UNDER Section 3(e) of Revenue Regulations (RR) 7-2003, properties classified as ordinary assets for being used in business by a taxpayer not engaged in real estate business are automatically converted into capital assets once proof is shown that the same have not been used in business for more than two years prior to the consummation of the taxable transactions involving the said properties.
In a recent ruling issued by the Bureau of Internal Revenue (BIR) last March 2010, the properties for sale of the requesting taxpayer comprised land, an office building and a warehouse, all of which were treated as capital assets in the company’s books of accounts since it ceased operations in year 2007. The properties were not held for speculative purposes by the company and did not form part of its inventory of supplies, materials and products.
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Considering the non-use of the properties for business purposes for at least two years, the BIR ruled that the properties
should be properly classified as capital assets upon presentation of a certification issued by the barangay captain that the company has had no commercial operation since year 2007.
Being in the nature of capital assets, the BIR held in the ruling that the sale of the properties should be subject to six percent capital gains tax based on the gross selling price or fair market value at the time of the sale, whichever is higher.
The sale is also subject to the documentary stamp tax of 1.5 percent based on the consideration or value received or paid for the property, or on its market value, whichever is higher.
However, inasmuch as the properties are not held primarily for sale or lease to its customers in the course of trade or business, the sale is not subject to the 12 percent value-added tax.
(Source: Punongbayan & Araullo)
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