BIR Ruling OT-698-2020dated 29 December 2020

•Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or Buildings

NIRC SEC. 27(D)(5)

•Definition of Capital Assets

NIRC SEC. 39(A)(1)

•Guidelines in Determining Whether a Particular Real Property is a Capital Asset or an Ordinary Asset

• (Treatment of abandoned and idle real properties)

RR No. 7-2003

23 October 2020

PAL requested for confirmation fromBIR that the sale of its real propertiesheld for investment purposes issubject to 6% Capital Gains Tax(CGT) and the Documentary StampTax (DST) on conveyance of realproperty and exempt from the Value-Added Tax (VAT).

PAL is the registered owner of six (6) parcels of land in Malay, Aklan.

The Subject Properties are lodged under “Non-current Assets”, with the account title “Investment Properties”, in its AFS.

The Subject Properties remain idle and undeveloped and were never used in trade or

business by PAL.

GOLDEN TW REALTY &

DEVELOPMENT CORPORATION

25 AUGUST 2020

ISSUEWHETHER OR NOT THE

SUBJECT PROPERTIES ARE

CAPITAL ASSET OF PAL

CAPITAL ASSET v. ORDINARY ASSETNIRC SEC. 27(D)(5) and SEC. 39(A)(1)

ORDINARY ASSET- INCOME TAX and VAT

➢ Inventory on hand at the close of the taxable year;

➢ Stock in trade held primarily for sale to customers in the ordinary course of trade or business;

➢ Property used in the trade or business which is subject to depreciation; or

➢ Real property used in trade or business.

CAPITAL ASSET- CAPITAL GAINS TAX

➢ All other assets, where or not used in trade or business, which are not classified as ordinary assets.

IDLE PROPERTY Section 3(E) of RR No. 7-2003

- property which is abandoned or not used in trade or business.

MAY BE CLASSIFIED AS CAPITAL ASSET

OR ORDINARY ASSET

ORDINARY ASSET -AUTOMATICALLY CONVERTED

INTO CAPITAL ASSET UPON PROOF THAT IT HAS NOT BEEN USED IN

BUSINESS FOR MORE THAN TWO (2) YEARS PRIOR TO THE

CONSUMMATION OF THE TAXABLE TRANSACTION

CAPITAL ASSET FROM THE MOMENT IT WAS ACQUIRED-

AUTOMATIC CONVERSION IS

NOT NECESSARY

REAL ESTATE BUSINESS –

RULE ON CONVERSION IS

NOT APPLICABLE

“To engage in transport

services for the transportation

of passengers, express parcels,

mail merchandise and freight

by air, and all other services of

similar character...”

SUBJECT PROPERTIES

Registered in the name of PAL;

Acquired for investment purposes;

Recorded as capital asset;

Never used in the course of trade or business of PAL;

Never depreciated;

Idle with no improvements;

PAL is engaged in air transportation and not in the real estate business

BIR Ruling OT-698-2020“In view of the foregoing, xxx it is the considered opinion of this Office that the Subject Properties xxx are classified as CAPITAL ASSETS, the conveyance or which is subject only to the CGT and DST, and shall not be subject to VAT.

THANK YOU.