BAM 127: Income Taxation for BA

Teachers’ Guide Module # 11

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Lesson title: Gain on Sale, Exchange and Other Disposition of Real Materials:
Property Text book:
Lesson Objectives: Income Taxation by Rex
At the end of this module, I should be able to: Banggawan
1. Discuss the Tax Implications of Gain on Sale, Exchange
and Other Disposition of Real Property Classified as References:
Capital Asset www.bir.gov.ph/

A. LESSON PREVIEW/REVIEW

1) Review (5 mins)

1. What are Capital Asset as defined by NIRC?

2. What are Ordinary Assets as defined by NIRC?

Activity 1- What I know Chart (3 mins)

Try answering the questions below by writing your ideas under the first column What I Know. It’s
okay if you write key words or phrases that you think are related to the questions.

What I Know Questions: What I Learned

1 Are all capital Asset subject to
capital gains tax?

2. Is there any legal exemption

for Capital Gains Tax?

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 11

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 11

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

B. MAIN LESSON

Activity 2 – Content Notes

LO 1: Discuss the Tax Implications of Gain on Sale, Exchange and Other Disposition of Real
Property Classified
as Capital Asset

Gains in Dealings of Properties

The sale, exchange, and other disposition of real property capital assets in the Philippines is subject to a
tax of 6% of the selling price or the fair value, whichever is higher.

Under the NIRC, the fair value of the real property is whichever is higher of the:
a. Zonal Value, which is the value prescribed by the Commissioner of Internal Revenue; and
b. Fair Market Value, as shown in the schedules of market values of the Provincial and City Assessors.

Illustration:
Black Panther disposes a vacant lot for P3,000,000. The lot has an Assessor’s fair value of P2,800,000, a
zonal value of P3,200,000, and an appraisal value of P3,500,000. What is the capital gains tax?

Highest between SP and FV P 3,200,000.00

Multiply by CGT Rate 6% ,
Capital Gains Tax P 192,000.00

General Rule: All sale, exchange or disposition of real properties categorized as capital asset is subject to

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 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 11

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

6% Capital Gains Tax.

Exceptions:
1. Properties outside the Philippines;
2. Properties held by Foreign Corporation – Regular Income Tax;
3. Real properties of an individual sold to government – Alternative Tax Rule
4.Exemptions under special laws;
4.1 Sale pursuant to CARP; and
4.2 Sale of Socialized Housing Units.
5. Sale of Residential House and Lot (NIRC)

Requisites for the Exemption of Sale of Residential House and Lot

1. Must be Resident of the Philippines (Citizen or Alien);
2. Must be the principal residence of the taxpayer;
3. Must utilized the proceeds to acquire a new principal residence;
4. Must notify the BIR within 30 days;
5. Must be within 18 months after sale;
6. Must be availed only once in every 10 years; and
7. Must hold an escrow account in favor of the government for the CGT.

BIR Tax Clearance

No registration of any document transferring real property shall be effected by the Registry of Deeds
unless the Commissioner or his duly authorized representative has certified that such transfer has been
reported and the capital gains has been paid.

Activity 3: Skill-building Activities

Let’s practice! After completing each exercise, you may refer to the Key to Corrections for feedback.
Try to complete each exercise before looking at the feedback.

Exercise 1:, True or false.

__________1. The 6% capital gains tax cannot apply unless there is a gain on sale of real property.

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 11

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

__________2. The sale of real properties located abroad is subject to the 6% capital gains tax.
__________3. The sale by the National Housing Authority of commercial lots is subject to capital gains tax.
__________4. If the assessor’s fair value is lower than the selling price, then the fair value of the property is
the zonal value.
__________5. Title to a property shall not be registered by the registry of Deeds unless the Commissioner
or his representatives has certified that the tax on the transfer has been paid.
__________6. Domestic corporations are exempt from capital gains tax on the sale, exchange and other
disposition of real properties.
__________7. The sale of land pursuant to the Agrarian Reform Program is exempt from capital gains tax.
__________8. The alternative taxation on an expropriation sale is not applicable to corporate taxpayers.
__________9. The capital gain from the sale of domestic bonds are subject to regular income tax.
__________10. The sale of the foreclosed land by the bank is subject to regular income tax.

ACTIVITY 4: What I know Chart – Part 2 (3 mins)

It’s time to answer the “what I learned” column in the What I Know chart in Activity 1.

ACTIVITY 5: ‘Check for Understanding’,

Exercise 1: Guided discovery using guide questions.

1. Differentiate Personal from Real properties.

2. Give at least 5 examples of Immovable properties.
3. Give at least 5 examples of movable properties.
4. Distinguish the taxability of Personal and Real properties.

Exercise 2: Problem Solving. Show your solution.

1. Aquaman Company sold its parking lot for P2,000,000. The lot has a zonal value of P2,500,000 and
appraisal of P1,800,000. The capital gains tax on the sale of the lot is ?

2. Gagamboy disposed his principal residence for P2,000,000 and immediately acquired a new one for
P1,800,000. The old residence of Gagamboy had a cost of P1,000,000 and had a fair market value of

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 11

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

P2,500,000 on the date of sale. Compute the capital gains tax to be deposited in escrow.

3. Using the same information in the preceding number, how much of the capital gains tax will be
released to the taxpayer?

C. LESSON WRAP-UP

Congratulations in finishing this module! You can now shade the number of the module that you finished.

Did you have challenges learning the concepts in this module? If none, which parts of the module helped you
learn the concepts?
____________________________________________________________________________________________________________________
____________________________________________________________________________________________

Some question/s I want to ask my teacher about this module is/are:

____________________________________________________________________________________________________________________
____________________________________________________________________________________________

FAQs

1. Who haw the obligation to remit the capital gains tax?

CGT for Real Properties is Final Tax. Thus, the buyer has the obligation to withhold and remit the CGT to
BIR.

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 11

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

2. What is the effect if of partial utilization of the proceeds from the sale of principal residence.
The taxpayer is likewise partially exempt. Any interest which might have accrued on the escrow fund shall
be releases to the taxpayer. The government is entitled to the amount of the unpaid tax only.

3. What is principal residence?

It refers to the house and lot which is the primary domicile of the taxpayer. If the taxpayer has multiple
residences, his principal residence is deemed that once shown in his latest tax declaration.

This document is the property of PHINMA EDUCATION

 BAM 127: Income Taxation for BA
Teachers’ Guide Module # 11

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Key to Corrections:

True or False

1. False
2. False
3. True
4. False
5. True
6. False
7. True
8. True
9. True
10. True

Problem Solving
1. P 0 - Parking lot of a company is an ordinary asset, thus subject to RIT.
2. P 150,000
3. P135,000

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