ISSUANCES/MEMORANDUMS NOTES
REVENUE RE: Providing the Guidelines in
REGULATIONS Determining Whether a
NO. 07-03 Particular Real Property is a
Capital Asset or an Ordinary
Asset Pursuant to Section
39(A)(1) of the National Internal
Revenue Code of 1997 for
Purposes of Imposing the Capital
Gains Tax under Sections 24(D)
ORDINARY ASSETS
a. Taxpayers engaged in the real
estate business.
NOTES:
- Real properties acquired by banks through foreclosure sales are
considered as their ordinary assets.
- However, banks shall not be considered as habitually engaged
in the real estate business for purposes of determining the
applicable rate of withholding tax imposed under Sec. 2.57.2(J)
of Revenue Regulations No. 2-98, as amended.
a. Taxpayers engaged in the real estate business.
1. Real Estate Dealer. — All real properties acquired by the real
estate dealer shall be considered as ordinary assets.
2. Real estate Developer- all properties acquired by real estate
developers
3. Real Estate Lessor. — All real properties of the real estate
lessor, whether land and/or improvements, which are for
lease/rent or being offered for lease/rent
4. Taxpayers habitually engaged in the real estate business:
- Registration with the HLURB or HUDCC as a real estate dealer
or developer shall be sufficient for a taxpayer to be considered
as habitually engaged in the sale of real estate.
- If the taxpayer is not registered with the HLURB or HUDCC as a
real estate dealer or developer, he/it may nevertheless be
deemed to be engaged in the real estate business through the
establishment of substantial relevant evidence (such as
consummation during the preceding year of at least six (6)
taxable real estate sale transactions, regardless of amount;
registration as habitually engaged in real estate business with
the Local Government Unit or the Bureau of Internal Revenue,
etc.).
- A property purchased for future use in the business, even
though this purpose is later thwarted by circumstances beyond
the taxpayer's control, does not lose its character as an
ordinary asset.
- Nor does a mere discontinuance of the active use of the
property change its character previously established as a
business property- still ordinary assets.
b. Taxpayer not engaged in the real estate business.
In the case of a taxpayer not engaged in the real estate business, real
properties, whether land, building, or other improvements, which are
used or being used or have been previously used in the trade or
business of the taxpayer shall be considered as ordinary assets.
These include buildings and/or improvements subject to depreciation
and lands used in the trade or business of the taxpayer.
c. Taxpayers changing business from real estate business to non-real
estate
business.
changed its real estate business to a non-real estate business, or who
amended its Articles of Incorporation from a real estate business to a
non-real estate business, such as a holding company,
manufacturing company, trading company, etc., the change of business
or amendment of the primary purpose of the business shall not result in
the re-classification of real property held by it from ordinary asset to
capital asset
d. Taxpayers originally registered to be engaged in the real estate
business but failed to subsequently operate.
- all real properties originally acquired by it shall continue to be treated
as ordinary assets.
e. Treatment of abandoned and idle real properties
Real properties formerly forming part of the stock in trade of a taxpayer
engaged in the real estate
 business, or formerly being used in the trade or business of a taxpayer
engaged or not
engaged in the real estate business, which were later on abandoned and
became idle, shall continue to be treated as ordinary assets.

When converted to capital asset?

automatically converted into capital assets upon showing of proof that
the same have not been used in business for more than two (2) years
prior to the consummation of the taxable transactions involving said
properties.
f. Treatment of real properties that have been transferred to a
buyer/transferee, whether the transfer is through sale, barter or
exchange, inheritance, donation or declaration of property dividends.

Real properties classified as capital or ordinary asset in the hands of the

seller/transferor may change their character in the hands of the
buyer/transferee.
1. Real property transferred through succession or donation:
- Donee/heir not engage in real estate and does not use such
property for business or trade- becomes capital asset
2. Real property received as dividend by the stockholders who are
not engaged in the real estate business and who do not
subsequently use such real property in trade or business-
treated as capital asset in the hands of the recipients even if
the corporation which declared the real property dividend is
engaged in real estate business.

g. Treatment of real property subject of involuntary transfer

CAPITAL ASSETS - Real property used by an exempt corporation in its exempt
operations, such as a corporation included in the enumeration
of Section 30 of the Code, shall not be considered used for
business purposes, and therefore, considered as capital asset
under
these Regulations.

- Real property, whether single detached; townhouse; or

condominium unit, NOT USED IN TRADE OR BUSINESS as
evidenced by a certification from the Barangay Chairman or
from the head of administration, in case of condominium unit,
townhouse or apartment, and as validated from the existing
available records of the Bureau of Internal Revenue, EVEN IF
OWNED BY AN INDIVIDUAL ENGAGED IN BUSINESS, shall be
treated as capital asset.
REVENUE SUBJECT : consolidated (o) “Net Capital Gain” means the excess of the gains from sales or
REGULATIONS regulations prescribing the rules exchanges of capital assets over the losses from such sales or exchanges.
NO. 6-2008 on
The taxation of sale, barter, p) “Net Capital Loss” means the excess of the losses from sales or
exchange or other exchanges of capital assets over the gains from such sales or exchanges.
Disposition of shares of stock
held as capital assets. SEC. 5. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED
AND TRADED THROUGH THE LOCAL STOCK EXCHANGE. —
a) Tax Rate . — A stock transaction tax at the rate of one-half of
one percent (1/2 of 1%) based on the ff amount/tax base:
b) Tax Base. — Gross selling price or gross value in money of the
shares of stock sold, bartered, exchanged or otherwise
disposed

Who will pay?

paid by the seller or transferor through the remittance of the stock
transaction tax by the seller or transferor’s broker.
RMC No. 55- Santos vs Register of Deeds:
2011 The period of redemption begins to run not from the date of sale but
from the time of registration of the sale in the office of the Register of
Deeds.

Individual- one year

Juridical- 3months

In other words, For purposes of reckoning one-year redemption period

on the foreclosed asset of natural persons and the period within which to
pay Capital Gains Tax or Creditable Withholding Tax and Documentary
 Stamp Tax on the foreclosure of Real Estate Mortgage, the same shall be
reckoned from the date of registration of the sale in the Office of the
Register of Deeds.

Redemption period of juridical persons in an extrajudicial foreclosure

shall be until, but NOT after, the registration of the certificate of
foreclosure sale with the applicable Register of Deeds, which in no case
shall be more than 3 months after foreclosure, whichever is earlier. It
shall be reckoned from the date of approval by executive judge.
RR No. 5- "De Minimis Benefits Amendment:
2011, as
further relative to the “De Minimis Benefit,” uniform and clothing allowance not
amended by exceeding P 5,000 per annum, which is exempt from Income Tax on
RR No. 8-2012 compensation as well as from fringe benefit tax.

See notes for complete lists)

The following are De Minimis Benefits which are not subject to Fringe
Benefit Tax, Income Tax and Withholding Tax on compensation income of
both managerial and rank and file employees.

1. 1. Monetized unused vacation leave credits of employees not exceeding

ten (10) days during the year;

1. 2. Monetized value of vacation and sick leave credits paid to government

officials and employees;
2. 3. Medical cash allowance to dependents of employees, not exceeding
P750 per employee per semester or P125 per month
3. 4. Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month
amounting to not more than P1,500
4. 5. Uniform and Clothing allowance not exceeding P5,000 per annum; (RR
No. 8-2012)
5. 6. Actual medical assistance, e.g. medical allowance to cover medical and
healthcare needs, annual medical/executive check-up, maternity
assistance, and routine consultations, not exceeding P10,000.00 per
annum
6. 7. Laundry allowance not exceeding P300 per month;
7. 8. Employees achievement awards, e.g., for length of service or safety
achievement, which must be in the form of a tangible personal property
other than cash or gift certificate, with an annual monetary value not
exceeding P10,000 received by the employee under an established
written plan which does not discriminate in favor of highly paid
employees;
8. 9. Gifts given during Christmas and major anniversary celebrations not
exceeding P5,000 per employee per annum;
9. 10. Daily meal allowance for overtime work and night/graveyard shift not
exceeding twenty-five percent (25%) of the basic minimum wage on a per
region basis;

11.Benefits received by an employee by virtue of a collective bargaining

agreement (CBA) and productivity incentive schemes provided that the
total monetary value received from both CBA and productivity incentive
schemes combined do not exceed P10,000.00 per employee per taxable
year. (RR No 1-2015)

All other benefits not mentioned are subject to income tax. The list is
exclusive.

Example: An employer who give a monthly rice subsidy to its employees

are allowed only P1,500.00 monthly allowance per employee to be
considered as “de minimis” as listed above. If the employer granted more
than this amount, the excess might be included as taxable compensation
income.
 To illustrate, the following tax rules may apply to all income received by
an employee:

Salaries & Wages (Basic

Income Tax Rate
Compensation)

De Minimis Benefits Exempt

Excess of De Minimis (Add with

th
13 MonthPay and Bonuses = Exempt
P90,000.00-under TRAIN)

Benefits & Bonuses in Excess of

P90,000.00 Income Tax Rate
Rank-And-File Employee Fringe Benefit Tax Rate
Managerial and Supervisory

All Other Benefits Income Tax Rate

NOTE: For the employer, the “de minimis benefits” granted to the
employees are allowed as inclusion in the deductions to gross income as
deductible salaries/expense in the computation of income tax.

On the other hand, for an employee, the benefits are considered as

additional salary but are exempt from income tax, therefore, no tax will
be withheld on the amount of the benefits.

SUMMARY OF THE RULES

To summarize, the following rules shall be observed in determining the

taxable amount after the “de minimis” and the P90,000.00 ceiling:

1. The amount included in the list of the “de minimis” shall not be
considered as part of the P90,000 ceiling of the 13th month pay,
bonuses and other benefits that are excluded from gross income in the
computation of the taxable income.
2.
3. The excess amount, however, of the “de minimis” benefits can be
included as part of the P90,000 ceiling and will be exempt as long as the
total 13th month pay, bonuses and other benefits do not exceed the
P90,000 ceiling.
4.
5. The excess amount of the “de minimis” not absorbed by the P90,000
ceiling shall be subject to the income tax on compensation or the fringe
benefit tax.

REVENUE
REGULATIONS relative to the special treatment of fringe benefits granted or paid by the
NO. 3-98 employer to employees, except rank and file employees, beginning
January 1, 1998. The definition of fringe benefits as well as the
determination of the amount subject to the fringe benefits tax are
specified in the Regulations.