLE TO CAPITAL ASSETS NOT SUBJECT TO CAPITAL GAINS TAX ONLY

INCOME TAX RETURN Persons Required to File: All classification of individual taxpayers NRA-NETB

Deductibility of Capital Loss: Capital losses are allowed only to the extent capital gains. Net Capital Loss Carry Over: Allowed to carry-over net capital loss as a deduction against net capital gain of the following year RULES ON NET CAPITAL LOSS CARRY OVER Net Capital Loss Carry Over: Carrried over to the succeeding year as short term loss (100%).  Amount to be carried over is the lower between the net capital loss and net income in the year the loss was sustained. Whichever Is LOWEST Limit 1: Net income in the year the loss was sustained Limit 2: Available net capital gain in the following year Limit 3: Actual net capital loss to be carried over FORMULA: GAINS DERIVED FROM DEALINGS IN PROPERTY Property acquired by purchase: Selling price Less - Cost Gain Property acquired by inheritance: Selling price Less - FMV, date of inheritance Gain Property acquired by gift: Selling price Less - Value in the hands of donor (lower of cost or fmv at date of gift) Gain Deductions from Gross Income 1. Trade, business or professional expenses only 2. Allowance of Personal Exemption 3. Premium payments on health and/or hospitalization insurance REPEALED BY RA 10963 RULES ON CHANGE OF STATUS General Rule: In favor of the taxpayer if changes occurred during the taxable period.

Persons NOT Required to File: - Individual whose taxable income does not exceed P250,000 for compensation income earners based on tax schedule. - Individuals qualified under substituted filing Individuals whose sole income has been subjected to final withholding tax - Individuals exempt from income tax pursuant to the Tax Code and other laws, special or general (e.g. MWE under RA 9504). Place of Filing: Except in cases where the Commissioner otherwise permits, the return shall be filed with: 1. AAB (Authorized Agent Bank) 2. RDO (Revenuel District Office) 3. Collection Agent 4. Duly authorized Treasurer of the city or municipality Time of Payment: - Pay-as-youre system (quarterly/annual) - Installment Payment of Tax When the tax due is in excess of P2,000, may elect to pay in 2 equal installments: 1. 1st installment paid at time return is filed. 2. 2nd installment paid on or before October 15 following the close of the calendar year Information Content of ITR:  Personal profile and information  Total gross sales, receipts or income from compensation of services rendered, conduct of trade or business or exercise of profession, except income subject to final tax.  Allowable deductions  Taxable income  Income tax due and payable WITHHOLDING TAX RETURN Time of Payment - Not later than the last day of the month following the close of the quarter during which withholding was made....