capital gain tax

What is capital gain tax and how do you compute for it?

Sample CGT computation
A residential condominium in Makati City with a floor area of 50sqm has a Selling Price (SP) of 1.0M. The existing zonal value per square meter for that condo in Makati is currently Php50,000/sqm. You have called the owner and found out that he is not engaged in the real estate business.

He also told you that as part of the deal, the buyer shall shoulder the CGT. As the buyer, how much is the CGT which you will have to pay the seller on top of the selling price?

First let’s compute for the Fair market Value (FMV):

FMV=Zonal Value x Floor Area
=50,000 pesos/sqm x 50sqm
=2,500,000 pesos

Since FMV is higher than SP, we shall use FMV to compute the CGT:

CGT=6% x FMV
=0.06 x 2,500,000 pesos
=150,000 pesos

Therefore, the buyer shall have to shell out an additional 150,000 pesos.
Note that while technically, the CGT is always the responsibility of the seller, and that if the buyer shoulders the CGT, it is in effect part of the selling price to be compared to FMV for purposes of computing the 6% CGT, I noted that the practice of banks is to compute the CGT this way.

Now, what if you called up the seller and told him that you are willing to buy the property but he should shoulder the capital gains tax as the seller, then he counters your offer and says he is willing to shoulder the CGT up to his selling price and the buyer shall shoulder the CGT for the excess or the difference between the SP and FMV, how do you compute for the CGT?

First, let’s compute for the excess or difference between the SP and the FMV:

Excess=FMV-SP
=2,500,000pesos – 1,000,000pesos
=1,500,000 pesos

Now, let’s compute for the CGT to be shouldered by the buyer:

CGT for the buyer =6% x Excess
=0.06 x 1,500,000 pesos
=90,000 pesos


The CGT to be shouldered by the seller is as follows:

CGT=6% x SP
=0.06 x 1,000,000 pesos
=60,000 pesos

Take note that the total CGT is 90,000 pesos + 60,000 pesos = 150,000 pesos, which is consistent with our first computation. The CGT was just split between the buyer and the seller.
As investors, we should always try to negotiate for the best terms and in relation to this particular
example, always try to have the other party shoulder the CGT.

The seller will still be the one to file the CGT and he shall have to file the return in an Authorized Agent Bank within the Revenue District where the property is located in Makati, within 30 days the deed of sale was executed.


Source: http://www.foreclosurephilippines.com/2009/02/real-estate-taxation-what-is-capital.html#ixzz2STMXxmLe