Taxes on Transfer of Ownership

In this world, nothing can be said to be certain, except death and taxes.

-        Benjamin Franklin -

It is fascinating to know that not too many of us care about knowing how taxes are computed.  Sure we know that there are taxes to be paid  and that many things that we do have been prepaid in taxes – meaning taxes are paid even before we can enjoy the item or the service.  A basic example is when you buy groceries where a value added tax (VAT) is inputted in the price of the items bought or when you ride a public utility vehicle where fare includes road tax or when you fly any of the airlines where fare includes travel tax or when you watch movies where tickets include the amusement tax.  And the most heartbreaking of all, when you receive your salary net of withholding taxes.

There are other taxes though which are paid after the transaction happens.  You can delay the payment of the taxes but the need to pay would eventually catch up and you will be left with no choice but to pay the taxes or be charged with ridiculous penalties by the Bureau of Internal Revenue.  These taxes are not common and may happen only maybe once or twice in your lifetime if you are an end-user or many times over if you are a regular investor.  I am referring to Capital Gains Tax and the other taxes that go with the transaction of selling your real estate property and transferring the ownership of the said property.

Hereunder are the list of basic real estate taxes that must be paid to effect a transfer of ownership over a real estate property like a house and lot, lot only or a condominium unit:

1. Capital Gains Tax – If the property is classified as Capital Asset. For firms, a capital asset is an asset that has a useful life longer than one year and is not intended for sale during the normal course of business. For individuals, capital asset typically refers to anything the individual owns for personal or investment purposes. Usually, Capital Gains Tax is for the Seller's account. The rate is at 6% of the selling price or zonal value, whichever is higher. To be paid to the Bureau of Internal Revenue, 30 days after notarization of the Deed of Absolute Sale or receipt of payment, whichever is earlier.

 2. Creditable Withholding Tax - If the property is classified as Ordinary Asset. Usually, this is for the Seller's account. If the Seller is not habitually engaged in selling properties, the rate is fixed at 6% of the selling price or zonal value or market value (tax declarations), whichever is higher. If the seller is habitually engaged in selling properties, the following matrix will be followed: Not over P500,000 at 1.5% of the selling price, zonal value or market value (tax declarations); Over P500,000 to P2M at 3%; Over P2M at 5%. To be paid to the Bureau of Internal Revenue on or before the 10th day of the following month after the notarization of the Deed of Absolute Sale ore receipt of payment, whichever is earlier.

 3. Documentary Stamp Tax - Usually, this is for the Buyer's account. The rate is 1.5% of the selling price, zonal value or market value (tax declarations) , whichever is higher. To be paid to the Bureau of Internal Revenue on or before the 5th day of the following month after the notarization of the Deed of Absolute Sale or receipt of payment, whichever is earlier.

 4. Transfer Tax - Usually, this is for the Buyer's account. The prescribed rate is .5% of the selling price, zonal value or market value (tax declarations), which every is higher. However, rate may differ depending on the local ordinances of the local government unit. To be paid to the City/Municipal Treasurer's Office on or before the 60th day after notarization of the Deed of Absolute Sale.

  

5. Registration Fee - Usually, this is for the Buyer's account. The rate is based on schedule per local Registry of Deeds. To be paid to the Registry of Deeds on upon entry of required documents.

 6. Value Added Tax -The rate is 12% of the selling price. To be paid to the Bureau of Internal Revenue. Properties classified as capital asset is exempted from VAT. Properties classified as ordinary asset but priced not higher than P1,915,500 for lot only or not higher than P3,199,200 for houses and lots are also exempted from VAT. Percentage tax of 3% might be imposed on VAT exempted transactions.

There are a lot of other taxes and if you’re a sophisticated man, you’d better hire a tax consultant.  It’s good to know which ones you can reduce or which ones you can delay. Avoiding or evading taxes...? hmmmn... I don’t think so.  As surely as death will come, the tax man’s gonna knock on your door, sooner or later, whether you're dead or alive.