Commercial and Taxation Laws › Taxation Law › National Taxation (National Internal Revenue Code of 1997, as amended mainly by RA 10963, 11534, 11976, 12066, and 12214) › Income Tax › Income › Sources › Income from Dealings in Property

1. Capital vs. Ordinary Asset

v. Income from dealings in property

(a) Distinguish ordinary asset and capital asset

Ordinary asset - assets that include stock in trade; property properly includible in inventory; property held primarily for sale to customers in the ordinary course of trade or business, whether or not used in the business; and depreciable property or real property used in the trade or business under Sec. 39(A)(1) of the National Internal Revenue Code, such as:

  • Stock in trade of taxpayer
  • Property which would properly be included in an inventory of the taxpayer, if on hand
  • Merchandise inventory
  • Depreciable assets used in the trade/business
  • Real property used in trade/business

Capital assets – properties of a taxpayer other than ordinary assets, such as:

  • Stock and securities held by taxpayers other than dealers in securities
  • Interest in partnership and joint venture
  • Goodwill
  • Real property not used in trade or business like residential house and lot
  • Investment property

vi. Taxation of capital gains

General Rule: Capital gains are subject to regular income tax

Exception:

GAINS ON DEALINGS IN CAPITAL ASSETS TAX RATE
Net capital gains from sale, barter, exchange, or other disposition of shares of stock in a domestic corporation NOT traded in the stock exchange 15% on net capital gain (Sec. 24 (C))1
Sale, barter, exchange or other disposition of shares of stocks listed and traded in the Local Stock Exchange (Stock Transaction Tax)Selling price or gross value in money 0.1% of the gross selling price or gross value in money (Sec. 127(A), NIRC, as amended by RA 12214)2
Sale, exchange, or other disposition of real property situated in the Philippines classified as capital assetTax base is higher of:
1. Gross selling price or
2. FMV		 6% of the higher of the gross selling price or fair market value (Sec. 24(D), NIRC)3
Income from the sale, exchange or other disposition of other capital assets Applicable graduated income-tax rates; for an individual, 100% of the gain is taken into account if the asset was held for 12 months or less, and 50% if held for more than 12 months (Secs. 39(B) and 24(A), NIRC)

As for the capital gains, the following are the tax rate applicable:

TAX RATES of NRA-ETB ON CAPITAL GAINS
Capital gain from sale of shares of stock of a domestic corporation NOT traded through a local stock exchange 15% on net capital gain (Sec. 25 (A)(3)4 with reference to Sec. 24 (C)5)
Sale, barter, exchange or other disposition of shares of stocks listed and traded in the Local Stock Exchange (Stock Transaction Tax) 0.1% of gross selling price or gross value in money (Sec. 127 (A)6, as amended by RA 12214)
Sale of real property in the Philippines held as a capital asset 6% of gross selling price, OR current market value at the time of sale, whichever is higher. (Sec. 25 (A)(3)7 with reference to Sec. 24 (D)8)

Authorities

  • NIRC, Sec. 127
  • NIRC, Sec. 24
  • NIRC, Sec. 25