Last Updated on October 18, 2021 by Lamudi
Property sellers are subject to capital gains tax rate of six percent on the sale of a real property. With the TRAIN law, individual and domestic corporations must pay capital gains tax at 15 percent. Payment should be within 30 days after the sale of the capital assets.
For those who’ve sold a property or who are still selling their property, you may have been surprised to find out that there are taxes that come with a newly purchased property—taxes that the seller pays for, and not the buyer. Whether it’s your first time selling or whether it’s your hundredth time, you’re still liable to pay for these taxes. The capital gains tax are one of these inescapable taxes.
Q: What Is the Meaning of Capital Gains Tax (CGT)?
A: Capital gains tax meaning on real estate, is the tax imposed on a seller’s profit from selling a property classified under capital assets. Capital assets are properties owned by a taxpayer not used in any form of trade or business. Examples of capital assets are homes, land, or cars that are not income-generating. A capital gains tax is deducted from the property’s gross selling price or market value, whichever is higher.
So, how can we define CGT meaning? It is a type of tax applied to the profits that you earned for the sale of an asset. Unlike taxes on ordinary income, which automatically occur each year when new income is earned by the individual, capital gains taxes are only levied once a sale of real property occurs.
Q: What is a Capital Asset in the First Place?
A: According to Section 39 of the tax code, a capital asset is a property sold or being sold that is not one of the following:
- Properties for sale in the ordinary course of business
- Real property used in trade or business
- Stocks held by the taxpayer in trade or inventory
- Any property used in business that the taxpayer claims for depreciation
If the property for sale falls under any of these, the property is considered to be an ordinary asset and not a capital asset.
Capital gains laws in every country differ. What applies in America may not exactly be applicable here in the Pearl of the Orient. So, here’s everything you need to know about the capital gains law and capital gains tax meaning in the Philippines.
Q: Where Can I Find the Capital Gains Law?
A: For those who may be wondering where this particular tax code can be found, it’s under the National Internal Revenue Code of the Bureau of Internal Revenue (BIR). The sections dedicated to the capital gains law are found under sections 24C, 24D, 27D(2), 27D(5), 28(A)(7)(c), 28(B)(5)(c), and 39A.
These sections cover the whole breadth and depth of how the Philippines handles capital gains taxes. The sections may not exactly be long, but they can be hard to digest, especially when you’re not used to reading heavy legal documents. Luckily, we’ve managed to cut them down into bite-sized chunks for you.
Q: Who Pays Capital Gains Tax in PH, the Buyer or Seller?
A: Since it is applied to the sale of capital assets, the seller is the one who pays capital gains tax. Again, it’s important to know if yours is a capital asset to determine who pays capital gain tax. This includes properties under pacto de retro sales and other forms of conditional sale.
A pacto de retro sale is defined as a transaction wherein the seller has the right to repurchase the property being sold to him or her. This is done in order to immediately transfer the title and ownership of the said property to the vendee a retro.
Contrarily, conditional sales are very similar to traditional real estate offers; nonetheless, the parties are imposing conditions on one another for the sale of property. Examples of these conditions that a co-buyer can approve include receiving and reviewing a survey demonstrating that the property complies with zoning laws, a title search demonstrating that there are no objectionable liens or encumbrances, receiving confirmation from the current mortgagee that the property is not in foreclosure, etc.
However, this capital gains tax is only applicable to the properties located within the Philippines and not those from abroad. So for those who’re selling condo units in Korea or a house and lot in Australia, this tax is not applicable to you.
Q: How Is Capital Gains Tax Calculated in PH?
A: It is important to be aware of the capital gains law in the Philippines, especially if you’re the one who pays capital gain tax because its tax amount isn’t exactly cheap to pay for.
What is the capital gains tax rate in the Philippines?
According to Section 24D, capital gains from the sale of real estate properties in the Philippines have a capital gains tax of 6 percent, based on the gross selling price or current fair market value–whichever is higher of the two. This includes capital gains from selling real estate property in the Philippines classified as capital assets by individuals. Note that these capital gains are not subject to a holding period and are subject to special tax rates.
Q: How to Compute for the Capital Gains Tax Philippines (2023)?
A: If you want to learn how to compute capital gains tax Philippines in 2023, you must first determine the higher value of the property and multiply the same by 6%. Keep in mind that in the capital gain tax computation, the tax rate is 5% for the first P100,000 and 10% in excess of P100,000 of the net capital gains. The cost of the shares and the related selling expenses are deductible.
Here’s a sample computation of capital gains tax Philippines on property sale: if you’re selling a property for a total of Php 2,400,000, then the capital gains tax computation will amount to Php 144,000. On the other hand, if the current fair market value of the property amounts to Php 2,800,000 and not Php 2,400,000, then the total capital gains tax for the said property would then be Php 168,000 and not Php 144,000.
This may be inconsequential to people who just want to be rid of the property, but probably not to those hoping to turn their profit into an investment for something else.
Q: When to Pay Capital Gains Tax on Real Estate
A: You’re required to settle capital gains tax within 30 days after the sale of your property. Accomplish the capital gains tax form and have it processed in any authorized agent bank or with the revenue collection officer of the Revenue District Office (RDO), which has jurisdiction in the location of the property in question.
Take note that the penalty for late payment of capital gains tax in the Philippines is 25 percent surcharge on basic tax due (50% surcharge in cases of fraud or intent to evade tax) and 20 percent interest per annum.
Q: Are There Exceptions to Capital Gains Tax?
A: There are always exceptions to the rule. People selling their properties to acquire or construct a new home are exempted from this rule, but only if they ensure that the money will actually go to the new property and not elsewhere.
The BIR Commissioner must be notified regarding the intention to allocate the money to the new property, and the seller must not have availed of this tax exemption in the last decade.
Q: What Is the Capital Gains Tax for 2023?
A: As of 2023, the capital gains tax for individual and domestic corporations is at 15% because of the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which became effective on January 1, 2018. The TRAIN Law is part of the government’s project called the Comprehensive Tax Reform Program for the National Internal Revenue Code of 1997. Before the TRAIN Law, the standard capital gains tax deducted was 6% and can range from 5% to 10%.
Q: How Do I Minimize Capital Gains Tax?
A: By introducing investment incentives, tax incentives, and exemptions, you can reduce capital gains tax. Securities sold by licensed securities dealers, government-owned real estate, unwarranted real estate, agricultural land covered by the Comprehensive Agrarian Reform Law, and people who swap real estate for stock are among the capital assets excluded from capital gains tax. Primary dwellings are among the most frequent capital assets exempt from capital gains tax.
To demonstrate that a property is utilized as a principal residence, the address must match the one that was shown on the owner’s most recent Income Tax Return (ITR). If the property is designated as a principal residence, capital gains tax won’t apply. Sellers may use such exemptions just once every ten years, though.
Q: Do Seniors Have to Pay Capital Gains?
A: One of the privileges of senior citizens in the Philippines is exemptions and deductions on certain forms of taxes. However, under the Expanded Senior Citizen Act of 2010, among senior citizens liabilities’ are capital gains taxes. Capital gains tax deducted from a senior citizen’s profit from selling a capital asset will be in accordance with the law that is currently in effect. The capital gains tax will depend on the property’s gross selling price or market value. It will not be affected by special privileges, such as tax deductions for senior citizens.
Q: Do Capital Gains Count as Income?
A: Although capital gains can be taxed as income, the capital gains tax return is filed separately 30 days after the capital asset or property is sold. Because of the complex trait of capital gains and its special exemptions, it is required to be filed separately from the ITR.
Hopefully, this blog will arm you with the information needed to keep your finances and assets in check, especially when it comes to capital gains tax computation. Read on for more Q&A articles.