Capital Gain Taxation

Classification of Properties
Ordinary Asset Capital Asset

A. Stock in trade of a taxpayer or other real Capital assets shall refer to all real properties
property of a kind which would properly be held by a taxpayer, whether or not
included in the connected with his trade or
inventory of the taxpayer if on hand at the business, and which are not included among
close of the taxable year; the real properties considered as ordinary
assets under Sec. 39(A)(1)
of the Code.
B. Real property held by the taxpayer

primarily for sale to customers in the
ordinary course of his
trade or business.
C. Real property used in trade or business
(i.e., buildings and/or improvements) of a
character which is subject to the allowance
for depreciation provided for under Sec.
34(F) of the Code;
D. Real property used in trade or business of
the taxpayer.
Ordinary gains, how taxed? Capital gains, how taxed?
The rate is 6% capital gains tax based on the Capital gains taxes are owed on the profits
higher amount between the gross selling from the sale of most investments if they are
price or fair market value. In computing the held for at least one year. The taxes are
capital gains tax, you simply determine the reported on a Schedule D form. The capital
higher value of the property, and simply gains tax rate is 0%, 15%, or 20%, depending
multiply the same with 6%. on your taxable income for the year. High
earners pay more.
CAPITAL GAINS SUBJECT TO CAPITAL GAINS TAX : There are only two:
Gains Tax Rate

1. Capital Gains on the sale, exchange, and 6%
other disposition of domestic stocks directly
to a buyer
2. Sale, exchange and other disposition of 6% of the selling price of the real property
real property in the Philippines
MODES OF DISPOSING DOMESTIC STOCkS

Shares of stocks may be sold, exchanged or disposed:
Disposition Tax Rate

1. The sale of domestic stocks classified as tax rate is 5% for the first P100,000 and 10%
capital assets through the PSE by a non- in excess of P100,000 of the net capital
dealer of stocks. gains.
2. The sale of domestic stocks through the six-tenths of one percent (6/10 of 1%) of the
PSE by a dealer in stocks. gross selling price or gross value in money of
the shares of stock.
3. Directly to a buyer The rate is 6% capital gains tax based on the
higher amount between the gross
selling price
Instruction: Indicate whether the statement is True or False. If false, change the word or
phrases you deemed false to make the statement true.
1. The annual capital gains tax return is simultaneously due with the annual regular income
tax return.
 TRUE
2. The basis of the properties received by way of inheritance is the basis in the hands of the
last owner who did not acquire the same by donation.
 FALSE - who did acquire the same by donation
3.The basis of the stock received in tax free exchanges is the basis of the shares given.
 FALSE - substituted basis of the properties transferred
4. The SP is used to determine the propriety of using installment method but the contract
price is used to determine the capital gains tax payable in installment.
 TRUE
4. The 6% CGT cannot apply unless there is a gain on the sale of real property.
 FALSE - can be apply
Instruction: Answer the following with:
Statement 1 is correct.
Statement 2 is correct.
Both statements are false.
Both statements are correct.
1. BOTH STATEMENT ARE FALSE

S1: Capital gains may arise from sale, exchange and other disposition of movable properties
used in business.
S2: Ordinary gains may arise from sale, exchange, and other disposition of real properties
not used in business.
2. STATEMENT 2 IS CORRECT
S1: The gain on sale of domestic stocks directly to a buyer is presumed.
S2: The gain on sale of real properties is presumed.
3. BOTH STATEMENT ARE CORRECT
S1: Only depreciable assets of business qualify as ordinary assets.
S2: Land used in business is a capital asset since it is not subject to depreciation.
4. STATEMENT 1 IS CORRECT
S1: The sale or exchange must result to an actual gain before the 15% CGT is imposed.
S2: The sale or exchange must result to an actual gain before the 6% CGT is imposed.
5. BOTH STATEMENT ARE CORRECT
S1: Properties acquired by real estate dealers are ordinary assets.
S2: Properties of real estate dealers continue to be classified as ordinary assets even if they
change the nature of the business.

Capital Gain Taxation

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Capital Gain Taxation

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Classification of Properties

Ordinary Asset Capital Asset

B. Real property held by the taxpayer

Gains Tax Rate

MODES OF DISPOSING DOMESTIC STOCkS

Disposition Tax Rate

Instruction: Answer the following with:

1. BOTH STATEMENT ARE FALSE

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