Under Philippine taxation law, the National Internal Revenue Code of 1997 (NIRC), as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law and further amended by the Ease of Paying Taxes Act (R.A. No. 11976), provides comprehensive regulations concerning income derived from dealings in property. Here’s a meticulous breakdown:

I. Defining Income from Dealings in Property

Income from dealings in property encompasses gains derived from the sale, exchange, or other dispositions of both real and personal property, regardless of whether these are capital or ordinary assets. Such income is taxable under the NIRC, and specific rules apply depending on the type of property and the nature of the taxpayer’s business.

A. Nature of the Property

Income from dealings in property varies depending on whether the property is a capital asset or an ordinary asset. The nature of the asset influences tax treatment significantly:

Capital Assets – Properties held for investment purposes, generally not part of ordinary trade or business. Gains from the sale of capital assets may be subject to lower tax rates.
Ordinary Assets – Properties primarily used in the taxpayer's trade or business, including inventories, property held by dealers, and assets used in production.

The classification is crucial as it impacts the treatment of gains and losses, which differ under the tax code.

B. Computation of Gains or Losses

The gain or loss from dealings in property is calculated as the difference between the amount realized from the sale or exchange and the adjusted basis of the property.

Amount Realized – Total consideration received from the sale or disposition of the property, which includes cash or other assets received by the seller.
Adjusted Basis – Cost of the property, adjusted by specific allowable deductions or additions, such as depreciation, amortization, or improvements.

The result of this computation determines whether there is a taxable gain or a deductible loss.

II. Taxation of Gains from Dealings in Property

A. Capital Gains Tax

The NIRC, as amended, imposes specific taxes on capital gains derived from the sale or exchange of certain assets.

Real Property – Gains from the sale of real property located in the Philippines classified as a capital asset by individuals are subject to a 6% capital gains tax based on the gross selling price or fair market value, whichever is higher.
Shares of Stock – For shares of stock not listed and traded on the Philippine Stock Exchange, a 15% capital gains tax applies based on the net capital gain.

For listed stocks, a stock transaction tax of 0.6% applies to the sale, barter, or exchange of shares listed on the stock exchange.

B. Ordinary Gains

Ordinary gains derived from dealings in ordinary assets are taxed as part of the taxpayer’s regular income. These gains are included in the gross income and are subject to the ordinary income tax rates applicable to individuals or corporations, as amended by the TRAIN Law.

Individual Income Tax Rates – Progressive rates apply, with exemptions for lower income brackets and an incremental increase for higher-income levels.
Corporate Income Tax Rates – Corporations are subject to a flat rate, which under recent reforms has been reduced to encourage compliance and ease the tax burden.

III. TRAIN Law Amendments Relevant to Income from Dealings in Property

The TRAIN Law introduced notable changes to the NIRC, especially affecting income tax rates and certain exemptions.

Expanded Exemption Thresholds – The TRAIN Law raised the exemption thresholds for taxable income, resulting in more favorable tax treatment for lower and middle-income individuals.
Lowered Capital Gains Tax on Shares – For sales of unlisted shares, the capital gains tax was standardized at 15%, reducing the previous disparity and promoting equity in tax treatment.

These changes aim to simplify tax compliance, make the tax system more progressive, and foster investment.

IV. Ease of Paying Taxes Act (R.A. No. 11976) Impact on Dealings in Property

The Ease of Paying Taxes Act, enacted as R.A. No. 11976, introduced reforms to streamline tax filing and compliance. Noteworthy provisions include:

Simplified Tax Compliance – Improved taxpayer services and digital solutions, particularly for property-related transactions.
Enhanced Support for Small Taxpayers – Special provisions for micro, small, and medium enterprises (MSMEs), which impact those engaged in property transactions by reducing the documentation and compliance burden.
Efficient Tax Administration – Broader mandates for the Bureau of Internal Revenue (BIR) to reduce processing times, including for property transfers.

These reforms align with the broader goal of modernizing the tax system and fostering ease of compliance.

V. Special Considerations and Exemptions

A. Installment Sales

When property is sold on an installment basis, the gain is recognized proportionally with each installment payment received. This approach allows taxpayers to report income in line with cash flow and mitigates the tax burden in high-value transactions.

B. Tax-Free Exchanges

Certain exchanges, such as like-kind exchanges and corporate reorganizations, may qualify for non-recognition of gain or loss, provided specific conditions are met, such as continuity of investment and statutory compliance.

VI. Administrative Provisions

The BIR mandates strict documentation requirements for property-related transactions, including:

Certificate Authorizing Registration (CAR) – Required for the transfer of real property and shares.
Capital Gains Tax Return – Mandatory filing within 30 days following the sale of capital assets.
Documentary Stamp Tax (DST) – Imposed on certain property transactions, such as the sale of shares and real property.

Failure to comply with filing deadlines and documentation requirements may result in penalties, interest, or additional assessments.

Summary

Income from dealings in property under the NIRC, as amended by the TRAIN Law and the Ease of Paying Taxes Act, is intricately regulated, with distinctions between capital and ordinary assets, varying tax rates on gains, and essential compliance procedures. Capital gains tax applies to real property and unlisted shares, while ordinary gains are subject to standard income tax rates. Reforms introduced under recent amendments enhance ease of compliance, encourage investment, and support taxpayers with streamlined processes.