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GOVERNMENT ASSESSMENT PRINCIPLES AND TAXATION
• • • • • • • • • • •
Outline
Introduction Capital Gains Tax Creditable Witholding Tax Documentary Stamps Tax Value Added Tax Transfer Tax Estate Tax Donor’s Tax Real Property Tax Assessment of Real Property Special Cases
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Introduction
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• TAXATION is the inherent power of the sovereign state to raise money or revenue necessary to finance the functions and operations of the government.
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• CAPITAL ASSET VS. ORDINARY ASSET Before determining the applicable tax rate for any real estate transaction, the classification of the real property must be determined as to whether it is a capital asset or an ordinary asset.
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• CAPITAL ASSET, as defined, is the property held by the taxpayer, whether or not connected with his trade or business
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• Ordinary Assets are items not included under the Capital Asset class. These are: 1. Stock in trade of the taxpayer 2. Other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year.
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3. Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. 4. Property used in trade or business, of a character which is subject to the allowance for depreciation provided under the Tax Code. 5. Real Property used in trade or business of the taxpayer.
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PENALTIES/SURCHARGES/INTEREST • Surcharge – 25% of basic tax (in general, failure to pay in time) 50% of basic tax (willful neglect to file the return or fraudulent return) • Interest – 20% per annum based on the unpaid amount • Compromise Penalty – based on schedule of penalty
Capital Gains Tax
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• Coverage : Sale of capital assets by individuals/persons not engaged in realty business • Final Tax Rate: Six percent (6%) on gross selling price (GSP) or fair market value (FMV) or zonal value (ZV) whichever is higher
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• Place & Date of Payment: District office of the BIR where the property is located and to be paid within 30 days from date of notarization of the Deed of Absolute Sale.
• Exception: Mod. 1 Sale of the principal residence of natural persons under the following conditions: 1. The proceeds of the sale will be used in acquiring or constructing a new principal residence 2. The acquisition or construction of a new principal residence must be within eighteen (18) calendar months from the date of sale or disposition
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3. The BIR Commissioner must have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition 4. Said tax exception can only be availed of once every ten (10) years
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5. If there is no full utilization of the proceeds of the sale or disposition, the unused portion shall be subject to capital gains tax • Where to pay: Authorized agent bank (AAB) of BIR
• Formula: Mod. 1 - For cash sale or deferred payment sale* CGT = 6% x tax base - For installment sale** CGT = 6% x amount received *Deferred payment sale = if initial payment is more than 25% of selling price **Installment sale = if initial payment is
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EXEMPTION FROM CAPITAL GAINS TAX ON SALE OF PRINCIPAL RESIDENCE: SAMPLE COMPUTATIONS GIVEN: Historical P2, 000,000.00 Gross Selling Price (GSP) 5, 000, 000.00 Fair Market Value (FMV) 6, 000,000.00 Cost to acquire new principal residence 8, 000,000.00
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Case #1: PROCEEDS OF THE SALE HAS BEEN FULLY UTILIZED TO ACQUIRE NEW PRINCIPAL RESIDENCE CGT due: Since the entire proceeds of the sale has been fully utilized to acquire new principal residence, then this transaction is exempted from payment of capital gains tax.
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Cost basis of new principal residence:Less Cost to acquire new principal residence P8, 000, 000.00 Less: GSP of old principal residence (5, 000, 000.00)
Additional cost to acquire new principal residence 000, 000.00 Add: Historical cost of old principal residence 000.00 Adjusted cost basis of new principal residence 000.00
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3,
2, 000,
5, 000,
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Case #2: THE GSP OF THE OLD PRINCIPAL RESIDENCE IS EQUAL TO THE ACQUISITION COST OF THE NEW PRINCIPAL RESIDENCE
New Given: Cost to acquire new principal residence P5, 000,000.00 CGT due: Since the acquire proceeds of the sale has also been fully utilized to acquire new principal residence, then this transaction is also exempted from the payment of capital gains tax.
Cost basis of new principal residence: Mod. 1 Cost to acquire new principal residence P5, 000, 000.00 Less: GSP of old principal residence 5, 000, 000.00 Additional cost to acquire 0 new principal residence Add: Historical cost of 2, 000, 000.00 old principal residence Adjusted cost basis of 2, 000, 000.00 new principal residence
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CASE #3: PROCEEDS OF THE SALE HAS NOT BEEN FULLY UTILIZED TO ACQUIRE NEW PRINCIPAL RESIDENCE CGT due: Cost to acquire new principal residence P4, 000, 000.00 Less: GSP of old 5, 000, 000.00 principal residence
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Less: GSP of old principal residence 5, 000, 000.00 STEP 1 Unutilized portion of GSP 1, 000, 000.00 STEP 2 Get % of unutilized portion of GSP: Unutilized portion 1, 000, 000=20% 5, 000, 000
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STEP 3 GSP / FMV of old principal residence 6, 000, 000 Whichever is higher (GSP= 4m vs. FMV= 5M vs. ZV= 6M) Multiply by: % unutilized portion of GSP 20% Computed tax base for unutilized portion P1, 200,000 (Subject to CGT) STEP 4 multiply by: capital Gains Tax rate 6% Capital Gains Due (for the unutilized portion) P 72, 000
CGT saved: GSP or FMV of old principal residence, whichever is higher (GSP= 4M vs. FMV =5M vs. ZV=6M) Multiply by: CGT rate CGT (should be if no new principal residence was acquired) Compare with: CGT due for the unutilized portion 000 Saving/CGT exempted for the utilized portion
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P6, 000,000 6% P360, 000
P 72, P 288, 000
Creditable Witholding Tax
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Coverage: 1. Sale of ordinary asset by individuals/persons, duly registered as engaged in realty business 2. Sale of ordinary or capital assets by partnerships or corporations
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Tax Rates: • 1.5% Selling price is not over P 500,000 and where the seller is registered and certified by the HLURB as habitually engaged in realty business
• 3.0% Selling price is over P 500,000 but not over P 2.0M and where the seller is registered and certified by the HLURB as habitually engaged in realty business
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•5.0% Selling price is over P2.0M and where the seller is registered and certified by the HLURB as habitually engaged in realty business •6.0% Where the seller is not habitually engaged in realty business •** -- Equal to the capital gains tax •10.0% For income payments to professionals
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Place & Date of Payment: • District office of the BIR where the property is located (seller’s TIN is required in the Deed of Absolute Sale) and to be paid on or before the 10th day of the following month. Certification as “habitually engaged”: • Registration with the HLURB or HUDCC shall be sufficient for a seller or transferor to be considered as habitually engaged in real estate business.
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Formula: • For cash sale or deferred payment sale CWT = Applicable rate x tax base • For installment sale CWT = Applicable rate x amount received or paid
Documentary Stamp Tax
Coverage: Mod. 1 - Transfer of real property (capital or ordinary asset) - Transfer of shares of stocks Formula/Rate: A. For real estate transfer On sale = 1.5% x tax base On mortgage = (Amount of Mortgage x 0.2%) + P 10 or P 20 for 1st P 5,000 plus P 10 for every succeeding P 5,000 or fraction thereof
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B. For leases = P 3 for first P 2,000 and P 1 for every P 1,000 in excess of first P 2,000 C. Original Issuance of Shares of Stocks = P 1.00 for every P 200 • Place & Date of Payment : District office of the BIR where the seller is residing (seller’s TIN is required in the Deed of Absolute Sale) and to be paid within five (5) days following the month of notarization of the Deed of Absolute Sale.
Value Added Tax/Percentage TaxMod. 1 Coverage : - For Properties : Sale or lease of real properties primarily held for sale or lease in the ordinary course of business of the seller, subject to certain exceptions. - VAT registered taxpayer is exempted from percentage tax - Registered percentage taxpayer is not subject to VAT
• Tax Rate : Mod. 1 - VAT is 12% based on selling price before VAT beginning February 1, 2006 - Percentage tax is 3% based on gross receipts. • Date of Payment: To be paid on or before the 20th day of the following month.
• Formula: Mod. 1 VAT payable = output tax* less input tax** *Output tax : amount of VAT included in the receipts (liability of the taxpayer) **Input tax : amount of VAT included in the payment (asset/deduction to output tax) Output tax = amount received with VAT x 12/112 Input tax = amount paid with VAT x 12/112 VAT payable = output tax less input tax
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• VAT - exempt transaction (real estate) In general, VAT-registered persons with an annual receipts of no more than P1,500,000* are exempted (* Now P 1,919,500) Sale of real estate property classified as capital asset Sale of socialized housing (not more than P 225,000) and low-cost housing (does not exceed the ceiling of P 750,000) under BP 220
• Sale of residential lot valued at P 1,500,000* Mod. 1 and below (* Now P 1,919,500) • Sale of residential house and lot valued and other residential dwellings such as condominium units at not more than P 2.5M** and below (**Now P3,199,200) • When you sell real properties not primarily held for sale • Lease of residential units with monthly rental per unit of P 10,000* and below (*Now P12,800), regardless of the aggregate amount in one year
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• Lease of residential units exceeding P 10,000* per month (*Now P 12,800) but the aggregate amount would not exceed P 1,500,000** per year (** Now P1,919,500) • Lease of commercial units regardless of monthly rental and the aggregate amount does not exceed P 1,500,000* (* Now P 1,919,500) • Sales of goods and services not exceeding the VAT-exemption threshold of P1,500,000* (* Now P 1,919,500)
Transfer Tax
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Coverage: All sale of real estate properties Tax Rate: 1. In cities & municipalities in Metro Manila: Not more than one percent (1%) 2. In provinces: Not more than one-half percent (1/2% of 1%) of total consideration or fair market value whichever is higher
Transfer Tax
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3. In cities, rates of tax may exceed the maximum rates allowed for the province or municipality by not more than 50% except professional and amusement taxes; Place & Date of Payment : Provincial, municipal or city treasurer to be paid prior to registration of title with the Register of Deeds.
Estate Tax
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(R.A. 7499 and Revenue Regulations # 2
2003 of Jan. 17, 2003) More popularly known as the Inheritance Tax. Application: Residents, citizens and non-resident aliens (with properties situated in the Philippines) with net estate over P 200,000.
Authority of LGUs to adjust rates of taxes Mod. 1 • Local government units shall have the authority to adjust the tax rates as prescribed not oftener than once every five (5) years, but in no case shall such adjustment exceed ten percent (10%) of the rates fixed in RA 7160
Allowable Deductions: Mod. 1 • Ordinary Deductions: 1. Funeral Expenses: Actual funeral expenses or five percent (5%) of the gross estate or P 200,000, whichever is the lowest. 2. Judicial expenses of the testamentary or intestate proceedings: Actual expenses 3. Claims against the estate: Actual amount 4. Unpaid mortgages, taxes and casualty losses: Actual amount
• Special Deductions: 5. The family home: FMV or P 1M, whichever is lower
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6. Standard deduction: P 1M without need for any substantiation 7. Medical expenses incurred within one (1) year before the death of the decedent: P 500,000
• Special Deductions:
8. Amount received by the heirs underMod. 1 RA No. 4917 (from decedent’s employer as a consequence of the death of the decedent): Actual amount provided amount is part of the gross estate 9. Net share of the surviving spouse in the conjugal partnership or community property: Normally 50%
Mod. 1 • Time of filing estate tax return: Within six (6) months from the decedent’s death • Place of filing the return & payment of estate tax: The revenue District Office where the decedent was domiciled at the time of his death, payment of estate tax by installment may be allowed.
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Sample Computation Decedent is married, has a surviving spouse, has other exclusive properties and family home is conjugal or community property
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Exclusive Conjugal conjugal Properties: Family Home 2500,000 Other Real properties 5,500,000 Exclusive Properties 2, 000, 000 ---Gross Estate 2, 000, 000 8, 000, 000
Total 2500,000 5,500,000 2, 000, 000 10, 000, 000
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Less: Deductions Ordinary Deductions Conjugal deductions: Funeral Expenses Other deductions Total conjugal deductions
200, 000
200, 000
1500, 000
1500, 000
1700, 000
700, 000
Net conjugal estate
6300, 000
1,
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Special deductions: Family Home Standard deduction Medical Expenses Total Deductions
1, 000, 000 1, 000, 000 500, 000 4200, 000
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Net estate Less: ½ share of surviving spouse Conjugal property 8, 000, 000 Conjugal deductions 1, 700, 000 Net conjugal estate 6, 300, 000 ½ share of surviving spouse Net Taxable Estate
3, 150, 000 2,650,000
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ESTATE TAX PAYABLE First P2, 000, 000 Excess over P2, 000, 000 Net taxable estate First P2, 000, 000
135,000
2650, 000
(2, 000, 000) 650, 000
Tax Rate (11 %) TOTAL ESTATE TAX PAYABLE
0.11
71, 500 206, 500
Donor’s Tax
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(R.A. 7499 and Revenue Regulations # 2-
2003 of Jan. 17, 2003) Tax Rates on donation: 1. If donee is not a stranger : Please see attached table 2. If donee is a stranger : 30% of the net gifts Application: Net gift over P 100,000. Furthermore, the gift must be accepted by the donee.
• The “stranger”: A person who is not a:
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1. Brother, sister (whether by whole or half blood), spouse, ancestor and lineal descendant 2. Relative by consanguinity in the collateral line within the 4th degree of relationship.
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Notes: • A legally adopted child is entitled to all the rights and obligations of legitimate children and therefore, a donation to him shall not be considered as a donation to a stranger.
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• Donations between business organizations and those made between an individual and a business organization shall be considered as a donation made to a stranger. • Contributions for election campaign: Any contribution, in cash or in kind, to any candidate, political party or coalition or parties for campaign purposes, shall be governed by the Election Code.
• Exemption:
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In order to be exempt from donor’s tax and to claim full deduction of the donation given to qualified done institutions accredited by the Phil. Council for NGO Certification, Inc. (PCNC), the donor engaged in business shall give a notice of donation on every donation worth at least P50,000 to the RDO with jurisdiction over his place of business within thirty (30) days after the receipt of the qualified done institution’s Certificate of Donation.
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• Time for filing donor’s tax return & payment of donor’s tax: Within 30 days after the date the gift is made or completed. The tax due thereon shall be paid at the same time that the return is filed. • Place of filing the return: The Revenue District Office where the donor was domiciled at the time of the transfer
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